Towards Financial Freedom
StarHub - Going For An Apple Crumble In 4Q14
StarHub's 9M14 results sprang no surprises with extended YoY falls in both service revenue and core earnings. We expect 4Q14 service EBITDA margin to fall 3-4ppts QoQ on higher SAC, albeit likely to trump management's low-balled 32% guidance. StarHub remains a NEUTRAL(<1% upside to our unchanged DCF-based TP of SGD4.20), given the challenging broadband and mobile prospects. The stock is well supported by a 5% dividend yield and capital management prospects.
In line. StarHub's 9M14 core earnings of SGD97.7m (-4% YoY/+4% QoQ) formed 74% of our forecast and 75% of consensus.
Key highlights. StarHub continued to face competitive headwinds in its legacy broadband business, wth price discounting activitie s pulling down average revenue per user (ARPU) to a record low of SGD35 (-20% YoY). Broadband revenue fell 17% YoY in 3Q14 (-16% YTD) and was a key drag to overall service revenue (-0.6% YoY), notwithstanding the steady growth of its pay-TV (+2% YoY) and enterprise/fixed network business (+3% YoY). The percentage of postpaid mobile subs on tiered plans widened to 59% (22% exceeded bundled allowances), with the benefit of its 1 Jul's re-pricing for re-contracting and new subs driving a 4% QoQ increase in postpaid revenue.
4Q14 EBITDA squeeze. We expect subscriber acquisition cost (SAC) to accelerate in 4Q14, driven by seasonally stronger marketing activities and the full quarter impact of the iPhone 6 launch. StarHub, however,believes the pressure on broadband ARPU is likely to ease going forward, with the industry shifting its focus away from pricing to bandwidth/speed offers.
Forecast and risks. Management has reaffirmed its earlier guidance. We make no changes to our FY14/FY15 forecasts and introduce our FY16 numbers. The key risks to earnings are: i) stronger-than-expected mobile and broadband competition, ii) higher-than-expected capex, and iii) lower-than-expected tiered data adoption.
Maintain NEUTRAL based on SGD4.20 TP (WACC: 7%). StarHub's attractive dividend yield of 5% provides a key share price support. We prefer M1 (M1 SP, BUY, TP: SGD4.30) for exposure to the sector.
Source: OSK-DMG
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
