• Competition in mobile market getting tougher
• Enterprise may help offset weak mobile
• Maintain SELL for now

55% of FY16 Service Revenue From Mobile Business

Based on 1H17 results, StarHub Ltd (StarHub) still has substantial exposure to Singapore’s mobile market, with ~55% of its service revenue (excludes sale of equipment) derived from mobile business. And if we do assume majority of its sale of equipment revenue was derived from handset sales, Starhub’s total mobile exposure will then be at a higher ~59% of its 1H17 total revenue.

We believe the recent launch of unlimited data plans by Starhub and M1 is the result of the intensifying competition in Singapore’s saturated market, and likely due to the impending 4th telco entry as well as MyRepublic’s intention to launch mobile services with generous data offerings as MVNO as early as next month.

Solid Execution Crucial to Ramping Up Enterprise Business

Starhub recently showcased its enterprise capabilities on its sell-side day as it seeks to enhance its enterprise business using the hubbing model (i.e. bundling of services) to create stickiness of customers and generate and grow revenue streams. There are several specific verticals that Starhub focuses on that include but not limited to smart nation intiatives, healthcare, financial services, transport, and small and medium-sized enterprises.

Having invested in growing its capabilities, Starhub is ready to offer customers a comprehensive suite of ICT services that include cloud and data centres, cyber security, data analytics, connectivity, advertising solutions among others. In our view, we like that Starhub is investing to reduce its significant exposure to Singapore mobile segment. That said, while we believe this will help offset the weakness from the under pressure mobile segment, we expect the ramp up in its enterprise business will need time to bear fruits.

Maintain SELL on Lower S$2.30 FV

On aforementioned reasons, we update our assumptions and incorporate for Starhub’s postpaid ARPU to decline ~16% over the next five years. However, we prefer to wait for clearer indications of Starhub’s enterprise business gaining meaningful traction before making any related assumptions. Consequently, our FV decreases from S$2.40 to S$2.30. Maintain SELL for now.

Source: OCBC Research - 11 Sept 2017