Company Reports

StarHub’s first-quarter result was broadly in line with our expectations. Still, the revenue mix was a little concerning, with higher-margin telecom network service revenue of mobile, entertainment, and broadband declining, while the likely lower-margin enterprise revenue increased. Excluding the now-sold D’Crypt, service revenue increased by 1.9% year on year, EBITDA declined by 1.4%, and net profit increased by 8.1%. Near-term profitability is partially a function of the level of Dare+ expenses.

Ownership of infrastructure assets and economies of scale underpin StarHub's narrow economic moat rating. Cost advantage allows StarHub to price its products competitively with bundling of multiple services, helping retain share in the consumer market. Strong free cash flow supports its dividend payout.

We increase our fair value estimate for StarHub to SGD 1.26 from SGD 1.10 as the Dare+ costs move toward history. While we don’t forecast the stable-state incremental net profit of SGD 80 million from Dare+ from 2027 onward that management is targeting, just the removal of the Dare+ expenditures from the cost base should drive some profit growth in 2025 and 2026. As long as the new profit level can be held from then, the shares look to have good value at these levels on a price/earnings ratio of 11 times and a dividend yield of 7%.

Ownership of infrastructure assets and economies of scale underpin StarHub's narrow economic moat rating. Cost advantage allows StarHub to price its products competitively with bundling of multiple services, helping retain share in the consumer market. Strong free cash flow supports its dividend payout.

We reduce our fair value estimate for StarHub to SGD 1.10 from SGD 1.20 as we forecast a slower reduction in DARE+ costs. We see the shares as fairly valued. As we previously expected, StarHub is tracking ahead of its full-year 2023 services revenue growth guidance of a midpoint of 4% but retained its full-year services EBITDA guidance of 22% despite reporting a 21.8% services EBITDA margin in the third quarter and expecting increased DARE+ expenses sequentially in the fourth quarter. Near-term EBITDA is partially a function of the level of included DARE+ expenses, with around SGD 120 million expected to be included in 2023. Management originally estimated the total forecast cost of DARE+ at SGD 310 million then indicated this figure would be lowered at the half-year result. The new figure is expected to be provided at the analyst day on Nov. 28 where DARE+ costs ae expected to be discussed in more detail, but we already factored in an 8% to 10% reduction. Management also retained guidance for 2023 capital expenditures as a percentage of total revenue at a midpoint of 12% despite this number sitting at 7% for the first nine months as the fourth quarter is likely to include significantly more DARE+ capital expenditures.

Ownership of infrastructure assets and economies of scale underpin StarHub's narrow economic moat rating. Cost advantage allows StarHub to price its products competitively with bundling of multiple services, helping retain share in the consumer market. Strong free cash flow supports its dividend payout.

We reduce our fair value estimate for StarHub to SGD 1.20 from SGD 1.24 due to lower-than-expected revenue from enterprise services partially offset by lower forecast costs from Dare+. StarHub lowered full-year 2023 services revenue growth guidance to a midpoint of 4% from a midpoint of 9% previously, but lifted forecast services EBITDA margin to 22% from 20%, implying a slight lift in forecast 2023 EBITDA, but we see the lower revenue forecasts as slightly negative for earnings post-2023. Near-term EBITDA is partially a function of the level of Dare+ expenses included and the expected level of these expenses to be incurred in 2023 was reduced to SGD 120 million from SGD 155 million, due to cost rationalization and some delays in rollout. The total forecast cost of Dare+, currently estimated by management at SGD 310 million will likely be reduced, by around 8% to 10% on our estimates. Guided 2023 capital expenditure as a percentage of total revenue reduced to a midpoint of 12% from a midpoint of 14% previously due to reduced spending and some delays as outlined above.

Ownership of infrastructure assets and economies of scale underpin StarHub's narrow economic moat rating. Cost advantage allows StarHub to price its products competitively with bundling of multiple services, helping retain share in the consumer market. Strong free cash flow supports its dividend payout.

We make no changes to our forecasts for StarHub or our SGD 1.24 fair value estimate after its first-quarter result. At a headline level StarHub’s first-quarter result looked like it was ahead of full-year guidance, with first-quarter 11% year-on-year services revenue growth compared with full-year guidance of 8%-10%; first-quarter service EBITDA margin of 22.4% compared with 20% full-year guidance; and first-quarter capital expenditure to sales of 3.1% compared with 13%-15% guidance. However, given My Republic was consolidated from the second quarter of 2022 and the ex-My Republic services revenue growth was 6.8% in the first quarter, if this revenue growth was maintained for the remainder of the year StarHub would report service revenue growth just below the bottom end of its guidance for the full year. In addition, StarHub launched its Premier League coverage in August 2022, so this will boost year-on-year service revenue growth for the first half of 2023 but not the second half. The services EBITDA margin is partially a function of the level of DARE+ expenses included in the quarter, and StarHub related that this level was lower in the first quarter than it expected to incur in the remaining quarters. The level of DARE+ capital expenditure was also lower in the first quarter, and the first-quarter capital expenditure is also seasonally lower than in other quarters. Overall, based on this result, we would not expect StarHub to substantially lift its 2023 guidance at the half-year mark.

Ownership of infrastructure assets and economies of scale underpin StarHub's narrow economic moat rating. Cost advantage allows StarHub to price its products competitively with bundling of multiple services, helping retain share in the consumer market. Strong free cash flow supports its dividend payout.

Ownership of infrastructure assets and economies of scale underpin StarHub's narrow economic moat rating. Cost advantage allows StarHub to price its products competitively with bundling of multiple services, helping retain share in the consumer market. Strong free cash flow supports its dividend payout.

StarHub’s 2022 result had some positive aspects on the revenue front, particularly mobile revenue increasing 7.5% for the full year and 11.1% for the second half. However, heavy spending on Dare+ and IT transformation and some provisions and impairments meant that the company reported net profit of only SGD 1.3 million, or 1% of revenue, in the second half. 2023 guidance is for 8%-10% service revenue growth and service EBITDA margin flat at 20%. Capital expenditure/sales will be 13%-15% including investments. Around SGD 80 million of investments in the Dare+ program (spread across both operating costs and capital expenditure) was spent in 2022 with around SGD 200 million to be spent in 2023 and the remaining SGD 30 million in 2024. The company is therefore banking on a turnaround in profitability and cash flow generation in 2024 and beyond.

StarHub’s third-quarter 2022 result was ahead of our estimates and full-year guidance, with services revenue up 14.2% year on year, EBITDA down 17.6%, and net profit down 32%. Management lifted full-year 2022 guidance to 12%-15% service revenue growth from the previous “at least 10%”, with service EBITDA margin guidance retained as “at least 20%”. The first nine months EBITDA margin of 23.2% would suggest a full-year services EBITDA margin closer to 22%, despite the fourth quarter being seasonally low-margin. The total capital expenditure/sales ratio is now expected at 9%-12% from the previous 12%-15%, with some of this due to delays in spending into 2023. Indeed, it appears that the outperformance on the margin side may be partly due a three-month slippage in some of the DARE+ projects, which means more of the SGD 270 million of DARE+ related costs to be incurred over 2022 and 2023 will now likely be incurred in 2023 than in 2022 as previously planned. Revenue growth was helped with the JOS acquisition consolidated in the first quarter and the MyRepublic acquisition consolidated in the second quarter, as well as the English Premier League that StarHub began showing in August, but underlying core mobile revenue growth of 6.5% year on year in the third quarter was a highlight.

Ownership of infrastructure assets and economies of scale underpin StarHub's narrow economic moat rating. Cost advantage allows StarHub to price its products competitively with bundling of multiple services, helping retain share in the consumer market. Strong free cash flow supports its dividend payout.

StarHub’s second-quarter 2022 result was ahead of our estimates and full-year guidance with services revenue up 12.6% year on year, EBITDA down 2%, and net profit down 16.6%. However, StarHub’s full-year 2022 guidance was unchanged and implies around 20%-22% decline in EBITDA with management citing costs associated with the DARE+ program, accelerated 5G rollout costs and costs associated with the Premier League all to be incurred in the second half. Revenue growth was helped with the JOS acquisition consolidated in the first quarter and the MyRepublic acquisition consolidated in the second quarter, but underlying core mobile revenue growth of 5.5% was a highlight.

Ownership of infrastructure assets and economies of scale underpin StarHub's narrow economic moat rating. Cost advantage allows StarHub to price its products competitively with bundling of multiple services, helping retain share in the consumer market. Strong free cash flow sustains its dividend payout.

StarHub’s first-quarter 2022 result was ahead of our estimates and full-year guidance with services revenue up 10.7% year on year, EBITDA down 11.1%, and net profit down 2.6%. StarHub’s full-year 2022 guidance implies around a 20%-22% decline in EBITDA so this result was ahead of that but some of the costs associated with the DARE+ program were not incurred in the first quarter. Management indicated these costs would likely be incurred this year and the intention is to get the cost part of the DARE+ program largely completed by mid-2023 so the company can start to reap the benefits.

Ownership of infrastructure assets and economies of scale underpin StarHub's narrow economic moat rating. Cost advantage allows StarHub to price its products competitively with bundling of multiple services, helping retain share in the consumer market. Strong free cash flow sustains its dividend payout.

StarHub’s decent second-half 2021 result was overshadowed by more details provided on spending for the DARE+ transformation program and on the surprising near-term impact of rising utility prices. Second-half services revenue increased 3% year on year, with operating profit declining by 7% year on year. Reducing the mobile revenue decline to only 0.7% year-on-year in the second half was arguably the main highlight, given the high margin nature of that business.

StarHub’s third-quarter result showed continued service revenue growth with overall third-quarter services revenue up 7.6% after 7.3% growth and 3.8% decline in the first and second quarters, respectively. Management maintained 2021 guidance of flat service revenue but lifted its forecast services EBITDA margin to “at least 26%” from the previous guidance of “24% to 26%.” At the first half management reduced its 2021 capital expenditure/sales ratio guidance to 7%-9% from 9%-11% but admitted that this was largely due to IT-related expenditure that was previously capital expenditures moving to opex as it moves to a cloud based service model. In this result the company has indicated that part of the expected 2021 service EBITDA margin uplift was due to some of this IT-related expenditure being delayed to 2022. The company closed its three-year DARE 1.0 cost reduction program at this result claiming cost reductions of SGD 270 million compared with an original target of SGD 210 million. It will outline its new DARE+ plan at an investor day on Nov. 22. We’ve assumed an 80% dividend payout ratio in our forecasts implying a lift in the 2021 dividend to SGD 0.07.