STARHUB LTD (SGX:CC3)
StarHub - 2Q21 Within Expectations; Network Differentiation To Defend Market Share
- StarHub delivered strong 2Q21 core net profit of S$37m (+63% y-o-y; 25% q-o-q). This was driven by higher enterprise and broadband revenue. 1H21 earnings came in within expectations.
- StarHub declared a S$0.025 per share dividend and aims to maintain at least S$0.05 for 2021.
- Management continues to focus on network (5G) and service quality to defend market share. Maintain HOLD. Target price: S$1.30. Entry price: S$1.15.
StarHub's 1H21 results within expectations.
- StarHub (SGX:CC3) reported 2Q21 core net profit of S$37.4m (+63% y-o-y, +25% q-o-q) – a strong set of results driven by stable postpaid revenue base, higher contribution from the fixed enterprise (+26% y-o-y, +16% q-o-q) as well as higher residential broadband revenue (+12% y-o-y, +3% q-o-q).
- 1H21 core net profit of S$67.3m (+6% y-o-y) came in within our expectations, accounting for 48% of our full-year forecast.
- StarHub also declared its first interim dividend of S$0.025, in line with our full-year expectation of S$0.05 per share. This translates to a dividend yield of 4-5% for 2021-22.
STOCK IMPACT
- Mobile: 2Q21 revenue was stable sequentially at S$130m (-9% y-o-y). StarHub's 2Q21 postpaid ARPU was firm at S$28/month but 7% lower vs 2Q20 on the back of lower roaming, VAS and excess data usage. Prepaid ARPU was stable y-o-y and q-o-q at $10/month.
- All in all, blended ARPUs were stable y-o-y and q-o-q at about S$22, reflected in the benign competitive landscape in Singapore.
- Positively, StarHub added 25,000 postpaid subscribers this quarter due to an increase in SIM-Only plans take-ups. Prepaid subscribers fell by 26,000 amid decrease in tourist numbers and foreigners on work passes resulting from COVID-19 travel restrictions.
- Enterprise: 2Q21 revenue jumped 26% y-o-y and 16% q-o-q on the back of higher contribution from the cyber security segment. Additionally, the higher y-o-y revenue was due to the inclusion of Strateq (acquired in Jul 20) with revenue contribution of S$18.0m in the quarter.
- Management is confident that this segment would contribute positively to the bottom-line in the near term as volume will be scaled up given the accelerated cloud investments and security demand by the entities.
- Pay-TV: Improving ARPU. StarHub's pay-TV revenue fell 3% y-o-y amid the lower subscriber base and lower commercial and advertising contribution. Positively, ARPU improved y-o-y and q-o-q at S$42/month due to the increased price of HomeHub bundled plans.
- Broadband: Resilient underlying demand. StarHub's broadband revenue continued to rise 12% y-o-y and 3% q-o-q thanks to robust demand for high-quality broadband as well as reduced discounts extended to customers. ARPU inched up to S$32/month (2Q20: S$28, 1Q21: S$31).
- 1H21 service-to-EBITDA margin (excluding JSS) grew 0.4ppt y-o-y reflecting:
- ongoing cost optimisation initiatives – leading to a better business margin for Pay-TV and broadband;
- lower content cost; and
- lower marketing and promotion expenses.
- Key priorities for 2021 include:
- enriching customer experience through differentiated network and service quality;
- empowering enterprises – converged connectivity & ICT;
- effective 5G rollout;
- evolving the operating model; and
- pursuing synergetic M&As.
EARNINGS REVISION/RISK
- No changes to earnings forecast for StarHub.
- Management guided that capex intensity will reduce from 9-11% to 7-9% of revenue. This came as the ongoing transition of IT related capex to cloud based opex model alongside other capex deferment.
VALUATION & RECOMMENDATION
- Maintain HOLD with an unchanged DCF-based target price of S$1.30 (COE: 8.6%; terminal growth: 0%). At our fair value, StarHub will trade at 6x 2021F EV/EBITDA, 1 standard deviation below its five-year mean EV/EBITDA of 8.5x.
- StarHub offers a sustainable dividend yield of 4.8% for 2022. Entry price is S$1.15.
- See
SHARE PRICE CATALYST
- A key re-rating for the stock includes the return of tourists to Singapore.
- Market consolidation – exit of MNVOs.
- Potential network carved out/shift to an asset-light business model (sale and leaseback of network). Management is of the opinion that the cost of capital from the capital market is much more attractive vs the leasing model at this juncture.
Chong Lee Len
UOB Kay Hian Research
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Chloe Tan Jie Ying
UOB Kay Hian
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https://research.uobkayhian.com/
2021-08-06
SGX Stock
Analyst Report
1.300
SAME
1.300
