• Service revenue lower 1.8% y-y but gain 1.5% q-q at S$552m, on lower prepaid mobile and broadband revenue.
• Net profits decline 6.3% y-y, but up 11.9% q-q at S$94m as EBITDA margin on service revenue relatively stable at 32.5%.
• Downgrade to “Neutral” on lacklustre 1H14 results, with revised TP of S$4.30

StarHub announced its results on 5 Aug 2014. Service revenue was dragged down by lower pre-paid and broadband revenue YoY, due to lower pre-paid mobile ARPU and price competition in the broadband space respectively. This led to a decline in net profits as margin on service revenue remains stable YoY.

On a positive note, its subscriber base continues to grow across the 3 segments: postpaid mobile, pay TV and broadband. We saw gains in both its pay TV and fixed network services revenue, as a result of higher advertising revenue and higher data and Internet revenue. However, management now guided for service revenue to be maintained at about FY13’s level. Guidance maintained for EBITDA margin on service revenue at about 32% and FY14F capex at about 13% of total revenue. FY14F DPS expected to be 20 cents, as guided by management.

How do we view this

With lacklustre 1H14 earnings, our revenue and earnings estimates were lowered and we do not foresee any strong recovery in the second half of FY14. Growth contribution from 4G pricing would be more visible in FY15F and beyond as only new and re-contracting customers would be subjected to the 4G price hike. Pay TV and Broadband services will likely remain under competitive price pressure.

Investment Action

We lower our TP to S$4.30, based on our DCF valuation. With the lack of foreseeable growth in earnings for FY14F, we revised our rating to “Neutral”.

Source: Phillip Securities Research - 6 Aug 2014