StarHub - RHB Invest 2022-11-10: EBITDA To Stay Under Pressure From DARE+


StarHub - EBITDA To Stay Under Pressure From DARE+

  • StarHub (SGX:CC3)'s 3Q22/9M22 results were broadly in line with a step-up in opex and capex in 3Q22 from the DARE+ programme. We see EBITDA coming under further pressure in 4Q22 on seasonally higher opex.
  • StarHub’s risk-reward profile appears balanced, with forward EV/EBITDA valuation at -1 standard deviation below historical mean. Our DCF-based target price is reduced to factor in a higher risk-free rate with a 4% ESG premium bolted on.
  • Maintain NEUTRAL on StarHub with new DCF target price of S$1.07 from S$1.20, 2% upside and 4.8% yield.

DARE+ impact.

  • StarHub's 3Q22 core PAT fell 12.2% q-o-q (-31.5% y-o-y) on lower EBITDA and margin from the ramp-up in opex related to StarHub’s 5-year (2022-2026) transformation programme (DARE+). This brought 9M22 core earnings to S$88.3m, at 76% of our forecast (consensus: 80%).
  • Overall service revenue grew 13% in 9M22, with enterprise and broadband posting the strongest gains, followed by entertainment and mobile.
  • StarHub has recalibrated its guidance based on the latest run-rate, with full-year service revenue growth of “12-15%” from “at least 10%” on expectations of further roaming recovery. Meanwhile, capex guidance has been moderated to “9- 12%” from “12-15%” of revenue, as some investments have been deferred to FY23.

Strong recovery in mobile revenue.

  • StarHub's mobile revenue saw a third consecutive quarter of y-o-y growth (9M22: +8.8%) and jumped 6.6% sequentially, mainly from stronger recovery in roaming and prepaid sales.
  • Entertainment revenue jumped 12.6% q-o-q (9M22: 11% y-o-y), as ARPU surged 13% q-o-q from subscriptions to the English Premier League (EPL) (booked from August).
  • Meanwhile, broadband revenue expanded 23.5% y-o-y in 9M22, with the second quarter of contributions from MyRepublic (MR) broadband. It fell marginally q-o-q from stronger competition.

Target price for StarHub moderated to factor in the higher interest rate environment.

  • We keep our earnings forecast but lower our DCF-based target price for StarHub to S$1.07 after factoring in a higher risk-free rate assumption from the heightened inflationary environment. The target price has baked in a 4% ESG premium based on our in-house methodology.
  • We expect StarHub's FY22F earnings to decline by ~21% y-o-y, mainly due to higher DARE+ opex and capex, followed by a 19% rebound for FY23F bottomline. This is as the roaming revenue recovery gathers pace alongside some positive synergies from the transformation programme.
  • See
  • Key downside risks are weaker-than-expected earnings, lower-than-expected synergies from the DARE+ programme, and competition.
  • Stronger-than-expected earnings present the key upside risk to earnings.
  • SingTel (SGX:Z74) is our preferred sector pick.

Singapore Research RHB Securities Research | https://www.rhbgroup.com/ 2022-11-10
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.07 DOWN 1.200