StarHub Limited – Recovery underway November 6, 2019 824

PSR Recommendation: ACCUMULATE Status: Maintained
Last Close Price: S$1.17 Target Price: S$1.580
  • Revenue and NPAT met expectations. Excluding S$9mn one-off tunnel income from TPG, NPAT would have missed our estimates by 3%.
  • Mobile segment relatively resilient considering competition and substantial churn from single enterprise customer.
  • Enterprise revenue grew 16% YoY boosted by cyber-security which spiked 135% YoY.
  • Expect pay-tv business to stabilise in FY20e because of steadier subscriber base.
  • Maintained ACCUMULATE with an unchanged TP S$1.58. No changes to our estimates.

 

Positives

+ Expect pay-tv business to stabilise in FY20e. Pay-tv revenue is down 25% YoY, ARPU has gone through an 18% decline to cope with the attrition of subscribers to Over-The-Top (OTT) players. We think StarHub has hit the bottom of subscriber attrition accelerated by the cable to fibre migration exercise. We expect stability as newly converted subscribers are locked into a 2-year contract. We also expect ARPU to improve with time as promotional initiatives expire. Management highlighted that majority of its content cost have been renegotiated to a variable cost model, and will not hesitate to substitute content which insists to be on a fixed cost model.  As of 3Q19, pay-tv contributes ~10% of total revenue.

+ Mobile revenue resilient considering the competition. The mobile segment did relatively well considering the highly competitive environment and the huge churn it received this quarter. Post-paid subscriber declined by 35,000 QoQ due to single enterprise customer exiting the market. Mobile service revenue declined 11% YoY/ 1% QoQ vs our estimate (-14% YoY/ -4% QoQ). We view that an earlier commercial launch of TPG Telecom (TPG) will be better for the market as it removes uncertainty.

 

Outlook

Management revised FY19e service revenue guidance downwards from 0% to -2% YoY to -2% to -3% YoY and reduced CAPEX commitment guidance from 11% to 12% of total revenue to 8% to 9% of total revenue. We expect single-digit CAPEX for 4G (maintenance) and double-digit CAPEX for the upcoming 5G roll-out. 3Q19 results were boosted by an exceptional S$9mn on tunnel fee from TPG. These fees are recognised when TPG enters into an agreement with the other Mobile Network Operators (MNOs) to share the cost of existing 4G tunnel infrastructure. 60% of the cost programme initiatives have been executed, current net savings stands at S$174mn, and the remaining S$36mn has been reinvested into the business. We expect the cyber-security business to and sale of equipment to offset weakness in the consumer segment for the next quarter.

 

Maintained ACCUMULATE with an unchanged TP of S$1.58

Our valuation is based on a 6X EV/EBITDA. We are awaiting sustainable profits of the cyber-security business before we make any meaningful upgrade.

Important Information

This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.

By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.

The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.

Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.

This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.

Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.

Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.

Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.

To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.

The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.

This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.

This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.

IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE

Where the report contains research analyses or reports from a foreign research house, please note:

  1. recipients of the analyses or reports are to contact Phillip Securities Research (and not the relevant foreign research house) in Singapore at 250 North Bridge Road, #06-00 Raffles City Tower, Singapore 179101, telephone number +65 6533 6001, in respect of any matters arising from, or in connection with, the analyses or reports; and
  2. to the extent that the analyses or reports are delivered to and intended to be received by any person in Singapore who is not an accredited investor, expert investor or institutional investor, Phillip Securities Research accepts legal responsibility for the contents of the analyses or reports.
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

About the author

Profile photo of Alvin Chia

Alvin Chia
Research Analyst
Phillip Securities Research Pte Ltd

Alvin covers telecommunication and technology sector.

He graduated with a bachelor of commerce, majoring in Accounting and Finance from Monash University.

Get access to all the latest market news, reports, technical analysis
by signing up for a free account today!