• Maintain NEUTRAL, new DCF TP of SGD1.07 from SGD1.20, 2% upside and 4.8% yield. 3Q22/9M22 results were broadly in line with a step-up in opex and capex in 3Q22 from the DARE+ programme. We see EBITDA coming under further pressure in 4Q22 on seasonally higher opex. The stock’s risk-reward profile appears balanced, with forward EV/EBITDA valuation at -1SD below historical mean. Our DCF-based TP is reduced to factor in a higher risk-free rate with a 4% ESG premium bolted on. Singtel (ST SP, BUY, TP: SGD3.55) is our preferred sector pick.

• DARE+ impact. 3Q22 core PAT fell 12.2% QoQ (-31.5% YoY) on lower EBITDA and margin from the ramp-up in opex related to StarHub’s 5-year (2022-2026) transformation programme (DARE+). This brought 9M22 core earnings to SGD88.3m, at 76% of our forecast (consensus: 80%). Overall service revenue grew 13% in 9M22, with enterprise and broadband posting the strongest gains, followed by entertainment and mobile. StarHub has recalibrated its guidance based on the latest run-rate, with full-year service revenue growth of “12-15%” from “at least 10%” on expectations of further roaming recovery. Meanwhile, capex guidance has been moderated to “9- 12%” from “12-15%” of revenue, as some investments have been deferred to FY23.

• Strong recovery in mobile revenue. Mobile revenue saw a third consecutive quarter of YoY growth (9M22: +8.8%) and jumped 6.6% sequentially, mainly from stronger recovery in roaming and prepaid sales. Entertainment revenue jumped 12.6% QoQ (9M22: 11% YoY), as ARPU surged 13% QoQ from subscriptions to the English Premier League (EPL) (booked from August). Meanwhile, broadband revenue expanded 23.5% YoY in 9M22, with the second quarter of contributions from MyRepublic (MR) broadband. It fell marginally QoQ from stronger competition.

• TP moderated to factor in the higher interest rate environment. We keep our earnings forecast but lower our DCF-based TP to SGD1.07 after factoring in a higher risk-free rate assumption from the heightened inflationary environment. The TP has baked in a 4% ESG premium based on our in-house methodology. We expect FY22F earnings to decline by c.21% YoY, mainly due to higher DARE+ opex and capex, followed by a 19% rebound for FY23F bottomline. This is as the roaming revenue recovery gathers pace alongside some positive synergies from the transformation programme.

• Key downside risks are weaker-than-expected earnings, lower-thanexpected synergies from the DARE+ programme, and competition. Stronger-than-expected earnings present the key upside risk to earnings.

Source: RHB Research - 10 Nov 2022