Starhub

Starhub delivered 3Q15 net profit of $118.7m (+21.5% y/y), largely on the back of a $15m partial divestment gain. Excluding this, core net profit of $103.7m (+6%) met expectations, elevating 9M15 earnings to $276.5m or 75% of full-year consensus estimate.

Revenue inched to $603.1m (+1.9%), mainly driven by equipment sales of $44.9m (+14.4%) from high end smartphones. Service revenue of $558.2m (+1%) was relatively flat, as fixed network (+4.3% to $99.3m) and broadband services (+3.8% to $51.1m) was offset by weak mobile (-0.1% to $310.6m) and pay TV (-0.2% to $97.2m) segments.

Within mobile services, the postpaid segment garnered a wider customer base (+5.3%) and ARPU (+4.4%), outperforming the shrinking prepaid customer base (+7.8%) and flat ARPU. This was attributable to stronger take-up rate of tiered data mobile subscription plans.

For Pay TV and broadband, customer base in both businesses saw a 0.6% and 3.5% improvement respectively, but ARPU for the latter dipped 2.9% while Pay TV remained flat. However, it is worth noting that broadband revenue for 9M15 fell 3.9% on pricing pressure from stiff competition.

Meanwhile, growth in the fixed network business stemmed from data & internet revenue (+6%) as internet subscriptions rose and from managed enterprise services. This overshadowed the deteriorating voice services revenue (-4.5%) amid lower IDD usages.

EBITDA margin expanded 1.1ppt to 35.7%, benefitting from lower staff costs (-1.7%), marketing expenses (-17.3%) and utilities, as well as supported by a FX gain.

Interim DPS of 5¢ was maintained, lifting 9M15 payout to 15¢.

Looking ahead, management shaved its forward guidance for service revenue from low single digit growth to flat, given that mobile growth is stagnating as take up rate of tier data plans tapers off.

Nevertheless, the group plans to maintain its full year dividend payout of 20¢ in 2015.

Consequently, Maybank-KE trimmed its FY15-17 earnings estimates by 3-6%, and does not expect IDA to deviate from the intended course in the upcoming spectrum auction and issuance of a fourth telco license.

Still, the house maintains a Buy rating, but cuts TP to $4.51 from $5.00.

Starhub is currently trading around 17.4x forward P/E and offers a dividend yield of 5.4%.

Latest broker ratings:
Maybank-KE maintains Buy, cuts TP to $4.51 from $5.00
Deutsche maintains Hold with TP of $4.05
CIMB maintains Hold with TP of $3.80
CLSA maintains Underperform with TP of $3.61