Tuesday 11 August 2015

Starhub

OCBC on 6 Aug 2015

1H15 revenue was up 5.2% to S$1207.4m, meeting 50.3% of our full-year forecast, but net profit slipped 3.2% to S$172.8m, meeting about 46.8% of FY15 estimate. Going forward, StarHub has kept its low single-digit range growth for its service revenue in FY15, driven by fixed and mobile services (particularly in the enterprise segment). It has kept its service EBITDA margin unchanged at 32%. It has also kept its capex guidance at 13% of total revenue; no change to its S$0.05/quarter dividend as well. Although we are adjusting our DCF-based fair value lower from S$4.17 to S$3.96, we believe that the defensive telco sector would still offer a reasonable safe haven amidst growing global economic uncertainty; hence we upgrade our call from Hold to BUY.

1H15 earnings slightly below expectations
StarHub Ltd reported its 2Q15 results last night, with revenue rising 2.3% to S$589.5m, while EBITDA climbed 3.8% to S$194.5m, as service EBITDA margin improved to 35.1% from 34.0% a year ago quarter. Net profit rose 5.1% to S$99.1m. As expected, StarHub declared a quarterly dividend of S$0.05/share, payable on 27 Aug. 1H15 revenue was up 5.2% to S$1207.4m, meeting 50.3% of our full-year forecast, but net profit slipped 3.2% to S$172.8m, meeting about 46.8% of FY15 estimate. 

Variance between prospect statement
For 1H15, management noted that its service revenue slipped by 0.1%, and was lower versus its guidance for full-year service revenue to grow in the low single-digit range. But on the positive side, it highlighted that EBITDA of 32.6% of service revenue was higher than its guidance of 32% for the year. Capex payment totaled about 12.3% of total revenue in 1H15, below its 13% of total revenue guidance for FY15 capex.

Keeps FY15 guidance unchanged
Nevertheless, StarHub has kept its low single-digit range growth for its service revenue in FY15, driven by fixed and mobile services (particularly in the enterprise segment). Although it expects price competition to continue in the broadband space, it believes the intensity is likely to moderate. Hence it has kept its service EBITDA margin unchanged at 32%. It has also kept its capex guidance at 13% of total revenue; no change to its S$0.05/quarter dividend as well. 

Upgrade to BUY with lower S$3.96 fair value
StarHub saw a plunge of nearly 13% after its disappointing 1Q15 results in mid May; also likely weighed by the threat of a fourth telco operator and rising interest concerns. We believe that the threat of a new telco is likely overdone. While rising interest rate concerns are real, and we have adjusted our DCF-baased fair value lower from S$4.17 to S$3.96 to reflect that, we believe that the defensive telco sector would still offer a reasonable safe haven amidst growing global economic uncertainty; hence we upgrade our call from Hold to BUY.

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