• Maintain NEUTRAL and DCF-derived SGD1.29 TP, 2% upside, 4% yield. 1Q22 results were in line. We see FY22F core earnings (-9% YoY) being crimped by the front-loading of investments in relation to the DARE+ programme with some bright spots in mobile, broadband, and enterprise. StarHub’s risk-reward profile is balanced, in our view. Our TP has baked in a 4% ESG premium based on our in-house methodology. We prefer Singtel (ST SP, BUY, TP: SGD3.37) for Singapore telecommunications exposure.

• Weaker seasonality and front-loading of opex. 1Q22 core earnings fell 27.7% YoY (-18% QoQ) on lower EBITDA from the front-loading of IT transformation and investment costs against flat service revenue. The latter was up 10.8% YoY with growth across all segments. There were maiden contributions from StarHub’s HKBN JOS assets in Singapore and Malaysia, for which the acquisitions were completed at end 2021.

• Mobile looking up. Mobile revenue grew 3.9% YoY and looks to be off its lows. This is consistent with the recovery in roaming revenue and prepaid starter pack sales with borders opening to international travellers. Postpaid subs base YoY growth of 74,000 was led by the sale of digital brand giga!, with incrementally higher ARPU of SGD29.00 on increased subscription and roaming revenues. Prepaid APRU slipped to a low of SGD8.00 with heightened promotions to drive subs growth and retention – the prepaid subs base up 49,000, ie the highest since 4Q20. StarHub has netted >0.4m 5G subs at end 1Q22, up from >300k at end 2021.

• Broadband and entertainment. The broadband subs decline is behind StarHub, with revenue up 9.6% YoY (+5.5% QoQ). This was supported by the higher take-up of 2Gbps plans on more promotional activities. For the entertainment segment, revenue was steady QoQ (+3.9%). There were 11 over-the-top (OTT) partners on-boarded to date. We see StarHub’s recent reclaim of the exclusive English Premier League content after 12 years as complementing its new entertainment proposition (classical pay-TV and OTT), adding to the list of OTT partners on-boarded.

• Enterprise revenue was flat sequentially but up 18.9% YoY, led by cyber-security and regional ICT. Higher project recognition in the preceding quarter explained the 30% QoQ drop in cyber-security revenue. The maiden contribution from HKBN JOS (effective January) saw c.SGD28m in revenue recognition, making up 15% of overall enterprise segment sales.

• Key downside risks are competition, weaker-than-expected earnings, and larger-than-expected investments in the DARE+ programme. Upside risks: Larger-than-expected earnings and cost savings from DARE+.

Source: RHB Research - 4 May 2022