StarHub - OCBC Investment 2021-02-24: Moving Past The Darkest Days

STARHUB LTD (SGX:CC3)

StarHub - Moving Past The Darkest Days

StarHub (SGX:CC3)’s 4Q20 revenue fell 5% y-o-y to S$579.5m, due largely to lower contributions from Mobile, Pay TV and Sales of Equipment, though partially offset by higher revenues from Broadband and Enterprise Business.
- Mobile service revenue fell by 27% y-o-y, due to lower postpaid and prepaid revenues on the back of travel restrictions.
- Pay TV service revenue fell 17% y-o-y due mainly to a lower subscriber base, the cable-to-fibre migration last year as well as the impact from COVID-19 on commercial TV revenue and subdued levels of advertising spend from Enterprise customers.
StarHub’s 4Q20 EBITDA fell 7% y-o-y to S$129.3m, which came in 12% above consensus, which includes the Job Support Scheme (JSS) payouts of S$ 11.3m. 4Q20 PATMI was S$ 36.1m, or 37% above consensus.
StarHub's dividend for FY20 came in at S$0.05 per share, which was below our expectations of S$0.06.

We are encouraged that we are seeing signs of sequential improvement. While service revenue was down 6% y-o-y, it was up 8% q-o-q with cybersecurity increasing 59% q-o-q. We note that on a q-o-q basis, mobile postpaid, mobile prepaid, pay TV and broadband ARPUs came in broadly stable.
We understand that there appears to be more activity in the enterprise space as businesses prepare for a post-Covid world. We also note that management intends to explore M&A opportunities moving forward to strengthen its enterprise capabilities.

In terms of FY21 guidance, StarHub's management shared that they expect service revenue to remain stable, with capex commitment (excluding 5G capex and spectrum right) to be 9-11% of total revenue.
In terms of dividend, StarHub is looking at the higher of S$0.05 per share, or its dividend policy (which is at least 80% of adjusted net profit attributable to shareholders). We note that management is taking a declining outlook on mobile, assuming COVID-19 impact on travel remains in 2021.
See StarHub Share Price; StarHub Target Price; StarHub Analyst Reports; StarHub Dividend History; StarHub Announcements; StarHub Latest News.
As we roll forward our estimates and following adjustments, our fair value estimate for StarHub rises from S$1.13 to S$1.32.
Separately, StarHub has noted accelerating demand for its 5G plans driven by the launches of premium 5G handsets, and we believe that ARPU-improvement is not implausible, with company noting that 5G plans are contributing to stabilising mobile ARPUs sequentially in 4Q20.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-02-24

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