• Still NEUTRAL and SGD1.18 TP (DCF), 1% downside, c.6% prospective dividend yields. 9M24 results were in line. While the winding down of transformation investments (DARE+) could lift near-term sentiment, the timing and magnitude of the benefits and positive outcomes remain uncertain, in our view. We see StarHub’s risk-reward profile as largely balanced, with attractive dividend yields (>6%) lending share price support.

• Broadly in line. StarHub released its 3Q24 business performance update yesterday. Net profit of SGD40.4m (+11% YoY, -7% QoQ) took 9M24 earnings to SGD122.5m (+8% YoY) or 76-77% of our and Street numbers. Service EBITDA was steady YTD (+0.5%) against a service revenue decline of 2.8% – tracking our forecast and EBITDA guidance. We retain our estimates.

• Enterprise the bright spot; improving mobile market share. Service revenue growth (9M23: flat) was expectedly led by enterprise but offset by declines across the mobile, broadband, and entertainment wings. The drag from mobile (-0.8% QoQ) was nonetheless lower than Singtel’s (ST SP, BUY, TP: SGD3.60) mobile service revenue contraction of 4% QoQ, suggesting mobile revenue share gains. Broadband revenue grew 3% QoQ on higher subs and APRU, with increased take-ups of higher-speed packages. Enterprise revenue (excluding D’Crypt) gained 5.4% YTD, led by regional ICT and cybersecurity revenues.

• DARE+ coming to a close; benefits likely to be backloaded. 90% of the targeted SGD270m in transformation investments (2022-2025) will be completed by year’s end, with SGD52m in spending booked in FY24 and the remaining SGD27m flowing into FY25. We see the positive outcomes from the investments being backloaded, with the decommissioning of legacy networks taking time.

• Open to inorganic enterprise acquisitions; mobile merger speculation lingers on. StarHub is open to potential acquisitions in the enterprise space that would seek to: i) Strengthen its capabilities and/or ii) expand its regional footprint. We believe the extended pressure on industry mobile revenue should continue to fuel talks of a merger between StarHub and M1,which has not been completely ruled out by management. Both MNOs already share common 5G network infrastructure. StarHub’s under-leveraged balance sheet (net debt/EBITDA of 1.2x) and attractive FCFs lends credence to this development.

• ESG developments. Our TP incorporates a 2% ESG premium based on 3.2 rating. StarHub was named the 2024 World’s Most Sustainable Wireless Telco in the Corporate Knights Global 100 rankings. 

Source: RHB Securities Research - 14 Nov 2024