SINGAPORE (Feb 15): Analysts are keeping their far-from-optimistic stance on StarHub after the telco on Wednesday posted 4Q and FY17 results which fell short of consensus estimates.
StarHub saw its 4Q17 earnings streak to a 74% drop to $14.1 million, bringing earnings for the full year to $249.0 million – 27.1% lower than a year ago.
The lower earnings in 4Q was mainly due to one-off provisions made for certain staff benefits and a leasing contract related to the cable network, even as operating expenses jumped 9.3% to $640.0 million in the quarter.
Group revenue rose slightly by 2.2% to $649.0 million in 4Q17, from $634.8 million a year ago, on the back of a 20.9% surge in Enterprise Fixed revenue to $129.6 million.
The increase was partially offset by a 3.5% decline in Mobile revenue to $301.0 million and a 7.4% drop in Pay TV revenue to $86.9 million.
See: StarHub posts 74% drop in 4Q earnings to $14.1 mil on higher operating expenses
“While Enterprise Fixed is gaining good traction with double digit revenue growth in 4Q17 as it ramps up on its ICT-related business with a suite of solutions offered, we do not expect it to more than offset the tremendous pressures on other traditional businesses ahead given the increased competition in the telecom industry,” says OCBC Investment Research lead analyst Eugene Chua in a Thursday report.
“Furthermore, we expect balance sheet to be materially weaker post-payment of its spectrum commitment of $282 million though there is no definite timeline for now,” he adds.
OCBC is keeping its “sell” recommendation on StarHub with a lower fair value estimate of $2.20, down from $2.30 previously.
Factoring in lower mobile service revenue and EBITDA margin, which fell by 2.2 percentage point y-o-y to 18.9% in 4Q17 on higher device subsidies and cost of services, CIMB Research analyst Foong Choong Chen is cutting StarHub’s FY18-19 core earnings per share (EPS) forecasts by 12.0-15.5%.
“We forecast core EPS to inch up 1.2% in FY18F and fall 11.5%/18.6% in FY19/20F,” Foong says in a Thursday report.
“While we see healthy Fixed Enterprise revenue growth, it may be unable to fully offset declining mobile revenues as competition intensifies with TPG’s entry and weaker pay TV and broadband businesses,” he adds.
CIMB is keeping its “hold” call on StarHub, and lowering its target price by 4% to $2.70, from $2.80 previously.
Meanwhile, Maybank Kim Eng Research analyst Luis Hilado says competition in the wireless space is set to intensify.
Hilado has raised StarHub’s FY18 core profit and EBITDA estimates by 28% and 11% respectively on expectation of lower subsidies.
However, FY19 and FY20 core profit estimates have been lowered by 4% and 12% respectively, while FY19 and FY20 EBITDA forecasts have been cut by 5% and 10% respectively.
This is “on the back of weaker revenue outlook due to wireless sector competition; lower handset subsidies as the battle shifts to tariffs instead; and lower capex to sales assumptions,” Hilado says in a Thursday report.
Maybank is keeping its “sell” call on StarHub, but raising its target price by 5% to $2.27, from $2.17 previously. Hilado notes that the higher target price still offers 21% downside.
Moving forward, RHB Research expects StarHub’s enterprise segment to remain the key growth driver and catalyst, with the telco looking to offer more holistic managed solutions and services across industry verticals.
“During the results call, management indicated the government, banking and retail/hospitality sectors as the key verticals and does not rule out more M&As to further strengthen its enterprise capabilities,” says RHB’s Singapore research team in a report on Thursday.
Post the results call, RHB has cut its FY18F-20F core earnings estimates by 12-14%.
“StarHub trades at -1SD of its five-year EV/EBITDA mean, which we consider as fair given the concerns over heightened competitive risks in the market,” RHB adds.
RHB is keeping its “neutral” call on StarHub, but lowering its target price slightly to $2.65, from $2.70 previous.
As at 11.55am, shares of StarHub are trading 27 cents lower, or down 9.4%, at $2.59.
According to OCBC valuations, this implies an estimated price-to-earnings ratio of 20.3 times and a dividend yield of 5.1% for FY18.
