Results beat; Maintain HOLD on upfront uncertainty
2021 earnings beat MIBG expectations, with PATMI above our forecast but in line with consensus. The DARE+ strategy points to early signs of rising ARPUs across all segments and a strong 5G adoption rate is positive. But higher upfront capex in executing the new strategy and lingering uncertainty on regional re-opening are major offsetting factors. We raised our DCF-based (WACC: 4.9%, LTG: 0%) TP to SGD1.45 from SGD1.25. With 8.8% upside, maintain HOLD. Our preferred picks in the telco sector are Singtel (ST SP, CP: SGD2.55, BUY, TP: SGD2.81) and NetLink (NETLINK SP, CP: SGD0.98, BUY, TP: SGD1.11). We transfer coverage to Kelvin Tan.
Broadband and Enterprise on the move
Broadband service revenue increased SGD18.3m (10.4% YoY) mainly due to higher ARPUs from continued reductions in subscription discounts and increased take up of higher-tier 2 Gbps plans. ARPU of SGD32 for the full year was SGD3 higher (12.6% YoY). Average monthly churn rate was at 0.7% in 4Q2021 and 0.8% for the full year. As businesses prepare for stronger demand post pandemic recovery, Enterprise Business revenue ticked higher (9.4% YoY) mainly due to higher contributions from Cybersecurity Services
and the consolidation of Strateq under Regional ICT Services. This was partially offset by lower revenues generated from Data & Internet (-7.7% YoY), Managed Services (-3.4% YoY) and Voice Services (-16.4% YoY) due to fewer project completion on the back of global chip supply shortage.
Mobile and PayTV lag despite higher subscribers
FY21 mobile service revenue at SGD531m (-8.5% YoY), mainly due to lower postpaid and prepaid revenues. Postpaid revenue fell on lower IDD usage from ongoing travel restrictions that tightened again in late 4QFY21. Entertainment service revenue declined 4.2% for the full year, offset by higher ARPU (+$3) with higher-priced HomeHub bundled plans, lower commercial TV revenue and lower spending on advertising by Enterprise customers. Total Entertainment subscribers stood at 444,000 after Q4 net addition of 36,000 subscribers attributed to higher OTT take-up.
Anticipating higher revenues
Starhub has guided higher 2022E and 2023E service revenue on new DARE+ initiatives, rolling out 5G NSA and SA, extending Infinity Play to a larger base and driving digital platforms beyond Singapore targeting regional markets. With this transformation, the group expects SGD500m in cost savings and gross profit growth cumulatively in the next 5 years. Large upfront investments to support IT transformation and the new DARE+ business initiatives led the company to guide higher overall capex commitment (12-15% of revenue) and lower service EBITDA margin (23% 2022E vs 30% 2021). We thus raised our FY2022-23 EPS forecasts by 5-15% from early DARE+ cost savings and re-opening growth. This raises our TP to SGD1.45 from SGD1.25 with 8.8% upside, maintain HOLD.