1Q in line; still bleak FY22F earnings outlook
? We deem 1Q core EPS (-1% yoy) in line as we see costs rising sequentially.
? Mobile revenue looks set to recover further, led by roaming, while Fixed
Enterprise revenue continues to be supported by cybersecurity growth.
? Reiterate Hold with unchanged DCF-based TP of S$1.40.
1Q results in line; IT transformation costs to rise for rest of FY22F
? 1Q22 EBITDA fell 10.4% yoy (-17.0% qoq) as lower margin more than offset higher
revenue. Core EPS dipped 0.6% yoy (-24.5% qoq), aided by lower depreciation, net
interest cost and tax. While 1Q22 EBITDA/core EPS made up 25%/37% of our FY22F
estimates (24%/26% of Bloomberg consensus), we deem this largely in line as we
expect a sequential pick-up in IT transformation costs and capex for the rest of FY22F.
Mobile recovery in play; cybersecurity growth momentum intact
? 1Q22 mobile service revenue was in line, rising 3.9% yoy (-0.7% qoq). Postpaid ARPU
was stable qoq, as some roaming recovery and 33% rise in 5G subs to >400k (27% of
base) offset dilution from rising take-up of SIM-only plans; we see ARPU improving in
2H22F as roaming recovers. Prepaid ARPU (-20.0% qoq) was dragged by tighter
competition, particularly from low-end postpaid SIM-only offers. Nonetheless, StarHub
says tourist SIM sales have begun to recover (post-reopening of international borders).
? 1Q22 Fixed Enterprise revenue rose 18.9% yoy (+0.4% qoq) on the consolidation of
HKBN JOS Singapore & Malaysia (since 3 Jan). Ex-JOS, it was up merely 0.8% yoy
as cybersecurity growth (+21.2%) was offset by weaker network solutions (-8.0%) and
Strateq (-2.2%), and slid 14.9% qoq as 4Q21 had a major cybersecurity project
delivery. StarHub said that the orderbook and pipeline for Strateq, cybersecurity and
JOS remain at healthy levels. Meanwhile, broadband revenue climbed 9.6% yoy
(+5.5% qoq) on ARPU accretion (higher 1Gbps prices, 2Gbps take-up), while
entertainment revenue (pay TV + OTT) was up 4.0% yoy (flat qoq) on subs gains.
EBITDA margin down yoy due to higher opex
? 1Q22 service EBITDA margin contracted sharply by 6.2% pts yoy (-5.4% pts qoq) to
24.2% owing to higher opex, which includes c.S$9m that StarHub incurred for initial
investments related to its IT transformation initiatives. While 1Q margin is tracking
above its FY22 guidance (at least 20%), this is partly due to timing delays in the
recognition of its IT transformation costs, which will pick up in the subsequent quarters.
Reiterate Hold and DCF-based TP of S$1.40 (WACC: 7.1%)
? We reiterate Hold and TP of S$1.40 for StarHub, ascribing a 20% discount to its DCFbased fair value, given the projected weak FY22F earnings. We continue to advocate
for investors to revisit the stock in 1H23F, ahead of its potential earnings turnaround in
2H23F. Upside/downside risks: lower-than-expected costs/stiffer competition