Big core EPS drop in FY22F; revisit in 1H23
? FY21 core EPS was a beat (+12% vs. our forecast) on lower costs.
? However, we cut FY22F/23F core EPS by 35%/28% after considering StarHub’s guidance for a big drop in service EBITDA margin.
? Downgrade to Hold with lower DCF-based TP of S$1.40.
FY21 core EPS was a beat on lower-than-expected costs
2H21 EBITDA grew 2.3% yoy (+4.6% hoh) on higher service revenue and margin. Core EPS jumped 23.4% yoy (+15.4% hoh) as depreciation fell. FY21 EBITDA/core EPS beat our forecasts by 4%/12% (Bloomberg consensus by 2%/1%) on lower costs. 2H21 DPS was 3.9 Scts (2H20: 2.5 Scts, FY21: 6.4 Scts). StarHub’s FY22/23F guidance is service revenue growth of at least 10%/5-10% yoy, service EBITDA margin of at least 20%/23% (FY21: 29.6%), 12-15% capex/sales and at least 5 Scts DPS or 80% payout ratio.
Mobile recovers hoh; cybersecurity growth remains strong
Despite stiff competition, 2H21 mobile revenue fell just 0.7% yoy. Qoq, it rose for a second quarter in a row in 4Q21. 4Q postpaid ARPU grew 3.4% qoq to S$30 (2Q/3Q21: S$28/29) on some roaming recovery, 20% rise in 5G subs to 300k (20% of base) and take-up of value-added services (Disney+). Postpaid subs grew nicely by 1.8% qoq. 2H21 Fixed Enterprise revenue rose a decent 6.5% yoy, led by cybersecurity (+29.0%) and Strateq (+18.1%). It fell 3.9% qoq in 4Q21 as 3Q21 had a major cybersecurity project delivery and one-off data relocation work. 2H21 broadband revenue grew 8.4% yoy (lower discounts, 2Gbps plan take-up) and Pay TV revenue fell 5.0% yoy (lower subs).
EBITDA margin improves slightly yoy on cost savings
2H21 service EBITDA margin was up 0.9% pt yoy (-0.3% pt hoh) to 29.6% owing to lower device sales and maintenance cost and staff/content cost savings. StarHub’s FY22F service EBITDA margin guidance factors in higher utility cost and DARE+-related opex, while the recovery in FY23F comes as DARE+ benefits kick in and on lower utility cost.
FY22-23F core EPS and DPS lowered
We cut FY22F/23F core EPS by 35%/28%, after factoring in: a) more frontloaded DARE+ costs, b) higher utility cost, c) 700MHz spectrum amortisation (brought forward by 1 year to FY23F), d) slower roaming recovery, and e) some ARPU uplift from 5G, partly offset by shift towards SIM-only. We see core EPS falling 46% yoy in FY22F (DARE+ costs), then rising 23%/10% in FY23F/24F on full roaming recovery, Enterprise growth and start of DARE+ benefits; these imply c.2%-pt higher service EBITDA margin vs. StarHub’s FY22- 23 guidance. We now see lower 5.0 Scts p.a. DPS in FY22-23F (previous: 5.6-6.3 Scts).
Downgrade to Hold; DCF-based TP cut to S$1.40 (WACC: 7.1%)
We now apply a 20% discount to StarHub’s DCF-based fair value to arrive at a TP of S$1.40 given the weak FY22F earnings outlook; investors should revisit the stock in 1H23F, in our view. Upside/downside risks: lower-than-expected costs/stiffer competition.