Management intends to maintain dividend at current level
StarHub posted 2Q15 service revenue of S$554.3mn (0% YoY) with EBITDA of S$194.5mn (4% YoY)
. However, the topline shrouds improving trends in mobile, fixed line and broadband businesses. Post-paid revenue grew 9% YoY, the highest in four years. While the revenue gain was fully offset by a fall in prepaid revenues, the stability in the prepaid subscriber base after five quarters bodes well for the medium term. Fixed-line services grew 5% YoY, driven by the corporate segment. Management affirmed its intention to maintain a 20c dividend and reiterated its guidance of an EBITDA margin at 32% and capex at 13% of revenue. We maintain Hold at a target price of S$4.05
Post-paid mobile maintains momentum; PayTV remains challenging
Post-paid remains the key focus with revenue growth of 9% (S$274.5mn) for the quarter and subscriber net adds of 12K. While prepaid revenue fell 38% to S$36.3m, the subscriber base grew a modest 3K to 849K. Data revenue for 2Q15 grew 15.7% YoY, offsetting the voice revenue decline and resulting in flat mobile service revenue for 1H15 (S$616mn, 0% YoY). Broadband revenue grew 2% QoQ (-4% YoY), the second quarter of positive growth after continuously trending down in 2013 and 2014. PayTV (18% of service rev) is the sole division where the outlook remains muted, with 1H15 revenue relatively flat at S$194mn (1% YoY).
Smart Nation and data analytics will be key drivers of growth
Management indicated that two tenders under the government's Smart Nation initiative are currently open - one for the core network and the other for the kerbside boxes (called above-ground boxes) that will house the sensors and servers. STH intends to aggressively participate in the tenders. Further, STH believes its roll-out of big-data analytics tools will be a strong revenue driver. The platform not only provides valuable insights to clients, but also helps to lower STH's internal cost of retaining customers.
Trading at 10x FY15e EV/EBITDA, 5.1% div yield
Management intends to maintain its annual dividend at 20c/share, which is our current forecast
. Our DCF-based target price is SGD4.05
. We assume a CoE of 7.5%, WACC of 7.2% and terminal growth rate of 1%. Upside risks include lower broadband competition
. Downside risks include entry of a new operator
. (Read Report)
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Source : Deutsche Bank Markets Research
Labels: Starhub, Telco