StarHub's Earnings in Line; HOLD, Prefer SingTel and NetLink Trust

• StarHub (SGX:CC3)'s 1H21 earnings were in line, with PATMI coming in at 47%/49% of MKE/ consensus forecast.
• All key business segments are improving a q-o-q basis despite the challenging business environment. Its enterprise segment continues to deliver growth, but meaningful profitability is unlikely to come until the medium term. Maintain HOLD on StarHub with DCF-based (WACC: 6.2%, LTG: 0%) target price of S$1.25.
• We remain positive on the telco sector and prefer SingTel (SGX:Z74) and NetLink NBN Trust (SGX:CJLU) in the space.

Respectable Set of Results Despite Tough Times

• StarHub's 1H21 revenue, EBITDA and net profit were 47%/49%/47% of MKE estimates. Higher revenue of S$973.7m (+1.5% y-o-y) was due to higher contribution from broadband (+12.5% to S$95.5m), enterprise (+12.9% to S$333.6m) and equipment sales (+15.8% to S$194.3m). This was partially dragged by mobile services (-15.4% y-o-y) due to a full six months impact of COVID-19 on roaming revenue, as compared to four months in 1H20.
• Excluding the effects of Job Support Scheme, service EBITDA margin was stable (+0.3ppt to 29.6%) and net profit grew 6.6% y-o-y to S$63.2m.
• StarHub is declaring an interim dividend of S$0.025 and reiterated its FY21 guidance of distributing at least S$0.05 dividend per share.

Q-o-q Starts to Pick Up

• All key segments of StarHub are picking up on cybersecurity business as corporates prepare for post-Covid recovery.

StarHub's Outlook

• StarHub’s 5G Standalone (SA) rollout remains on to outline its next 5-year transformation in November.
• On dividend outlook, we maintain our FY21E dividend forecast of S$0.06, translating to a yield of 4.9% for StarHub.

Source: Maybank Kim Eng Research - 6 Aug 2021