• 9M21 core EPS was a beat, on lesser cost and also good revenue trends.
  • 3Q21 mobile revenue rose qoq on 5G plan take-up. Robust Fixed Enterprise revenue growth was led by cybersecurity.
  • Reiterate Add with a 3% higher DCF-based TP of S$1.70.

9M21 core EPS was a beat; FY21 EBITDA margin guidance raised

3Q21 EBITDA (ex-Job Support Scheme) fell 1.9% yoy (+8.0% qoq) as the lower margin offset the higher revenue. However, 3Q21 core EPS rose 6.4% yoy (+7.0% qoq), possibly on lower depreciation and/or interest cost. 9M21 EBITDA/core EPS were a beat at 84%/104% of our FY21F forecasts (Bloomberg consensus: 77%/74%), on lower-than expected costs and good revenue performance. StarHub raised its FY21 service EBITDA margin guidance to at least 26% (previous: 24-26%; 9M21: 29.9%) on cost savings and deferment of opex related to its IT transformation plan to FY22.


Mobile revenue up qoq; stellar cybersecurity growth continues

Despite still stiff competition, 3Q21 mobile revenue was down just 0.6% yoy (lower excess data usage). Qoq, it rose 2.4% due to a) 3.6% higher postpaid average revenue per user (ARPU) on take-up of 5G plans, and b) 1.0% postpaid subs growth. Fixed
Enterprise revenue grew a robust 17.3% yoy, led by Strateq (+17.0%) and cybersecurity (+73.1%). StarHub said the latter’s growth is sustainable, underpinned by a strong and growing orderbook into FY22. Meanwhile, Pay TV revenue dipped 4.5% yoy on lower subs, while fixed broadband revenue rose 9.5% yoy thanks to reduced discounts and subs upgrading to higher-priced 2Gbps plans.

Lower service EBITDA margin due to change in business mix

3Q21 service EBITDA margin contracted 1.7% pt yoy (+1.2% pt qoq) to 30.0%, due to the higher mix of cybersecurity/Strateq revenues (lower margins). Total EBIT for both segments improved to S$6.5m in 3Q21 (3Q20: S$3m). More details on DARE+, its next 5-year transformation programme, will be shared during its Investor Day on 22 Nov 2021.


FY21-23F core EPS & DPS raised

We raise FY21-23F core EPS by 14-29%, to factor in the postponement of IT transformation-related opex to FY22F onwards and higher mobile/Enterprise revenues. We now see core EPS being stable yoy in FY21F, down 7.9% yoy in FY22F (IT transformation opex), then up 12.8% yoy in FY23F (full roaming revenue recovery, further Enterprise growth). Based on 80% payout ratio, we project 5.6-6.3 Scts DPS in FY21-23F (previous: 5.0-5.6 Scts), with 3.6 Scts expected in 4Q21F (previous: 2.5 Scts).

Reiterate Add; DCF-based TP raised by 3% to S$1.70 (WACC: 6.7%)

Post-earnings revision, we raise StarHub’s TP slightly. Key re-rating catalyst: new cost savings programme. Its FY22F EV/OpFCF of 10.2x is 26% (-1.3 s.d.) below its 13-year mean, with decent FY21-23F yields of 4.5-5.0% p.a. Downside risk: stiffer competition.