- 3Q14 in line, with 9M14 profit forming 74% of our FY14E forecast.
- Weaker 4Q expected from margin pressure from popular new handset models. Trim EPS by 1-2%.
- Maintain HOLD on lack of catalysts, but supported by 4.8% yields. DCF TP down to SGD4.40 from SGD4.44.
3Q14 profit rose 2.6% YoY to SGD97.7m but 9M14 profit fell 3.8% YoY to SGD276.2m. This forms 74% of our FY14E forecast. Results were also in line with consensus. A sequentially stronger 3Q was unable to make up for a generally soft 1H. Service revenue in 3Q14 and 9M14 fell 0.6% and 1% YoY respectively, mainly due to broadband weakness and a flat mobile business. A normal quarterly dividend of 5 cts/share was declared.
Service revenue flat
Service revenue was flat as a 1% increase in mobile revenue in 3Q14 was erased by a double-digit drop in broadband revenue. This lagged M1’s 3% mobile growth. Bright spots were pay TV with positive net adds and stable ARPUs and fixed network services from a stronger enterprise business. Revenue from these two segments grew 2-3% YoY.
Weaker quarter ahead
Despite higher-than-guided EBITDA margins of 34.5% and 33.7% in 3Q14 and 9M14, StarHub maintains its full-year guidance of 32% vs our 33.4%. Margins are expected to be pressurised by the release of popular handsets such as iPhone 6 and Samsung Note 4. We lower FY14E-16E profits by 1-2% for this.
No catalysts seen
Accordingly, our DCF-based TP dips to SGD4.40 (WACC 7.7%, LTG 1%) from SGD4.44. Maintain HOLD on a lack of catalysts, but supported by yields of 4.8%. Capital management is always a possibility given its low net debt/EBITDA of 0.53x, though the company says “that is not on the horizon for now”.
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