Starhub – OCBC

Keeps FY14 guidance as expected

  • No change to FY14 estimates
  • Still intense broadband competition
  • Expects EBITDA margin pressure


3Q14 earnings slightly ahead of forecast

StarHub Ltd reported its 3Q14 results last evening, which saw the telco posting a net profit of S$97.7m, up 2.6% YoY and 3.6% QoQ, which was also about 10% ahead of our forecast; this as EBITDA service margin remained relatively firm at 34.5% (versus 33.6% in 3Q13 and 34.0% in 2Q14). We note that this was mainly due to the 56.8% YoY jump (+228% QoQ) in other income to S$17.4m. Otherwise, revenue was just 2.3% higher YoY (+2.7% QoQ) at S$592.0m, or about 2% above our forecast. 9M14 revenue though slipped 0.3% to S$1739.9m, meeting about 74% of our full-year forecast, while net profit slipped 3.8% to S$276.2m, or about 76% of our FY14 estimate. Quarterly dividend was S$0.05/share as guided.

Intense broadband competition

As expected, StarHub experienced intense competition in its Broadband business, which saw revenue tumbling another 17.4% YoY and 3.5% QoQ (was down 17.3% YoY and 5.4% QoQ in 2Q14). Monthly ARPU also slipped to just S$35, despite adding another 6k subscribers in the quarter, as more existing customers renew their contracts with

lower price plans. Meanwhile, StarHub also saw a large 120k fall in pre-paid subscribers, although it did add 11k post-paid customers, keeping the post-paid churn at 0.9%. Pay TV business was fairly stable, with 4k new subscribers added, although ARPU was flat at S$51/month.

No change to FY14 guidance

StarHub has kept its FY14 guidance unchanged, with revenue likely coming in comparable to FY13 levels; EBITDA service margin at 32%; total capex spend at 13% of total revenue; also to pay out S$0.20/share dividend, or S$0.05 per quarter. By segment, StarHub expects revenue growth to come from its mobile and fixed network, but this will be mitigated by the still-competitive broadband business. The strong demand for the new iPhone 6/6+ will also put pressure on EBITDA margin in 4Q14.

Maintain HOLD with S$3.81 fair value

Given the affirmation in guidance, we see no reason to change our FY14 estimates. As such, our DCF-based fair value will also stay at S$3.81 for now. We also maintain our HOLD call.

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