• 1Q NPAT only 20% of FY forecast
• No change to earlier guidance
• Likely stronger QoQ in 2H15

1Q15 earnings slightly below forecast

StarHub Ltd reported a slightly weaker-thanexpected set of 1Q15 results last Friday. Although revenue grew 8.1% YoY to S$617.9m, meeting 26% of our full-year forecast, we note that the bulk of the increase came from equipment sales (+181% to S$77.5m); on the other hand, broadband revenue fell 11% to S$48.1m, still hit by intense price competition in the fibre space. As a result, StarHub reported a 8.5% dip in EBITDA to S$162.1m, as service EBITDA margin fell to 30% in the quarter, versus 32.6% in 1Q14 and 33.8% in 4Q14. Correspondingly, net profit also fell 8.5% to S$73.7m, meeting just 20% of our full-year forecast. StarHub declared a quarterly dividend of S$0.05 as guided.

Broadband competition still intense

As above, the intense competition in the Broadband space was the main reason for the muted showing. Although StarHub managed to add another 4k new subscribers in the quarter, ARPU was stuck at S$33/month, suggesting that subscribers continued to take up the lower price plans. However, we believe that the worst could be over as we do not envision the basic plans falling below S$30/month; we also note that broadband revenue has actually improved 0.8% QoQ. Meanwhile, Mobile revenue was flat YoY (but down 5% QoQ) at S$305.4m, Pay TV rose 2.3% (but slipped 4.1% QoQ) to S$96.0m; Fixed Network Services revenue inched up 0.8% YoY (down 9.9% QoQ) to S$90.9m.

No change to FY15 guidance

In any case, StarHub has kept its FY15 guidance intact where it expects FY15 service revenue to grow in the low single-digit range, driven mainly by its enterprise fixed network and mobile services. EBITDA margin guidance remains at 32% of service revenue, suggesting that it expects sequential improvement in the next few quarters. StarHub expects to spend around 13% of total revenue as capex (versus 13.5% in FY14). Lastly, it has kept its annual dividend at S$0.20/share, or S$0.05 per quarter.

Maintain HOLD with S$4.17 fair value

We have opted to keep our forecasts unchanged for now as we could see stronger QoQ improvements in 2H15. Maintain HOLD with an unchanged DCF-based fair value of S$4.17.

Source: OCBC Research - 18 May 2015