StarHub - CGS-CIMB Research 2021-08-06: 1H21 Cost Savings Surprised On The Upside


StarHub - 1H21 Cost Savings Surprised On The Upside

  • StarHub's 1H21 core EPS (stable y-o-y) outperformed due to low opex and depreciation.
  • 2Q21 mobile revenue inched up as postpaid ARPU stabilised and subs grew, despite stiff competition. Fixed Enterprise revenue recovered q-o-q in 2Q21.
  • Reiterate ADD on StarHub with a 3% higher DCF-based target price of S$1.65.

StarHub's 1H21 earnings beat our expectation on low opex and depreciation

  • StarHub (SGX:CC3)'s 1H21 EBITDA (ex-Job Support Scheme payout) eased 2.6% y-o-y (-2.1% h-o-h) on lower mobile revenue. Core EPS was stable y-o-y (+5.9% h-o-h), aided by lower depreciation. 1H21 EBITDA/core EPS were a beat at 56%/91% of our FY21F forecasts (Bloomberg consensus: 50%/49%), owing to lower-than-expected costs and depreciation.
  • StarHub's 1H21 dividend was at S$0.025 (1H20: S$0.025), as expected.

Mobile revenue finds footing q-o-q; Enterprise rebounds in 2Q

  • 1H21 mobile revenue was in line, down 15.3% y-o-y (-4.7% h-o-h), due to lower roaming (COVID-19), IDD, excess data usage and prepaid SIM sales. Q-o-q, it inched up 0.5% in 2Q as postpaid ARPU stabilised and subs grew 1.8% (driven by SIM-only plans).
  • 1H21 Pay TV revenue fell 3.4% y-o-y on lower subs, while fixed broadband revenue rose 12.5% y-o-y on higher ARPU (reduced discounts, absence of one-time rebate for service disruption in Apr 20).
  • After a lacklustre 1Q21, 1H21 Fixed Enterprise revenue growth picked up to 12.9% y-o-y (managed services: +13.2%, cybersecurity: +13.4%, Strateq’s consolidation).

Stable service EBITDA margin y-o-y; cost savings to exceed target

  • 1H21 service EBITDA margin was stable y-o-y (+1.2% points h-o-h) at 29.9% as StarHub delivered content and staff cost savings.
  • EBITDA for cybersecurity improved to S$13m in 1H21 (1H20: S$2m).
  • On its 3-year cost savings programme (ending in Oct 21), StarHub expects to achieve S$273m in total savings, i.e. 30% above its initial target of > S$210m. StarHub will provide more guidance on its next 5-year transformation programme in Nov 21.
  • Meanwhile, StarHub's FY21 capex guidance has been cut to 7-9% of sales (previous: 9- 11%), mainly due to the transition of IT-related capex to a cloud-based opex model.

FY21F core EPS to dip 23% y-o-y before recovering in FY22F/23F

  • We raise StarHub's FY21-23F core earnings per share (EPS) foreast by 17-35%, after baking in lower opex, depreciation and capex. We now see FY21F core EPS sliding 23.0% y-o-y due to COVID-19, mobile competition and cost normalisation before rising 1.1%/16.4% in FY22F/23F as COVID-19 subsides, aided by cybersecurity growth.
  • We still expect S$0.05 dividend per year in FY21-22F (as per guidance) but raise FY23F dividend forecast to S$0.056 (80% payout).

Reiterate ADD on StarHub; DCF-based target price up slightly to S$1.65 (WACC: 6.7%)

FOONG Choong Chen CGS-CIMB Research | Sherman LAM Hsien Jin CGS-CIMB Research | https://www.cgs-cimb.com 2021-08-06
SGX Stock Analyst Report ADD MAINTAIN ADD 1.65 UP 1.600