Above expectations mainly due to the timing of transformation costs
- 1Q22 earnings of S$29.7m (-28% q-o-q, -2.6% y-o-y) was 8% above our expectations due to the timing of transformation costs
- Service revenue of S$416.1m (flat q-o-q, +11% y-o-y) was 5% below our expectations due to slower than expected recovery in mobile business
- Maintain HOLD with an unchanged TP of S$1.31, for ~4% dividend yield.
1Q22 earnings of S$29.7m (-28% q-o-q, -2.6% y-o-y) comprised 29% of our FY22F estimate. The surprise stemmed from higher-than-expected rise in service EBITDA margin (24.2% vs. our FY22F estimate of 22.6% and management guidance of 20% plus). This is partly due to the timing of transformation costs which management expects to incur in subsequent quarters of 2022. Operating expenses declined by -4.6% q-o-q (+7.2% y-o-y) to S$470.7m, representing 23% of our FY22F estimate.
1Q22 service revenue (flat q-o-q, +11% y-o-y) at S$416.1m, was slightly below our expectations. Service revenue which excludes equipment/handset sales was flattish q-o-q (+11% y-o-y) comprised 23% of our FY22F expectations. This was due to weaker than expected mobile performance. Mobile revenue during 1Q22 was reported at S$134.1m (-2.5% q-o-q, +3.5% y-o-y) representing 23% of our FY22F forecasts. Postpaid average revenue per user (ARPU) remained flattish q-o-q at S$29 as more people migrated to SIM-only plans offsetting higher 5G subscriber base. Prepaid ARPU dropped to S$8 due to increased promotions and roadshows to attract and retain subscribers. As of 1Q22, STH had over 400,000 5G subscriber base cementing its position as the market leader for 5G based on the number of subscribers.
Mobile services revenue seems to be stabilising despite the 2.5% q-o-q (+3.5% y-o-y) drop in 1Q22 to S$134.1m
Source: Company, DBS Bank
Enterprise business revenue too remained flat q-o-q (+19% y-o-y) at S$183.3m. Lower contributions from data and internet, managed and voice services resulted in recording S$85.7m (-5.4% q-o-q, -7.9% y-o-y) for network solutions. STH’s cybersecurity services reported revenue of S$51.5m (-30% q-o-q, +21% y-o-y). The sequential decline is mainly due to the completion of a high value project in the preceding quarter. During 1Q22, cyber security segment recorded operating losses of S$1.4m. On regional ICT services, revenue was at S$46.1m (+14% q-o-q, +148% y-o-y) due to the consolidation of HKBN JOS Singapore and Malaysia which accounted for 61% of the total regional ICT services. The management assured that the order book for Strateq and JOS continues to remain healthy.
Entertainment revenue during 1Q22 was at S$47.2m (flat q-o-q, +3.9% y-o-y). STH reclassified over-the-top (OTT) contributions from mobile and broadband to the entertainment segment. This resulted in the dilution of ARPU. Total entertainment subscribers comprising of OTT subscribers remained at 450,000 (+1.4% q-o-q, +20% y-o-y). STH recently acquired rights to broadcast English Premier League for the next 6-years.