StarHub Limited – Another year of heavy investments February 9, 2023 358

PSR Recommendation: NEUTRAL Status: Downgraded
Last Close Price: 1.17 Target Price: 1.08
  • Revenue and EBITDA were in line with expectations at 101%/102% of our FY22e estimates. 4Q22 revenue growth of 23% was supported by mobile and broadband acquisition. EBITDA halved due to DARE+ transformation and one-off expenses. FY22 dividends are down 22% YoY to 5 cents.
  • Guidance is for another weak year of EBITDA margins for FY23. Service EBITDA margins to be maintained at 20% with revenue growth of 8-10%.
  • Around 35% or S$75mn of the planned S$310mn DARE+ has been spent. From the remaining S$235mn to be spent, we expect S$180mn to be used in FY23e. Bulk of the DARE+ transformation cost is in EPL content and IT software and services. We maintain FY23e revenue but lowered EBITDA by 4%. Our target price lowered to S$1.08 (prev. S$1.15), pegged at 6.5x FY22e EV/EBITDA, in line with other mobile peers. We downgrade our recommendation to NEUTRAL. We do not find the dividend yield attractive as investors weather another year of weak earnings.

Source: Company, PSR


The Positive

+ Strength in mobile revenue. 4Q22 mobile revenue growth accelerated 13% YoY. Growth rates not seen since FY05. Revenue growth was driven by both ARPU and subscriber growth. Re-opening of borders continues to bolster roaming revenue and lift ARPU. Postpaid net adds were 19k (3Q22: +26k) and market share has widened by 0.9% points over the past 12 months to 23.4%.


The Negatives

– 4Q22 operating expenses outpacing revenue. Operating expenses jumped 35% YoY to S$667mn. Excluding the S$30.8mn non-current, the rise will still be high at 29% YoY. Types of cost that outpaced revenue were repairs and maintenance, marketing and Pay TV content cost.

– Drop in dividends. FY22 dividend was down 22% to 5 cents. FY23e dividends guidance is unchanged, a payout of at least 5 cents. With CAPEX to sales ratio expected to double from 7.3% in FY22 to between 13-15% in FY23e, there is little upside in dividends.

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About the author

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Paul Chew
Head of Research
Phillip Securities Research Pte Ltd

Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.

He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.

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