• 1H17 largely within expectations
• 4 S-cents dividend for 2Q17
• Expects lower EBITDA margin in 2H17

1H17 EBITDA Formed 55% of Our FY17 Estimate

StarHub Ltd’s (StarHub) 2Q17 revenue fell 1.1% YoY to S$579.1m, mainly due to lower service revenue but offset by higher sales of equipment, while operating expenses remained flat YoY at S$467.2m. Consequently, 2Q17 EBITDA and core PATMI (excludes one-time S$9.5m gain recognised in 2Q16 for investment in mm2 Asia) declined 6.1% and 13.5% YoY to S$180.3m and S$85.7m, respectively.

For 1H17, revenue fell 0.4% YoY to S$1171.4m, as growth from enterprise fixed (+1.8%) and sales of equipment (+13.9%) were offset by mobile (-0.8%), pay TV (-7.4%) and broadband (-1.3%). 1H17 operating expenses increased 1.3% to S$965.9m, mainly due to higher cost of equipment sold and higher cost of services but partly offset by lower staff costs and marketing and promotions costs.

Consequently, coupled with lower NBN grant, core 1H17 PATMI fell 17.2% YoY to S$158.8m. 1H17 EBITDA also declined 9.2% to S$341.0m and met ~55.5% of our estimate. EBITDA margin was 2.6ppt YoY lower at 31.6%.

Expects Higher Handset Subsidies in 2H17

There was no change to management guidance for FY17:

1. service revenue to be at about FY16 level,
2. EBITDA margin on service revenue to be between 26-28%, and
3. cash capex to be about 13% of total revenue (excluding any spectrum payments).

Starhub also declared an interim quarterly dividend of 4.0 S-cents for 2Q17 and intends to pay a quarterly cash dividend of 4.0 S-cents for FY17. While 1H17 EBITDA margin came in at a higher 31.6% relative to its guidance, management guided that they expect higher handset subsidies in 2H17 in-line with the expected launch of new high-end smartphone models.

Mobile and Pay TV continues to be under pressure from new entrant and alternative viewing platforms, respectively. The only bright spot continues to be the expected steady singledigit growth from its enterprise fixed segment.

Keeping Forecasts Largely Unchanged

On largely in-line 1H17 results, we keep our forecasts largely unchanged. Maintain SELL with an unchanged DCF-derived FV of S$2.40, as there remains a lack of near-term catalysts.

Source: OCBC Research - 3 Aug 2017