StarHub - Phillip Securities 2022-08-08: More Cost In 2H22

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.

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.

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.

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.

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 ACCUMULATE MAINTAIN ACCUMULATE 1.350 SAME 1.350