• 2Q NPAT just 0.4% below forecast
• Pares FY14 revenue outlook
• Maintain SELL

2Q14 results within 1% of forecast

StarHub Ltd posted 2Q14 revenue of S$576.4m, though down 1.8% YoY (+0.9% QoQ), was just 0.6% shy of our forecast. Net profit slipped 6.2% YoY (+12.0% QoQ) to S$94.3m, but was just 0.4% below our estimate. 1H revenue eased 1.6% to S$1147.8m, meeting 47.1% of our FY14 forecast, while net profit fell 6.9% to S$178.5m, or 47.5% of our full-year estimate. StarHub declared a quarterly dividend of S$0.05/share as guided.

Broadband remains main drag

As expected, the main drag came from its Broadband business, which saw revenue tumbling 17.3% YoY (down 5.4%) QoQ as price competition continued to remain intense; we note that Broadband ARPU has fallen further to S$37/month, versus S$39 in 1Q14 and S$45 in 2Q13. Fortunately, Pay TV revenue grew 2.9% YoY (+4.9% QoQ), aided by higher subscription and advertising sales. For Mobile, revenue fell 1.4% YoY (+1.4% QoQ), likely weighed by the pre-paid segment (revenue likely down 17.2% YoY and 6.3% QoQ as it lost about 71k subscribers). Post-paid customers grew by 14k in 2Q14, while ARPU also edged S$2 higher QoQ to S$68/month.

Lowers FY14 revenue guidance

For FY14, StarHub has lowered its service revenue guidance from single-digit growth to maintained at about 2013's level, but has kept its service EBITDA margin unchanged at 32% of service revenue; total capex payment remains at 13% of total revenue; also no change to its S$0.20/share dividend payout. The move comes as no surprise to us as we had mentioned in our 1Q14 report that we are poised to pare our estimates should the Broadband outlook does not improve.

Maintain SELL and S$3.81 FV

Hence we pare our FY14 forecasts by around 3%, FY15 by 4%; but our DCF-based fair value remains unchanged at S$3.81. Maintain SELL on the stock; we think that it may be worth revisiting the stock closer to S$4 as the yield would recover back to 5%.

Source: OCBC Research - 6 Aug 2014