StarHub - CGS-CIMB Research 2021-05-05: 1Q21 In Line; Mobile Revenue Could Stay Soft


StarHub - 1Q21 In Line; Mobile Revenue Could Stay Soft

  • StarHub's 1Q21 core EPS (-35.1% y-o-y) is largely in line with our/consensus estimates.
  • 1Q21 mobile revenue remained soft with lack of roaming traffic & continued intense competition. Cybersecurity revenue fell sharply due to project timing.
  • Reiterate ADD with an unchanged DCF-based target price of S$1.60.

StarHub's 1Q21 earnings largely in line with our and consensus forecasts

  • StarHub (SGX:CC3)'s 1Q21 EBITDA (ex-job support scheme payout) fell 14.4% y-o-y (+2.6% q-o-q) due to lower service revenue and margins, leading to core earnings per share plunging 35.1% y-o-y (+8.5% q-o-q).
  • While 1Q21 EBITDA was in line, core earnings per share seems to be tracking ahead of our FY21F forecast at 38% (Bloomberg consensus: 22%). We deem this as largely in line as depreciation and 5G wholesale cost may rise in the coming quarters (from 5G standalone network rollout) while mobile competitive pressure could persist.

Mobile revenue to remain soft; signs of recovery in Enterprise

  • 1Q21 mobile service revenue was in line, sliding 20.7% y-o-y owing to lower roaming (hit by COVID-19), IDD, excess data usage and prepaid SIM sales. q-o-q, postpaid average revenue per user (ARPU) fell 6.7% due to a one-off upward adjustment for IFRS 15 in 4Q20 (excluding this: flat q-o-q). StarHub said competition escalated q-o-q in 1Q21, led by mobile virtual network operators. Nonetheless, it will continue to differentiate its offerings via content partnerships (e.g. exclusive multi-year agreements with Disney+ and Nvidia) and avoid competing on pricing.
  • Pay TV and broadband revenues were also in line, with the former easing 4.1% y-o-y (-4.7% q-o-q) on lower subs and the latter growing 12.7% y-o-y (+2.8% q-o-q) on 14.8% ARPU accretion (reduced discounts and higher take-up of 2 Gbps plan).
  • Fixed Enterprise revenue growth moderated to 0.9% y-o-y (-18.0% q-o-q) as managed services’ 23.0% y-o-y growth and Strateq’s contribution were offset by weaker cybersecurity (-31.9%). While the latter was affected by project timing, StarHub said it is above budget and anticipates a strong performance for the full year. It also saw early signs of Enterprise projects (deferred in FY20) re-committed for FY21 onwards.

Service EBITDA margin down mainly on lower service revenue

  • 1Q21 service EBITDA margin contracted 2.1% points y-o-y (+4.5% points q-o-q) to 30.3% due to lower service revenue, dilution from cybersecurity (1Q21 LBIT: S$3.6m vs 1Q20 EBIT: S$5.0m) and Strateq (LBIT: S$0.5m).
  • StarHub said it booked in outsourcing cost for its IT transformation programme in 1Q21 and expects that this will taper off and lead to savings in IT cost from the second year onwards.

Reiterate ADD; DCF-based target price retained at S$1.60 (WACC: 6.7%)

FOONG Choong Chen CGS-CIMB Research | Sherman LAM Hsien Jin CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-05
SGX Stock Analyst Report ADD MAINTAIN ADD 1.600 SAME 1.600