SINGAPORE (Nov 3): StarHub reported 3Q17 earnings fell 11.5% to $76.2 million from $86.0 million last year.
The group’s revenue was also down marginally by 0.8% to $580.4 million compared to $585.3 million the previous year, mainly attributed to lower service revenues from Mobile, Pay TV and Broadband services, as well as lower sales of equipment, partially mitigated by higher revenue from Enterprise Fixed Services.
StarHub has recommended an interim dividend of 4 cent per share in 3Q17, which came up 20% lower than the interim dividend of 5 cents per share in the same period last year.
See: StarHub's 3Q earnings down 11.5% to $76.2 mil
Following the results announcement, CIMB is maintaining its “hold” call on StarHub with a target price of $2.50.
The group’s mobile service remains under pressure as it fell 0.8% y-o-y due to lower voice, roaming and IDD usage.
Pay TV revenue also fell 8.4% y-o-y, as subscriptions fell for the ninth consecutive quarter, impacted by piracy and alternative over-the-top (OTT) viewing platforms.
However, Fixed Enterprise revenue was up 11.3% y-o-y, due to the group’s acquisition of Accel Systems & Technologies earlier in May this year.
In a Friday report, analyst Foong Chun Chen says, “Post-revision, we forecast core EPS to fall by 13.3%/1.1% in FY17/18, before a steeper 14.5% drop in FY19 on more intense mobile competition post-TPG’s entry.”
The analyst says the stock trading at 13.5 times FY18 EV/OpFCF is at a 19% discount to the ASEAN telco average, which is fair given the prospects of declining earnings.
Foong says a good bear-case entry point would be below $2.20 while a bull-case exit point would be above $2.80.
RHB is also maintaining its “neutral” call on StarHub with a target price of $2.70.
StarHub's management has guided for lower capex intensity of 10% of total revenue from 13% previously, with investments in the enterprise space at their tail end, while it expects capex synergies from the 700MHz and 2500MHz TD-LTE spectrum acquired in the medium to longer term.
However, management believes that the International Financial reporting Standard (IFRS), which comes into effect from Jan 2018, will result in lower mobile service revenue and higher EBITDA margin, as handset subsidies would netted off from revenues and not immediately expensed.
Management adds that this implementation is cashflow neutral and will offer better clarity on the new accounting treatment after the release of FY17 results in February.
In a Friday report, the RHB research team says, “The stock has de-rated by 21% over the past 12 months, on concerns over the threat posed by new entrants -- TPG Telecom and MyRepublic -- which are slated to roll out commercial services in the coming months/2018.”
On the other hand, DBS is keeping its “fully valued” recommendation on StarHub with a target price of $2.20.
In a Friday report, analyst Sachin Mittal says that he is concerned about the impact of Circles.Life on the mobile sector.
Earlier in August and September, Singtel and StarHub tried to stabilise the postpaid ARPU by offering more bundled date with upward revision in package pricing.
However, M1’s handset-based MySIM* plans launched in October offer more bundled data at a lower package price.
“This effectively reduces package pricing by 16-22% versus its older plans in our estimates and could help M1 to garner revenue share, if Singtel and StarHub do not react. We believe that M1, being the network provider of Circles.Life, is painfully aware of the ~1% market share gained by Circles.Life by virtue of its digital business model and cheaper data pricing,” says Mittal.
As the market awaits for TPG’s entry, Circles.Life is quietly chipping away market share under the radar.
The analyst reckons that StarHub is expensive at a forward price-to-earnings ratio of 17.5 times versus sector average of 15 times, and 9 times EV/EBITDA versus sector average of 7.5 times, as investors tend to value the company in terms of dividend yield.
Maybank is reiterating its “sell” rating on StarHub with a target price of $2.17.
Management gave positive signals of the reception for the higher prices unlimited weekend data plans that were recently launched, but has yet to materialise in 3Q17 with q-o-q declines in ARPU and net churn of subscriber base.
With Circles.Life remaining aggressive and MyRepublic eyeing its own mobile virtual network operator (MVNO), short-term pressure is building for the group even before the launch of TPG Telecom in 2H18.
In a Friday report, analyst Luis Hilado says, “Despite the share price underperformance, we see further consensus forecast downside risk in the short term as competition heats up.”
As at 12.50pm, shares in StarHub are trading 6 cents higher at $2.70.
