• NEUTRAL, new SGD1.18 TP (DCF) from SGD1.15, 10% upside, c.7% yield. StarHub’s results trumped estimates on lower-than-expected depreciation. While the bulk of its transformation investments will be booked by end-2024, uncertainties remain as to the realisation of benefits and cost savings. Our TP includes a 2% ESG premium to align with the latest country median.

• Ahead of expectations. 4Q23’s SGD35.6m PATAMI (-5% QoQ, +38% YoY) brought FY23 core earnings to SGD149.6m (+140% YoY), at 109% of our full- year forecast (consensus: 114%). With EBITDA trending in line, the key deviation was from stronger DARE+ capex-to-opex effects (lower depreciation) and financing cost. A 6.7 cent full-year DPS is at the higher end of the official DPR of 5 cents or 80% of PATAMI, whichever is higher.

• Review of key segment metrics:

  i. Mobile revenue flattish QoQ;

  up 8% YoY in FY23. Postpaid ARPU improved QoQ/YoY with further recovery in roaming traffic while prepaid ARPU was stable. Competition remains keen at the lower end of the market (SIMBA, mobile virtual network operators) with quality and network experience a key differentiator.

  ii. Broadband – leading revenue share. Broadband ARPU was stable although 2HFY23 revenue fell 2% YoY post withdrawal of premiums.

  iii. Entertainment. 4Q23 revenue rose QoQ but fell YoY on the higher base of World Cup 2022. ARPU inched up from Premier League subscriptions.

  iv. Enterprise. Cybersecurity revenues grew a strong 16% in FY23 with lower operating profit of SGD1.5m from continuing talent investments.

• Net debt-EBITDA of 1.2x. Armed with a SGD502m war chest, StarHub is not ruling out opportunistic M&As in the enterprise space.

• DARE+ update. c.SGD170m was incurred up to end-2023 for its multi-year transformation programme. As a result, FY24F will see the bulk of spending before tapering off in FY25F. While the lower overall investment of SGD270m (guided at its 2023 Investor Day) is viewed positively, delays have pushed the investment period by another year to 2025. Consequently, the realisation of full benefits is now anticipated by 2027 (as opposed to 2026). Management has guided for FY24F service revenue growth of 1-3% with service EBITDA margin at 22% (FY23: 22%). We lift FY24-25F core earnings by 1-2% to account for the D-Crypt divestment (completion in 1Q24). FY26F has been introduced.

• Downside risks: Higher-than-expected investments for its transformation programme, execution delays, competition, and weaker-than-expected earnings. Upside risks are stronger-than-expected DARE+ benefits and industry consolidation.

Source: RHB Research - 9 Feb 2024