• 3Q14 service revenue down 0.6%y-y to S$552.7m on declining broadband revenue despite growth in other segments.
• iPhone demand drives higher sale of equipment, leading to 2.3%y-y gain in revenue at S$552.7m.
• Net profit gained 2.5%y-y at S$97.7m, benefiting from S$17.4m of NGNBN adoption grant income recognised in 3Q. However, YTD net profit for 9M14 was down 3.8% y-y at S$276m, impacted by decline in broadband revenue
• Maintain Neutral with revised TP of S$4.25.

What is the news?

No upside surprises in StarHub’s 3Q14 results. Rising mobile data usage continues to drive mobile revenue, with 22% of tiered customers exceeding their data bundle. However, mobile growth is offset by lower prepaid revenue as a result of reduction in prepaid card quota per person in Apr-14. Broadband revenue continues its decline due to lower ARPU, amidst price competition. Both pay TV and fixed network services segments see growth of 2-3% in 3Q14. Overall EBITDA margin on service revenue improved to 34.5% compared to 33.6% in 3Q13.

How do we view this?

We lower our FY14/15F forecasts as YTD earnings was lower than in previous year, mainly impacted by intense broadband price competition and slower growth in mobile due to regulatory change on prepaid this year. On a positive note, we continue to see mobile growth ahead mainly driven by rising data usage and tiered plan customers exceeding their data allowances.

While YTD broadband revenue declined 16.4%y-y due to intense price competition, broadband subscriber base continue to rise, adding 13K to its subscriber base this year. We expect broadband revenue to pick up in FY15F ahead as prices stabilised. In the enterprise space, StarHub continues to report growth in fixed network services segment with higher take-up of enterprise solutions for its fixed data & internet services.

Investment Action

We revised our TP to S$4.25 along with lower FY14/15F earnings estimates. We see limited upside based on current price and lacklustre earnings and we maintain our Neutral rating.

Source: Phillip Securities Research - 6 Nov 2014