TPG Telecom's entry to drag StarHub's mobile business further: CIMB

StarHub’s mobile revenue is projected to fall by 5.8% in 2020 after TPG's entry.

Over four years, CIMB Research expects StarHub's mobile revenue to go down by a cumulative of 7.9% and its contribution to total service revenue to plummet by 52-55%.

According to a report, mobile service revenue (MSR) could still rise by 0.9% in 2017 and 1.4% in 2018, due to its subscription fee hikes.

Despite the raised competitive pressure from the entry of more mobile virtual network operators (MVNO) and a continued decline in roaming revenues, this can still be offset by StarHub’s $5.10 a month subscription fee hikes across its postpaid plans in September 2017.

After that, mobile revenue is expected to fall by 2.7% and 5.8% in 2019 and 2020, driven by more intense competition arising from TPG Telecom’s market entry by the end of 2018.

Moreover, pay TV revenue is expected to slip further by a cumulative 23%, on the back of a diminishing subs base due to substitution by alternative viewing platforms and piracy.

Meanwhile, broadband revenue is also seen to decline by 4.2% in on gradual subs market share loss to newer players, including TPG, which is likely to enter the residential broadband market following its mobile service launch.

Here's more CIMB Research:

We believe StarHub’s current DPS of $0.16 is sustainable across FY17-20F.

We see its net debt/EBITDA rising from 1.2x at end-FY17F to a still-manageable 1.5x at end-FY20F. This already factors in $282m payment for the 700MHz spectrum in mid-2018, which could actually be paid later if the use of the spectrum is deferred beyond Jan 2019 (due to possible delays in analogue switch-off in neighbouring countries, especially Indonesia).

However, at the same time, we think there is little room for StarHub to raise DPS beyond $0.16. Besides already fairly optimal net debt/EBITDA by end-FY20F, StarHub is likely to conserve some cash for future M&As in the FNS space and as a cash buffer in case competition from TPG is worse than expected.