1Q22 PATMI Missed; Maintain HOLD

• StarHub (SGX:CC3)'s 1Q22 PATMI was 23% of MIBG/ 24% of consensus forecasts. Overall, 1Q22 net profit was underwhelming with increased mobile competition and the lumpy nature of its cybersecurity business, which we think will be backend loaded.

Operational Costs a Drag on Bottomline

• StarHub's higher y-o-y service revenue was driven by a 3.8% rise in Mobile revenue, 9.6% growth in Broadband revenue, 3.9% higher Entertainment revenue and 18.9% growth in Enterprise revenue. But Service EBITDA has been lagging (-12.8% y-o-y, -18% q-o-q) due to increased staff cost and frontloaded capex for IT transformation which we think will be recurring given the high inflationary environment. As a result, StarHub's net profit fell to S$29.7m (-2.6% y-o-y, -27.7% q-o-q) along with negative FCF reported for the quarter.

Improving Operational Parameters

• Mobile revenue rose (3.8% y-o-y, -0.7% q-o-q) on higher Postpaid ARPU and subscriber growth offset by a drop in Prepaid ARPU (-20% y-o-y, q-o-q) with the subscriber base still below pre-pandemic levels. The prepaid market remains challenging while postpaid benefitted from higher take-up of 5G mobile plans.
• Enterprise segment revenue grew 18.9%, mainly due to consolidation of JOS SG & MY. Cyber Security recognised lower q-o-q revenue due to the absence of significant projects recognised in 4Q21. The sector continues to focus on growth opportunities from new product launches with healthy market traction achieved.

New Initiatives to Drive Future Growth

• We see potential in leveraging the newly SIM card sales, market consolidation, 5G adoption rates and enterprise growth.

Source: Maybank Research - 1 May 2022