Brokers' take

StarHub | Hold

Target price: S$3.94

Aug 4 close: S$3.92

OCBC Investment Research, Aug 4

STARHUB reported a better-than- expected set of Q2 16 results last evening; while revenue fell 0.6 per cent year on year (yoy) to S$585.7 million, net profit jumped 9.6 per cent yoy to S$108.6 million, boosted by a non-operating gain of S$9.5 million. If we exclude that likely one-off gain, core earnings would have been flat yoy around S$99.1 million. As expected, StarHub declared a quarterly dividend of S$0.05/share.

Following the 2.1 per cent drop in mobile revenue in H1, the outlook for this segment could remain muted, as the growth in data usage may not be enough to overcome the continued drop in non-data usage, even though ARPU (average revenue per user) remains stable. We also saw continued weakness in its Pay TV segment. While the environment for broadband is likely to remain competitive, StarHub did see continued improvement in ARPU and more customers moving over to fibre. We are keeping our estimates largely unchanged; but due to a lower risk-free rate, our DCF-based fair value rises from S$3.69 to S$3.94. Maintain hold; re-engage closer to S$3.70 or better.

StarHub | Sell

Target price: S$3.07

Aug 4 close: S$3.92

UOB Kay Hian, Aug 4

Q2 2016 results were aided by one-off gains of S$9.5 million from an investment for a 9.1 per cent stake in mm2, and adjustments for accruals that were no longer required for traffic expenses and operating leases. Mobile, especially the pre-paid segment, and pay-TV are in decline. Residential broadband was the only bright spot due to migration to fibre broadband and encouraging take-up for higher speed plans.

StarHub lost 10,000 pay-TV subscribers in Q2, the fourth consecutive quarter of contraction in its pay TV subscriber base. Consumers nowadays have more alternative viewing options and are less reliant on pay-TV.

We have performed a scenario analysis based on two possible outcomes: Best Case - no new entrant, and Worst Case - a fourth mobile operator disrupts the status quo. We attribute a probability of 25 per cent for Best Case and 75 per cent for Worst Case. Our probability-weighted target price is S$3.07. Best case: S$4.40 (previous: S$3.75), worst case: S$2.62 (previous: S$2.30). The risk-reward trade-off is unfavourable with potential upside of 13.4 per cent vs potential downside of 32.5 per cent.

NeraTel | Buy

Target price: S$0.80

Aug 4 close: S$0.695

RHB, Aug 4

DESPITE dismal results due to forex loss, we are more optimistic, as:

Telecom and Network Infrastructure business revenue fared better, up respectively 19.3 per cent and 10.1 per cent yoy in H1 2016;underperforming POS business is to be sold off; and we expect a special dividend of at least S$0.16 by end-September. Total dividend yield will likely shoot up to 26 per cent, with its recurring two cents dividend. We think current price levels are very attractive; maintain trading buy from a DCF-backed TP of S$0.80. Nera Telecommunications' (Nera) H1 order intake increased 29.3 per cent yoy to S$61 million, with Singapore remaining the dominant contributor.

Compiled by Melissa Tan

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.