+ PayTV stable QoQ basis. PayTV revenue was unchanged on a QoQ basis at S$46.9mn. The contraction in subscribers is now at 2k to 3k per quarter compared to the average 20k per quarter in FY19. StarHub even managed to eke out a modest $1 QoQ rise in ARPU to S$39.
– Mobile revenue was weak on lower ARPU and subscribers. 2Q20 mobile revenue fell 25% YoY to $143mn. Revenue was hurt by 25% YoY decline in postpaid ARPU to a record low S$30. The restriction on international travel led to a fall in roaming revenue. Prepaid subscriber declined by 18% YoY to 634k, a result the drop in tourist arrivals.
– Interim dividend cut to 2.5 cents. StarHub announced an interim dividend of 2.5 cents. This is a 45% decline from 1H19 4.5 cents. Recall that in FY19, StarHub was paying quarterly dividends of 2.25 cents.
– Cybersecurity and enterprise similarly weak. Cybersecurity operating losses widened to S$7m in 2Q20 (2Q19: S$1mn). 2Q20 is seasonally weaker as most government contracts are completed in March. Furthermore, the company is still investing in the business especially on regional capabilities. The enterprise business is faced with a decline in projects and delayed spending, especially in managed accounts. We were surprised by the 25% YoY fall in managed services revenue as it was supposed to be the annuity segment on the enterprise business.
The outlook will be grim for at least the next two years. The loss in roaming and tourism-related revenue cannot be replaced until our international borders are reopened. We are lowering our FY20e EBITDA forecast by only 3% after incorporating around S$30mn of government grants. Figure 1 is management guidance compared to our forecast.
StarHub provided an update of its 5G rollout:
Unclear at the present, how much 5G can uplift ARPU for StarHub. Faster and larger capacity connectivity will not be enticing enough. Any uplift will depend on rollout of new services that can be bundled for the consumer and enterprises, for instance, gaming apps bundled into 5G offerings.
Maintain NEUTRAL with lower TP of S$1.24 (previously S$1.45)
Our valuation is based on a 6X EV/EBITDA FY20e. We have excluded other income in our EBITDA valuation as we deem it to be one-off grants and compensation for the current environment.