StarHub Showing Some Positive Signs and Makes Small Bolt-On Acquisition

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.