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Fortune favours those who Dare+

■   New Dare+ plan targets sizeable run-rate net benefit of S$80m p.a. by FY26.
■   Ensign’s orderbook now covers a big portion of its budgeted FY22 revenue.
■   Reiterate Add with unchanged DCF-based TP of S$1.70.

New 5-year Dare+ transformation & growth programme unveiled
StarHub held its annual Investor Day yesterday, where it unveiled its Dare+ 5-year strategic transformation and growth programme (FY22-26). The new plan focuses on driving sustainable topline growth via its Consumer Infinity Play strategy (offering diverse digital products/services and expanding into new verticals) and next-generation 5G enterprise products/solutions, supported by continued investment in 5G network rollout. StarHub will also focus on implementing its ongoing IT Transformation project to drive digitalisation/simplification and deliver further cost savings.  

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Net profit impact to be positive from 2H23 and S$80m p.a. by FY26
Over FY22-26, StarHub expects to realise cumulatively S$500m, in additional gross profit (S$220m) and cost savings (S$280m). The former will be driven by revenue growth, excluding roaming revenue recovery and M&As. The latter will come from savings in operating leases (rationalisation of physical store footprint, office space and 4G base stations), transaction processing (zero touch points), sales commission (online transactions) and resource optimisation (serving customers via digital channels). To achieve these outcomes, StarHub will invest S$270m (capex and opex) over the next 3 years in digital platforms and 5G network rollout. As the investments will be front-loaded, StarHub expects the net profit impact to be negative in FY22, before turning positive from 2H23 onwards and reaching a steady state of +S$80m p.a. by FY26.

Rosy outlook for Ensign in FY22; Strateq seeing improvements
StarHub is optimistic that Ensign will close out FY21 on a strong note in terms of revenue growth and a rising orderbook. The latter now covers a significant portion of internally budgeted Ensign revenue for FY22, which StarHub expects to grow nicely yoy. After facing difficult operating conditions due to the movement restrictions in Malaysia, StarHub says Strateq has seen 12% yoy growth in its orderbook as at end-Sep 21 with positive traction expected to continue into 4Q21.

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Reiterate Add and DCF-based TP of S$1.70 (WACC: 6.7%)
We keep our FY21-23F and longer-term core EPS forecasts as we had earlier factored in the net negative impact from Dare+ in FY22F and are prudently awaiting clearer signs of an inflection in revenue growth beyond our current projections. Nevertheless, StarHub’s guidance on the sizeable net benefit to be progressively realised from Dare+, plus its good execution track record under Dare 1.0, adds to our optimism that it will at the very least meet, if not beat, our current earnings projections. Key re-rating catalyst: successful Dare+ execution. Its FY22F EV/OpFCF of 10.3x is 25% (-1.2 s.d.) below its 13-year mean, with decent FY21-23F yields of 4.4-4.9% p.a. Downside risk: stiffer competition.

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