Towards Financial Freedom
StarHub - A Starry Quarter
Starhub posted a fairly strong quarter as opex fell faster than expected on subdued revenue after it renegotiated interconnect rates. We expect the 4Q12 numbers to be weaker due to the full impact of the iPhone5 and the typical seasonal boost in A&P. We tweak up our forecasts by a marginal 2% for FY12/13 after adjusting our traffic cost assumptions, with FV rising to SGD3.40 from SGD3.30 based on 8.0% WACC. Starhub remains our preferred exposure to the sector for its capital managementheadroom and robust earnings. An expected 5 cents/share quarterly dividend was declared, in line with the guidance for FY12.
Broadly in line. Although 9MFY12 annualised results were some 6% above our and consensus expectations, we consider Starhub's numbers in line as we see a weaker Dec quarter on rising subscriber acquisition cost (SAC) and A&P from the full three-month impact of the iPhone5, for which there is strong pent-up demand. The q-o-q and y-o-y dip in mobile revenue was more than offset by falling traffic and content costs post-Euro 2012, which lifted EBITDA margin to 34% in 3Q12 - the highest since 3Q09.
Lower interconnect/outbound revenue. The renegotiation with its partners for lower interconnect rates and weaker roaming revenue led to the slide in postpaid ARPU q-o-q, despite the strong net-adds of 17k. Its prepaid base continued to shrink although management believes this has bottomed. Excluding the interconnect adjustments, mobile revenue would have tracked the 2% growth run-rate seen in 1HFY12.
Data usage poised to accelerate. Despite being able to only monetise about 20% of its base that utilises over 2GB of data/month, Starhub is confident of capturing stronger revenue going forward with greater LTE adoption and higher data usage on smartphones. According to Starhub, data usage per subscriber has effectively doubled since the iPhone's introduction in 2009. To stoke LTE demand, Starhub and M1 have extended the promotion periods on their LTE plans to Dec 31 2013 from March 2013.
4Q capex to surge. Starhub will book higher capex from LTE in the final quarter and has maintained its capex/sales guidance of 11% for the full year. This would imply a near doubling of capex q-o-q.
BPL. Starhub did not reveal its intentions in relation to BPL, highlighting that talks between Singtel and FAPL have yet to be concluded. We do not expect Starhub to vie for BPL although Singtel has inked the content on a non-exclusive basis. It expects pay-TV churn to rise going forward with the opening of some of its content, but the availability of content on the OTT (over the top) platform should mitigate churn.
Comments
Lower interconnect rates negotiated with partners and roaming revenue, resulting in the fall in mobile revenue. Handset sales to increase in 4Q12 from strong demand for iPhone5. Lower traffic cost and content cost booked post Euro 2012 in 2Q12 but expect EBITDA to come under pressure in 4Q12 due to higher SAC for iPhone5.
Source: OSK
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