Starhub - Steady quarter; underlying business trends are turning positive

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.


Technical Analysis
Daily Chart
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

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