Results Beat; Maintain HOLD on Lower Margin

• StarHub (SGX:CC3)'s FY20 PATMI was above our forecast but in line with consensus. This was mainly driven by higher EBIT margin due to its three-year cost saving plan.
• Maintain HOLD with lower DCF-based (WACC: 6.2%, LTG: 0%) target price of S$1.25 after accounting for lower service EBITDA margin.
• We remain positive on the Telco sector on potential 5G ARPU uplift and post-Covid recovery. We continue to like
  • SingTel (SGX:Z74) (BUY, Target price: S$2.88, report: SingTel - Maybank Kim Eng 2021-02-10: Sequential Recovery; Maintain BUY On Deep Value), and
  • NetLink Trust (SGX:CJLU) (BUY, Target price: S$1.11, NetLink NBN Trust - Maybank Kim Eng 2020-11-30: Immune To COVID Impact).

Enterprise Shapes Up; Mobile and PayTV Stable

• StarHub's FY20 revenue of S$2.0b (-13% y-o-y) was impacted by lower revenue from mobile (-24.3 y-o-y), PayTV (-24.2% y-o-y) and equipment sales (-22.3% y-o-y). This was partially offset by 12.2% y-o-y growth from its enterprise business, driven by a 51.4% y-o-y jump in Cybersecurity revenue and maiden contribution from regional ICT Services (S$33.2m).
• That said, EBIT margin expanded to 11.2% (+0.3ppt) on its cost-saving initiatives and Job Support Scheme (JSS) grants of S$34m. Meanwhile, its mobile division saw an uptick of 3.2% q-o-q in 4Q20 on a pick-up in post-paid ARPU of S$30 (3Q20: S$29), while PayTV’s subscriber base and ARPU were also stable.
• StarHub has declared a final dividend of S$0.025 per share, bringing total dividend to S$0.05 per share, or 3.9% FY20 yield.

Stabilising Outlook

• StarHub has seen encouraging uptake of their higher-priced 5G plan, driven by the launch of popular 5G premium handsets. The group has also seen gradual resumption of business activities and its Managed Services segment has seen a recovery in orderbook as Enterprise customers commit to strategic initiatives in FY21 and beyond.
• Meanwhile, StarHub has recently secured an exclusive distributorship of Disney+ content in Jan 2021.
• On dividends, StarHub has guided for FY21E dividend of at least S$0.05 per share or 80% of its core profit.

But Lower Service EBITDA Margin

• StarHub has guided for lower service IT transformation, 5G infrastructure and data centre rollouts.
• We have cut our revenue forecast by 2-3% as we believe roaming revenue will take more time to recover. As a result of lower service EBITDA margin guidance, our FY21-22E EPS forecast is reduced by 0-5% and we lowered our DCF-based target price to S$1.25.
• We forecast StarHub's FY21E dividend per share at S$0.06, translating to a yield of 4.7%.

Source: Maybank Kim Eng Research - 22 Feb 2021