• Maintain NEUTRAL, new DCF-based TP of SGD1.14 from SGD1.18, 8% downside with 6% yield. StarHub's results fell short, with dividends missing expectations. While enterprise growth and improving mobile revenue market share are positives, the timing and uncertainty as to the realisation of benefits from its transformation plan (DARE+), alongside a muted EBITDA guidance should cap sentiment on the stock. We prefer Singtel (ST SP, BUY, TP: SGD3.80) for exposure to the sector.
• Below expectations; dividends fell short. FY24 core PATAMI, adjusted for a one-off DARE+ provision of SGD20.6m in 2H24, missed expectations, at 88% of our forecast and 87% of the consensus projection. Relative to management's guidance and the market, service revenue growth was marginally ahead while total DPS, at 6.2 SG cents, were below our and consensus estimates of 7.0-7.3 SG cents.
• Enterprise still the bright spot; stiff mobile competition; entertainment slides further. StarHub's multi-brand/multi-segment strategy appears to be gaining traction, with further gains in revenue market share. Mobile revenue ticked up 0.4% QoQ - the first positive growth in four quarters, as higher postpaid subs compensate for lower ARPUs albeit with some seasonal effects, in our view. This is ahead of Singtel's -1% QoQ mobile growth. Enterprise grew 40% QoQ (FY24: +9.2%) as cyber-security revenue more than doubled on higher project recognitions. StarHub is integrating its regional ICT services to a platform- centric managed services model to drive profitability and value. Meanwhile, entertainment revenue weakened further (lower subs/steady ARPU) while broadband revenue held up from upselling ultra-speed plans (>1Gbps).
• Last leg of DARE+ spending, but more time needed for benefits to crystallise. The group is on track to wrap up the transformation investments in 1H25. Management has done away with service revenue guidance, with EBITDA expected to be stable for FY25. With a guarded narrative on the benefits accruing from DARE+ (due to the change in market dynamics and slower realisation of benefits), we expect the market to temper expectations of a strong earnings uplift from FY25F. Post the results call, we cut FY25-26F earnings by 15% and 14% to factor in the latest guidance, 700MHz spectrum amortisation, and house-keeping. We introduce FY27 forecasts in this report.
• Balance sheet firepower. StarHub's low net-debt/EBITDA of 1.3x offers good headroom for potential M&As and/or an industry consolidation, with management receptive to the latter. Key downside risks: Greater competition, weaker-than-expected earnings, and lower-than-expected upsides/benefits to be extracted from the transformation programme. The opposite of these circumstances would constitute upside risks.

Source: RHB Research - 24 Feb 2025