■ StarHub held a post-results lunch session
■ Chairman outlined longer-term priorities
■ Reiterate Underperform (4) rating and maintain TP of SGD3.28
StarHub hosted an analyst lunch with its Chairman Terry Clontz and management team, led by CEO Tan Tong Hai.
What’s the impact:
Terry Clontz, as the company’s founding CEO and current chairman, shared his insights into some the challenges the company is facing, as well as its future strategy.
The thrusts include:
1) a focus on the enterprise market,
2) the evolution of its current bundling strategy, and
3) prioritisation of Singapore-centric opportunities.
StarHub acknowledged that the enterprise market segment has not delivered to its expectations over the past 5 years mainly on delays associated with provisioning of services on the national broadband network. But, the company remains upbeat about the opportunities it represents over the medium term, given its current low market share.
Terry Clontz said that the company would continue to ramp up its investment and use of data analytics technologies to deliver personalised bundled service propositions in the future. The company expects this to result in lower revenue churn and help in extracting higher value from its existing customers. Tan Tong Hai noted that cable TV churn rates have fallen significantly over the years (3Q15: 0.7% versus 1.2% in 3Q12) partly due to the early success in application of data analytics technologies.
In terms of expansion plans, Terry Clontz said the board would prefer that the company focus and execute well on opportunities within the Singapore market. We take this as an indication that StarHub currently has no plans to expand beyond Singapore’s shores. Finally, the company said that it is making plans to defend itself from any new entrant, while once again reiterating that a 4 th player would be an economically unviable proposition, given the small size of the Singapore market.
What we recommend:
Much of what we heard during the briefing was reassuring as the board and management team appear to be actively engaged in charting the company’s future business growth strategy. That said, we continue to believe revenue pressures are unlikely to abate soon and thus reiterate our Underperform (4) rating. We leave our DDM-derived target price unchanged at SGD3.28. A declaration of special divided is a key upside risk to our call.
How we differ:
Unlike some in the market, we believe the shares will be derated in coming months, as we think the dividend-yield compression theme has played out fully. (Read Report)
Source : Daiwa Capital Markets