• Single-digit service revenue growth in 2016
• No change to S$0.20/share dividend
• Total return less than 9% now

FY15 results within expectations

StarHub Ltd reported its 4Q15 results last night, with revenue easing 2.1% YoY (but +5.1% QoQ) to S$633.8m; but net profit slipped 14.3% YoY and 31.9% QoQ to S$80.8m; this after EBITDA dropped 18.4% YoY and 21.1% QoQ, mainly due to lower revenue and higher expenses. Nevertheless, FY15 revenue grew 2.4% to S$2444.3m, or about 1.8% above our estimate; net profit inched up 0.5% to S$372.3m, or about 0.9% more than our forecast. As expected, StarHub has declared a quarterly S$0.05/share dividend, or S$0.20 for the full-year as guided.

Likely steady FY16 showing

Going forward, StarHub believes that service revenue should grow in the low single digit range, but given a more uncertain economic outlook, which could impact the growth in both its consumer and enterprise businesses, management has guided for group EBITDA margin to slip to 31% of service revenue; this versus 32.2% achieved in 2015. However, it has kept its capex guidance (excluding the S$80m spectrum payment due this year) at 13% of total revenue (versus 13.5% achieved in 2015). There is also no change to its S$0.05/quarter dividend.

Still expects to see data growth; resilient Pay TV

For Mobile, StarHub expects its customer base on tiered data plans to continue to grow; but usage-based revenue like roaming may be lower due to availability of other options. It also expects growth in its Broadband business as it continues to leverage on its cable broadband network to provide customers with redundancy over the NBN. For Pay TV, the business is likely to remain fairly resilient, thanks to its wide offering of branded content, especially sports. Lastly for the Enterprise space, the need for greater diversity, security etc will driive demand for its solutions.

Downgrade to HOLD with S$3.94 fair value

Although we are adjusting our DCF-based fair value from S$3.91 to S$3.94, we are downgrading our call from Buy to HOLD as the stock has done very well in the run-up to its results; this reduces the total return to less than 9% based on the current price. We would be looking to re-engage closer to S$3.70.

Source: OCBC Research - 17 Feb 2016