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Investor CentralStarHub Ltd - REPLY FROM CEO TAN TONG HAI: Has M1’s special dividend disappointed StarHub's investors - which of the brokers is right?
22/2/2014 – StarHub's revenue was in line with broker estimates, the absence of an increase in dividend and expected margin pressure has led to different views by analysts.
StarHub will benefit from customers on tiered data plans due to better experience from its 4G network.
Price competition remains intense in the broadband space as new entrants continue to provide discounts.
FY14 service revenue is expected to grow in the low single-digit range and EBITDA margin may be about 32% on service revenue.
Capital expenditure may be 13% of total revenue.
StarHub intends to maintain its annual dividend payout of 20 cents.
The company just announced earnings for FY13:
Revenue: -3% YoY to S$2.4 bln
Service revenue: Flat at S$2.2 bln
EBITDA: +2% to S$733 mln
EBITDA margin: 32.3% vs 32.9%
Profit: 3% to S$371 mln
Cash flow from operations: S$594.7 mln vs S$689.5 mln
Free cash flow: S$291.9 mln vs S$416.8 mln
Dividend: 20 cents per share vs 20 cents per share
StarHub's revenue fell as contribution from equipment sales declined by 32.9% to 130.1 mln.
Growth in mobile and fixed network services segments was offset by a decline in Pay TV and Broadband revenue.
FY13 mobile revenue increased 0.9% YoY to S$1.2 bln thanks to a higher customer base.
Postpaid average revenue per user (ARPU) was lower QoQ at S$69/month.
Subscription revenue may be higher, but that came from a higher subscriber base.
Both postpaid and prepaid mobile data traffic continue to rise, leading to higher non-voice service contribution to ARPU at 47.9% for postpaid and 20.8% for prepaid.
Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.
Bullish analyst report
Maybank Research thinks that StarHub may increase its dividend payout in the future as its net debt-to-EBITDA ratio is still at a multi-year low of 0.5 times to 0.6 times.
M1 declared a special dividend but StarHub's yield of around 5% is enough to support its share price.
It anticipates that margin guidance of 32% is still too low.
And given the more competitive handset space, there is room for handset subsidies to fall further.
Also, provisioning for the National Broadband Network should ease with the government’s push to speed up NBN rollout.
This could give the higher-margin enterprise business a further lift.
Hence, the analyst maintained its BUY rating with target price slightly lowered to S$4.98 due to higher capex guidance.
PhillipCapital says mobile services remain the primary growth driver for StarHub.
With about 46% of its postpaid customers on new tiered data plans, it is positive on the benefits of customers paying for data in 2014.
The analyst also expects higher Pay TV revenue in FY14 from an increasing subscriber base and, possibly, from FIFA World Cup 2014 event should StarHub secure the broadcast rights.
It believes broadband revenue will remain stable in FY14 as StarHub continues to increase its broadband customer base despite competition.
It has a competitive advantage of bundling offers with Mobile and Pay TV plans.
Hence, the House maintained its ACCUMULATE rating with an unchanged target price of S$4.52.
Bearish analyst report
CIMB Research is disappointed because StarHub did not increase its dividend despite having sufficient free cash flow available.
It maintained a HOLD rating with a target price of S$4.20, supported by its dividend yield of 4.7%.
But M1 remains its top pick.
It says mobile and cable TV face margin pressure from falling international direct dialling (IDD) rates and higher content costs.
Like Maybank Research, CIMB also expects capex to remain elevated at 13% of revenue in FY14.
OCBC Research has maintained its SELL rating with a target price of S$3.81 as it has trimmed earnings forecast by 10% on a more conservative margin assumption.
It also do not see any increase in dividend payout until 2015.
Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.
1. Is mobile revenue really the only growth driver?
You wouldn’t think so in a mature market such as Singapore, where everyone has at least one phone.
But mobile services contributed 52.4% of total revenue in FY13 versus 50.6% in FY12.
This, despite StarHub making a big effort to promote its TV Anywhere concept, broadband, and so on.
Management Reply: Mobile remains the main revenue contributor. Smartphones and tablets are the most widely used devices for Internet access in Singapore, and we are primed for data monetisation. That said, Mobile will not be the only growth driver, as we expect to see some growth in our Enterprise, Pay TV and Broadband businesses too.
Rather than look at a single line of business, I would point out that growing our Hubbing households is a key area of focus for us. Hubbing is our cornerstone strategy, and we are now going beyond price bundles to move towards providing a seamless transition of services across platforms for the prosumer, meeting both their personal and business needs.
2. Will it be able to further increase its subscriber base for Pay TV?
StarHub added 2,100 to its subscriber base for Q4 FY13, reporting positive net adds for the 2nd straight quarter since the availability of BPL content cross-carried on StarHub cable TV platform.
Pay TV revenue was 2.7% lower at S$385.5 mln mainly due to lower subscription revenue and advertising revenue.
2012 revenue was also boosted by the one-off revenue from the UEFA EURO event.
Management Reply: We are certainly looking to grow our base. If you look at our past two quarters, you will see that our Pay TV base has grown.
The key is to continue to offer the widest variety of quality content over a reliable network and multiple platforms. The cross carriage of BPL gave us some upside in subscriber numbers. We expect this trend to continue as more football fans get out of their current contracts and are able to take on a StarHub TV subscription. The reduced content piracy, resulting from our tightening of security for our set-top boxes, also helped.
(Total number of questions in the full story: 7)
We thank Mr Tan Tong Hai, CEO of StarHub, for his responses.
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