Category: StarHub
TELCOs – OCBC
Expects steady growth in 2015
- Stable FY15 outlook
- Rising interest rate threat
- Yields should remain fairly attractive
Stable outlook for 2015
For FY15, the three local telcos have guided for a relatively stable outlook. M1 is probably the most optimistic among them, as it is expecting moderate earnings growth (in single digit) and slightly lower capex of S$120m this year. On the other hand, StarHub eyes low single-digit revenue growth, but it has kept its EBITDA margin guidance at 32%; as this is lower than the 33.7% achieved in FY14, it could translate to a flat earnings growth. Singtel has kept its stable group revenue and EBITDA outlook unchanged.
Mobile market remains stable
On the main mobile market, we note that while there has been a pickup in net adds in subscribers as well as ARPUs in the post-paid space, mobile penetration continues to edge lower, suggesting that further growth in mobile revenue will have to be driven by increased data usage. The telcos are hopeful that the higher 4G speeds will trigger more data usage; but anecdotal evidence suggests that subscribers remain mindful of their data caps.
Some signs that broadband market is more rational
While telcos continue to expect the broadband market to remain competitive, we believe that there are signs that the competition is getting more rational; this as the ISPs are no longer using price to grab market share. Instead, more are starting to offer speed upgrades to entice customers to sign up with them. As the incremental cost of these speed upgrades are quite minimal, margins should also start to improve.
Interest rate threat looming
With telecom stocks being pitched as defensive stocks and “prized” for their stable and attractive dividend yields, the threat of higher interest rate is likely to be a concern. However, we believe that as long as local interest rates do not rise sharply, we do not expect the telcos to lose their appeal. Maintain NEUTRAL on the sector, with a preference for Singtel (HOLD, S$4.16).
Starhub – DBSV
Broadband, prepaid mobile decline
- 3Q14 net profit of S$ 97.7m (+2.5% y-o-y, +4% q-oq) was 3% below our expectations
- Service revenue growth weak on lower broadband, prepaid revenue
- 5Scts interim dividend declared, in line with expectations.
- Maintain HOLD with unchanged TP of S$4.30
Highlights
Revenue impacted by broadband, prepaid mobile
- Competition contributed to the continued decline in broadband revenues which fell 4.0% q-o-q. Prepaid revenues were impacted by SIM ownership restrictions. However, overall revenues were boosted (+2% y-o-y, +3 qo-q) by higher handset sales.
Profitability improved by grant income
- Despite being impacted by lower revenue levels, higher adoption grant income led to a q-o-q improvement in the bottom-line. However, profit margins are likely to decrease in 4Q14 with higher handset sales expected.
Outlook
Price competition in fixed broadband
- Competition in fixed broadband is eroding Average Revenue Per User (ARPU) for StarHub, resulting in lower earnings. The decline in ARPU is unlikely to reverse in the near term with StarHub likely to pursue its current strategy to preserve market share.
Postpaid to support mobile revenue
- Postpaid growth is likely to support the mobile segment despite weaker prepaid revenue. With higher portion of consumers moving to tiered data plans, postpaid ARPU is likely to see further improvement.
Valuation
Given healthy cash generation, we use discounted cash flow valuation (WACC 6.5%, terminal growth 0%) to derive a target price of S$4.30. Besides mid single digit growth, the stock offers FY14F yield of 4.8%.
Risks
Decline in mobile roaming
- A potential decline in mobile roaming could offset the gains from mobile data-repricing and broadband margins may decline sharper than expected.
Starhub – DBSV
Broadband, prepaid mobile decline
- 3Q14 net profit of S$ 97.7m (+2.5% y-o-y, +4% q-oq) was 3% below our expectations
- Service revenue growth weak on lower broadband, prepaid revenue
- 5Scts interim dividend declared, in line with expectations.
- Maintain HOLD with unchanged TP of S$4.30
Highlights
Revenue impacted by broadband, prepaid mobile
- Competition contributed to the continued decline in broadband revenues which fell 4.0% q-o-q. Prepaid revenues were impacted by SIM ownership restrictions. However, overall revenues were boosted (+2% y-o-y, +3 qo-q) by higher handset sales.
Profitability improved by grant income
- Despite being impacted by lower revenue levels, higher adoption grant income led to a q-o-q improvement in the bottom-line. However, profit margins are likely to decrease in 4Q14 with higher handset sales expected.
Outlook
Price competition in fixed broadband
- Competition in fixed broadband is eroding Average Revenue Per User (ARPU) for StarHub, resulting in lower earnings. The decline in ARPU is unlikely to reverse in the near term with StarHub likely to pursue its current strategy to preserve market share.
Postpaid to support mobile revenue
- Postpaid growth is likely to support the mobile segment despite weaker prepaid revenue. With higher portion of consumers moving to tiered data plans, postpaid ARPU is likely to see further improvement.
Valuation
Given healthy cash generation, we use discounted cash flow valuation (WACC 6.5%, terminal growth 0%) to derive a target price of S$4.30. Besides mid single digit growth, the stock offers FY14F yield of 4.8%.
Risks
Decline in mobile roaming
- A potential decline in mobile roaming could offset the gains from mobile data-repricing and broadband margins may decline sharper than expected.
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.
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.