Starhub struggles with sinking broadband revenues in FY14

It’s losing out to new players.

Starhub is expected to rake in higher mobile service revenues after rolling out additional 4G charges last month. Despite rosy prospects for its mobile business, however, the telco continues to suffer from declining broadband revenues with intensifying price competition from new players.

According to a report by CIMB, Starhub’s revenues are expected to decline at a 3-year CAGR of 9.8% in FY14-16 due to intense price competition from new players such as M1 and MyRepublic which are leveraging the National Broadband Network (NBN).

“From S$51 in 2009 (pre-NBN), StarHub’s broadband ARPU has continuously declined and hit a new low of S$39 in 1Q14. We expect ARPU to drop further to S$30 by 2016, judging by recent broadband offers at local PC/IT shows. However, this should be partly mitigated by growth in broadband subscribers, driven by the lower prices,” noted the report.

Here’s more from CIMB:

Effective 1 Jul 14, StarHub has started charging a monthly fee of S$2.14 for 4G Value Added Services (“4G Speed Boost”). However, this will only apply to new and re-contracting customers, after the IDA (regulator) disallowed StarHub from implementing such charges mid-way through existingcontracts.

The recent 4G Speed Boost fee should drive higher mobile service revenue growth in FY15-16. However, we believe the company is still unlikely to increase its annual S$0.20 DPS nor pay special dividends in the next three years due to high capex and spectrum payments.

We cut our FY14-16 EBITDA by 5.5-8.3% (translating to lower net profit) on lower revenues (due to broadband). However, our DCF-based TP is raised by 3.7% to S$4.25 (WACC: 7.1%), after rolling over the base year to 2015. The stock trades at FY15 EV/EBITDA of 10.2x, with yields of 4.7% p.a.


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