1H22 net profit ahead; transformation costs in 2H22F
- 1H22 earnings of S$60.9m (-10% y-o-y) was 10-12% ahead of our estimates on superior margins
- StarHub expects IT transformation and 5G opex to incur in 2H22F so we stick to our estimates
- Maintain HOLD with an unchanged TP of S$1.31, for ~4% dividend yield.
1H22 earnings of S$60.9m (-10% y-o-y) comprised 58% of our FY22F estimate. Net profit surprise came from higher-than-expected service EBITDA margin at 24.6% vs our FY22F estimate of 22.6% and management guidance of minimum 20% for FY22F. Starhub expects to incur IT transformations cost and 5G related operating expenditure in 2H22F, so we keep our estimates intact.
1H22 service revenue of S$871m (+12% y-o-y) was in line, driven by acquisitions. Service revenue which excludes equipment/handset sales reported S$871m (+12% y-o-y) for the 1H22 period which was 48% of our FY22F expectations and above the management guidance of +10% y-o-y growth. Mobile revenue during 1H22 was S$268m (+3.6% y-o-y) representing 46% of our FY22F forecasts. 2Q22 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. Excluding one-offs, postpaid ARPU would have been risen to S$30 benefitting from the rise in roaming. Broadband service revenue increased 21% y-o-y in 1H2022, mainly due to the consolidation of MyRepublic Broadband that contributed revenue of S$12.6m in 2Q2022. while Enterprise Business revenue increased 16.9% y-o-y in 1H2022, due to the consolidation of JOS SG and JOS MY.
Mobile services revenue has been rather stable
Source: Company, DBS Bank
Enterprise business revenue ofS$390m (+17% y-o-y) was in line with our projections. Lower contributions from data and internet, managed and voice services resulted in recording S$175m (-3.4% y-o-y) for network solutions. STH’s cybersecurity services reported revenue of S$120.6m (+4% y-o-y) mainly due to growth in revenue from markets overseas, offset by the absence of a major project delivered in June 2021. On regional ICT services, revenue was at S$94m (+158% y-o-y) due to the consolidation of consolidation of JOS SG and JOS MY.
Entertainment revenue during 1H22 was at S$96.4m (+4.6% 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 469,000 (+21% y-o-y). STH recently acquired rights to broadcast English Premier League for the next 6-years.
StarHub announces interim dividends of 2.5 Scts per share. According to StarHub’s FY22F dividend guidance to pay the higher of 5.0 Scts per share or distribute 80% from the normalized earnings, StarHub declared an interim dividend of 2.5 Scts per share. While Capex commitment made in 1H22 amounted to S$79.7m which is 7.5% of total revenue, well below the FY22F guidance of 12-15% of total revenue. Management indicated that higher capex commitment in 2H22, therefore we keep our estimates intact.
Valuation
Maintain HOLD with an unchanged TP of S$1.31 for ~4% dividend yield. . Our DCF valuation is based on WACC of 7.5% & terminal growth rate of 0%.
