Starhub – Maybank Kim Eng

Mobile star dimming

  • 2Q14 results below, revenue guidance cut. Downgrade our least preferred telco to HOLD from BUY. TP cut to SGD4.44 (DCF, WACC 7.8%).
  • Sharp slowdown in mobile revenue growth as fall in voice/SMS offset data growth.
  • Broadband’s revenue free fall unlikely to end soon.


Below expectations

2Q14 profit fell 6% YoY as service revenue slipped 2% on lower prepaid mobile and broadband revenue, and lower NBN adoption grants. Of greater concern was the sharp slowdown in its postpaid mobile revenue growth to 0.8% YoY (vs M1’s +5.4%). We cut FY14E EPS by 4% to assume no YoY growth, as StarHub slashed guidance from low-single-digit growth to flat revenue. It maintained its EBITDA margin guidance of 32% (1H14: 33%) as it expects the new iPhone to depress 2H14 margins. Downgrade to HOLD with reduced DCF-derived TP of SGD4.44 (WACC 7.8%, LTG 1%).

Almost no growth in mobile revenue

While StarHub’s bundle-sharing SharePlus plans also diluted its postpaid ARPU to SGD68 (2Q13: SGD72), the main reason for its depressed mobile revenue appears to be sharply declining voice revenue (-12% YoY). This offset strong data monetisation (tiered subs +25 ppt YoY to 57%. In contrast, M1’s voice decline was less steep (-5% YoY) while its data monetisation rate was stronger (+32 ppt to 58%). OTT apps are hurting the whole industry but StarHub seems to be struggling more to stem the decline in its traditional revenue streams.

Broadband pain to be prolonged

2Q14 broadband revenue also fell sharply by 17% YoY as ARPU declined further to SGD37 (2Q13: SGD45). This is unlikely to end soon as StarHub intends to build up its subscriber base further as part of its home-hubbing strategy.

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