STARHUB LTD (SGX:CC3)
StarHub - More Cost In 2H22
- StarHub (SGX:CC3)'s 1H22 revenue was in line with expectations at 47% of our FY22e estimates. EBITDA beat expectation at 36%. Nevertheless, we expect margins to contract more severely in 2H22 from further investments in IT outsourcing, EPL (English Premier League) content, software licensing and 5G wholesale cost.
- Roaming revenue is improving but below pre-pandemic levels due to a lack of business travel and border restrictions in China.
- We maintain our FY22e revenue and EBITDA forecast for StarHub. We cut depreciation by S$25mil due to accelerated depreciation of legacy system in prior quarters. FY22e will be a transition year for StarHub to undertake the necessary investments into new growth areas under the DARE+.
- Our target price is pegged at 8x FY22e EV/EBITDA, in line with other mobile peers. Our ACCUMULATE recommendation for StarHub is maintained.
The Positive
Exceeds guidance in multiple areas.
- StarHub's 1H22 performance exceeded management FY22 guidance. Revenue growth (at least 10%), service EBITDA margin (at least 20%) and CAPEX (12-15% of revenue) were higher in 1H22. However, there was no change in guidance implying a much weaker 2H22. Dividend of S$0.025 per share was within the FY22e guidance of at least S$0.05.
The Negative
Costs start to build.
- Operating cost has started to climb faster. 2Q22 operating expenses increased 14% y-o-y to S$496mil. The bulk of the cost increase was in other operating expenses (IT outsourcing, license fees, utilities), EPL marketing and broadband acquisition. The cost is part of the DARE+ transformation plan to invest in a new revenue stream and cost savings.
Outlook
- There was no change in FY22e guidance by StarHub's management.
- We expect StarHub's EBITDA margins to drop significantly from 24.6% in 1H22 to 17.4% in 2H22. Our FY22e service EBITDA margin is 20.9% vs management guidance of at least 20%. Operating expenses are expected to rise further in 2H22 from IT outsourcing, EPL content, software licensing and 5G wholesale cost.
- Unless roaming revenue gains further momentum or new revenue (not fully disclosed) begins to contribute meaningfully following the DARE+ investments, StarHub's earnings will be sluggish in 2H22.
Maintain ACCUMULATE with an unchanged target price of S$1.35
- Our target price is pegged at 8x FY22e EV/EBITDA, in line with other mobile peers. Our ACCUMULATE recommendation for StarHub is maintained.
- See
Paul Chew
Phillip Securities Research
|
https://www.stocksbnb.com/
2022-08-08
SGX Stock
Analyst Report
1.350
SAME
1.350
