SINGAPORE (Feb 21): StarHub yesterday announced its 4Q19 earnings and analysts have rather mixed reactions on the counter.
Earnings for the 4Q19 period more than doubled by 115.6% y-o-y to $33.3 million, while revenue was down 1.8% y-o-y to $608.4 million. The key highlight was sequential stabilisation of Mobile and Pay TV revenue which had been declining sequentially over the last three quarters.
However, for the FY19 period, earnings dropped by 10.9% y-o-y to $ 178.6 million, while revenue of $2.33 billion was 1.3% lower compared to FY18.
The group delivered on its guidance to pay out dividends of 2.25 cents for 4Q19, bringing FY19 dividends to 9 cents.
For the past few years, StarHub has suffered from stiffer competition, higher costs, and revenue that isn’t growing. In late 2018, it launched a major restructuring programme, to cut $210 million off its costs base and according to the company, it has already achieved two thirds of this target.
See: StarHub to maintain FY2020 dividend at nine cents, as 4QFY19 earnings up 115.6%
StarHub has guided for 1-3% rise in service revenue, compared to a 3.9% decline in FY19 on the back of growth in cyber security revenue. Management also guided for FY20 service EBITDA margin of 27-29%, compared to 31.7% in FY19.
In a Friday report by DBS Group Research, analyst Sachin Mittal says, “While service EBITDA is likely to decline by $50-55 million based on the guidance, depreciation & amortisation expenses should also drop by $35-40 million as StarHub ceases to lease Singtel’s network after full migration to fiber in FY19.”
“Our FY20F earnings are 3% ahead of consensus as we project 1% service revenue growth and 28% service EBITDA margins in FY20,” adds Mittal.
DBS has a “buy” call on StarHub with a target price of $1.72.
On the other hand, RHB is keeping “neutral” on StarHub with a target price of $1.63, as it believes competition remains to be the group’s key risk.
StarHub’s management refrained from commenting on the specifics of its joint bid with M1 for the 5G spectrum, ahead of the outcome of the award, which is slated for mid-2020. But the it is confident of the process with a strong bid submitted. Aside from the elements of network/infrastructure sharing, the telcos will market their respective 5G retail/commercial offerings.
On the back of this, RHB believes that it is still premature to comment on the 5G strategy.
Meanwhile, the research house is positive on the group’s enterprise segment, as revenue increased q-o-q in 4Q19 by 4% on seasonally higher project billings across managed services and cyber-security businesses. Management also did not rule out possible mergers and acquisitions to drive greater value proposition and capabilities.
However, StarHub’s Pay TV business may have bottomed, as management said that the sustainability of pay-TV ARPU, which increased by 5% q-o-q in 4Q19 is contingent on the price rationality in the market, as the overall pay-TV industry has stagnated.
“Of greater challenge is the cord-cutting phenomenon, with the flight to over-thetop or OTT providers and rampant content piracy. The downside impact should be mitigated by the contractual obligations of its existing base,” adds RHB.
As at 2.45pm, shares in StarHub are trading 2.0% higher at $1.53 or 5.9 times FY20 book with a dividend yield of 6.8%, according to RHB’s estimates.
