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StarHub - 2Q18 as expected; Risks more than priced in

Shared By Unknown on Wednesday, August 8, 2018 | 8.8.18

On track for slower 2H; Estimates unchanged. BUY.
StarHub’s 1H18 results overall in line with MKE and consensus estimates of a gradual slowdown caused by the increasingly competitive environment. Maintain BUY and DCF-based TP of SGD1.96 (WACC 5.7%, LTG -1%). With TPG’s (TPM AU, Not Rated) entry still to be felt in 4Q18 there are risks but believe the stock has too far exceeded our base-case scenario on the downside. Read More

Glimmer of hope
1H18 revenue was 49%/50% of MKE/FactSet consensus full- year forecasts (Fig 1). Increased wireless data usage (+8% QoQ to 5.5GB per sub), partly from greater adoption of ARPU-enhancing data multiplier plans, drove 4% QoQ growth in wireless service revenue. The recent MVNO deal with unlisted MyRepublic is unlikely to have contributed materially yet but will provide 2H18 support. Reported profit for 1H18 was 56%/57% of MKE/consensus. Overall, we maintain our forecasts and expectation of weaker profits in 2H18 due to the onset of a new competitor and as recontracting costs typically rise in 2H, especially 4Q.

New CEO affirms current strategy and guidance
New CEO Peter Kaliaropoulos signalled confidence in the current strategy and aims to improve and tweak execution. Guidance of 1-3% lower service revenues and 27-29% service EBITDA margins was unchanged. The EBITDA margin dilution is partly driven by its expansion into the lower margin, but lower capex, fixed- network/enterprise business and not purely due to wireless competition.

Technical Analysis
Daily Chart
Challenging times well captured in the price
Challenges remain for the industry incumbents in the short term but we believe the market has priced in an even worse scenario for StarHub. At current levels, the share price is implying extreme scenarios of pay-TV revenues going to zero or wireless service revenues dropping a further c15% from our estimate. Key risk to our BUY is a scenario where the incumbents engage in a price war rather than let their MVNOs fight in the low-price segment against TPG.

Source : Maybank Kim Eng Research
(Read Report)

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Posted on Wednesday, August 8, 2018 | 8.8.18
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