StarHub - Maybank Research 2022-08-05: EPL Tailwinds Vs Front-Loaded Operating Expenses


StarHub - English Premier League Tailwinds Vs Front-loaded Operating Expenses

StarHub's 2Q22 PATMI within expectation

  • StarHub (SGX:CC3)'s 1H22 EBITDA and PATMI at S$230m and S$60.9m met MIBG expectations at 51%/53% of our FY22e estimates. However, PATMI (-15% y-o-y, +7% q-o-q) was underwhelming with higher upfront operating expenses and y-o-y reduction in Job Support Scheme payouts.
  • We cut our FY22-FY24E bottomline forecasts for StarHub by 8-10% to reflect the ongoing concern on near-term cost pressures.
  • Our Top pick in the telco Sector remains SingTel (SGX:Z74).

Improvement in all segments

  • Service revenue rose to S$870m (+13% y-o-y, +9% q-o-q) in 1H22 on stronger y-o-y performance across most segments with Mobile (+3% y-o-y), Entertainment (+8% y-o-y), Broadband (+32% y-o-y) and Enterprise (+15% y-o-y) due to the consolidation of HKBN JOS SG & MY and MyRepublic Broadband which lifted both in revenue and subscriptions.
  • Notably, StarHub's mobile revenue grew 3.9% y-o-y due to higher postpaid revenue, offset by lower Prepaid revenue. Postpaid ARPU rose (+4% y-o-y) due to higher roaming and VAS revenue offset by accounting adjustment. Prepaid ARPU remained stable at S$8 with heightened promotions to drive subs growth and retention.

Broadband and Enterprise segments set the tone

  • Broadband service revenue increased (25% q-o-q) mainly due to the consolidation of MyRepublic Broadband that contributed revenue of S$12.6m in 1H22 and higher subscribers (+17% y-o-y). The higher ARPU was also lifted by higher take-up of the 2Gbps plans.
  • Enterprise Business revenue increased 16.9% y-o-y in 1H22, lifted mainly by consolidation of JOS SG and JOS MY under Regional ICT Services partially offset by lower revenues from Managed Services, Voice Services and Data & Internet mainly due to absence of revenue from a major project delivered.

Competition and higher opex may drag earnings

  • We see potential in the return of high margin roaming and incoming EPL revenue (Aug22) providing major earnings tailwinds for 2H22. However, earnings is expected to be weighed down by increasing mobile competition, lagging post-paid revenue and higher capex from front loading investments (IT and content) as part of the DARE+ transformation roadmap. As such, we think that EBITDA margins are expected to deteriorate over the next two quarters.
  • See
  • We maintain a HOLD rating on StarHub with a DCF-based (WACC: 6.96%, LTG: 0%) target price of S$1.32.
  • Rerating catalysts for the stock include, returning of roaming revenue, cost savings from DARE+ and enterprise growth.

Kelvin Tan Maybank Research | https://www.maybank-ke.com.sg/ 2022-08-05
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.320 SAME 1.320