• Still NEUTRAL, SGD1.18 DCF TP (9% downside). StarHub’s 1H24 results were broadly in line with the routine weakness in the mobile segment, offset in part by enterprise gains. While its multi-year transformation investments should start to taper off by the year-end, the timing and magnitude of benefits remain uncertain, in our view. Our TP includes a 2% ESG premium.

• In line. 2Q24 earnings of SGD43.2m (+10.2 YoY, +11.1% QoQ) brought 1H24 core earnings to SGD82.1m (+7% YoY), at 52% of our forecast (consensus: 51%). While 1H24 service EBITDA margin of 22.8% was ahead of guidance (22%), we see higher 2H24 opex from increased transformation investments. An expected SGD0.03 DPS (payable on 6 Sep) puts STH on track for the committed SGD0.06 FY24F DPS (or 80% of core PAT, whichever is higher).

• Routine mobile weakness; enterprise still the bright spot. Service revenue gained 2.4% in 1H24 (+2.7% QoQ) as stronger enterprise revenue eclipsed weaker mobile, broadband, and entertainment segments. Service EBITDA was steady YTD and would have risen 2.9% excluding D-Crypt’s losses (deconsolidated in February). While STH’s multi-year transformation investments (DARE+) should start to taper off by end-2024, the timing and magnitude of benefits are uncertain. Our forecasts are unchanged.

• SIM-only plans still dominate postpaid subs adds; fibre broadband (FBB) seeing ARPU uplifts but masked by lower premiums. Competition remains stiff at the lower-end of the mobile market. The shift to SIM-only plans dominates postpaid additions with postpaid ARPU falling for the second quarter in a row while prepaid ARPU held steady. STH’s defence has been its Infinity Play value proposition and product bundles with differentiated or superior service quality. A targeted channel approach via mobile virtual network operators (MVNOs) allows it to minimise cannibalisation of its own base. 1H24 broadband revenue fell 1.4% on lower premiums, partially offset by better take-up of higher-speed FBB packages (12-fold jump in 10Gbps FBB subs since Dec 2023). We believe most FBB customers are on HomeHub bundles which offer good customer retention. 1H24 entertainment revenue was stable QoQ but down 4% YoY from the cessation of tactical promotions, partially mitigated by higher Premier League advertising revenue.

• Good enterprise momentum; cybersecurity losses. Cybersecurity revenue grew 29% YoY in 1H24 followed by network solutions (+7.6% YoY). The latter was supported by managed services revenue (+34% YoY). Regional ICT sales fell 5% on lower hardware sales. Cybersecurity operating losses (Ensign) widened with extended investments to shore up capabilities. We see sustained cybersecurity losses as it rides on the tailwinds of enterprise spending.

Source: RHB Research - 15 Aug 2024