StarHub - OCBC Investment 2021-11-16: Better Guidance; Acquiring Majority Stake In HKBN JOS In Singapore & Malaysia


StarHub - Better Guidance; Acquiring Majority Stake In HKBN JOS In Singapore & Malaysia

  • Revising up service EBITDA margin guidance while lowering that of capex commitment.
  • Strengthening regional ICT and enterprise business through latest M&A.
  • Maintain fair value estimate of S$1.36 for StarHub.

Good set of numbers

  • StarHub (SGX:CC3)’s 3Q21 revenue grew 5.6% y-o-y to S$517.2m or 6.3% q-o-q, coming in ~1% above consensus.
    • Mobile postpaid ARPU rose S$1 q-o-q to S$29 (flat y-o-y) on the back of higher roaming, plan subscription and higher revenue from 5G enterprise initiatives, though offset by lower VAS and excess data usage revenues.
    • Broadband witnessed ARPU improvements on the back of reduction in subscription discounts and increased take up in higher-tier 2 Gbps plans and faster WiFi routers.
  • StarHub's EBITDA rose 7.9% q-o-q to S$132.9m, while PATMI (excluding JSS) grew 6.9% q-o-q or 5.1% y-o-y to S$40.0m.

Encouraging revision to FY21 guidance

  • StarHub has revised its service EBITDA margin guidance from 24- 26% to at least 26%, resulting from its disciplined approach to expenditure, postponement of opex relating to IT transformation, and higher contribution expected from Cybersecurity Services. Capex commitment guidance has been revised down from 9-11% to 7-9% of total revenue due to the ongoing transition of IT-related capex to cloud-based opex model alongside other capex delays.
  • StarHub has maintained its dividend guidance of the higher of S$0.05 or payout of at least 80% of PATMI (adjusted for one-off, non-recurring items).

Fair value estimate of S$1.36

  • StarHub also announced that it has signed an agreement where it will be acquiring from HKBN a 60% stake in HKBN JOS Singapore and Malaysia for a total consideration of S$14.9m, representing a 7.0x proforma FY21 EV/EBITDA multiple and is expected to be financially accretive. This move will further StarHub’s DARE+ strategy as it strengthens its regional ICT and enterprise business, create synergies, and deepen its partnership with HKBN for future growth.
  • We keep our estimates for now, and maintain our fair value estimate of S$1.36 for StarHub, which already incorporates a 10% ESG premium as the company scores well on a number of key issues relative to the industry average.
  • See

Starhub - ESG updates

  • StarHub appears well-prepared to manage potential risks related to employee morale or productivity with its engagement and career development initiatives. StarHub also has industry standard data protection measures such as employee training on data security-related risks and procedures.
  • The Singapore government holds 56.41% stake in StarHub, as of 2021 (through Temasek Holdings), exposing the company to the risk of increased scrutiny of its business operations or of subordination of minority shareholder rights. Nonetheless, it has a majority independent board and has an independent audit committee; these may help balance the interests of minority shareholders with that of the state.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-11-16
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.36 UP 1.320