Monday 13 May 2013

StarHub

OCBC on 10 May 2013

StarHub Ltd posted 1Q13 revenue of S$580.1m, down 2% YoY and 11% QoQ, but still met 23% of our full-year forecast. Net profit grew 3% YoY and 4% QoQ to S$91.2m, meeting 25% of our FY13 forecast. And as guided, StarHub declared a quarterly dividend of S$0.05/share, payable on 30 May 2013. For 2013, StarHub now expects to see low single-digit revenue growth, versus single-digit growth guidance previously. Management says it is being more cautious in view of the 2% drop in revenue in 1Q13. Otherwise, it has kept everything else unchanged. Stock price has outperformed not only its peers but also the STI. While part of the run-up could be driven by investors searching for yield, current valuation looks pricey; yield has also fallen to 4.2%. A more “risk on” approach could also see investors switching out of defensive stocks. As such, we downgrade our call from Hold to SELL, with an unchanged DCF-based fair value of S$4.00.

1Q13 results are in line
StarHub Ltd posted 1Q13 revenue of S$580.1m, down 2% YoY and 11% QoQ, but still met 23% of our full-year forecast. The fall in revenue was mainly due to lower sale of equipment (lower ASP and quantity sold). But as equipment sale typically comes with lower margins, this led to EBITDA growing 3% YoY and 4% QoQ to S$182.1m, which also resulted in similar growth for net profit to S$91.2m, or 25% of our FY13 forecast. And as guided, StarHub declared a quarterly dividend of S$0.05/share, payable on 30 May 2013.

Revising 2013 revenue growth to low single-digit
For 2013, StarHub now expects to see low single-digit revenue growth, versus single-digit growth guidance previously. Management says it is being more cautious in view of the 2% drop in revenue in 1Q13. Otherwise, it has kept everything else unchanged. EBITDA margin on service revenue likely to be about 31% (versus 33% in 1Q13); capex remains at 13% of operating revenue; also intends to maintain its annual cash dividend of S$0.20/share, or $0.05 per quarter. 

CFO stepping down
Separately, StarHub’s CFO Kwek Buck Chye is stepping down by end Sep and he will be replaced by Nicholas Tan from ST Telemedia. While this follows the earlier retirement of Neil Montefiore as CEO at the end of Feb, we do not expect the change to have any impact on the company’s strategy and performance. 

Pricey now – downgrade to SELL
Stock price has outperformed not only its peers but also the STI. While part of the run-up could be driven by investors searching for yield, current valuation looks pricey; yield has also fallen to 4.2%. A more “risk on” approach could also see investors switching out of defensive stocks. As such, we downgrade our call from Hold to SELL, with an unchanged DCF-based fair value of S$4.00.

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