1H22 a beat; overhang likely given weak 2H
- 1H22 EBITDA was in line; core EPS was a beat on low depreciation. As expected, 1H22 DPS was 2.5 Scts (1H21: 2.5 Scts).
- We expect 2H22F EBITDA & core EPS to fall hoh on higher costs, mainly related to IT transformation, 5G wholesale & EPL content cost/marketing.
- Reiterate Hold with unchanged DCF-based TP of S$1.40.
1H22 results a beat due to lower-than-expected depreciation
1H22 EBITDA eased 7.5% yoy (-11.5% hoh) as the lower margin more than offset higher revenue. This led to core EPS falling 12.1% yoy (-23.9% hoh). 1H22 EBITDA was at 53% of our FY22F forecast (50% of Bloomberg consensus’), which is largely in line as we expect costs to pick up considerably in 2H22F. Nonetheless, 1H22 core EPS was a beat at 76% of our FY22F estimate (55% of consensus) due to lower-than-expected depreciation. As expected, 1H22 DPS was 2.5 Scts (1H21: 2.5 Scts).
Better revenue yoy across the board…
1H22 mobile service revenue rose 3.8% yoy (-1.0% hoh). 2Q22 postpaid ARPU was stable qoq (+3.6% yoy), as higher roaming was offset by IFRS adjustment for device subsidies and rising take-up of SIM-only plans. Ex-IFRS adjustment, 2Q22 postpaid ARPU would have risen 3.4% qoq (+7.1% yoy). Postpaid subs posted a decent gain of 1.3% qoq. For prepaid, ARPU was also flat qoq, with subs up 3.3% qoq. Meanwhile, 1H22 Fixed Enterprise revenue climbed 16.9% yoy (+4.7% hoh), owing to the consolidation of HKBN JOS Singapore & Malaysia and cybersecurity growth (+4.1% yoy), which more than offset weaker network solutions revenue (-3.4% yoy). Elsewhere, broadband revenue was up 21.4% yoy (+17.1% hoh) on consolidation of MyRepublic Broadband (MRB) and 2Gbps adoption; ex-MRB, broadband revenue rose 8.2% yoy (+4.3% hoh). Entertainment revenue grew 4.7% yoy (+7.7% hoh) on strong net adds.
…but EBITDA margin was down; costs to rise further in 2H22F
1H22 service EBITDA margin narrowed 5.4% pts yoy (-5.1% pts hoh) to 24.5% due to higher costs, which includes some initial investments for its IT transformation initiatives. While 1H margin is tracking ahead, StarHub reiterated its FY22 EBITDA margin guidance of at least 20% as it expects opex to pick up in 2H22 for IT transformation, 5G wholesale, staff, utilities (inflationary) and English Premier League (EPL) content cost/marketing.
Reiterate Hold and DCF-based TP of S$1.40 (WACC: 7.3%)
We raise FY22-24F core EPS by 19.9-26.9%, mainly to factor in lower depreciation. We now project core EPS to tank 33.3% yoy in FY22F (DARE+ costs), then rise 26.7%/3.9% in FY23F/24F on full roaming recovery, Enterprise growth and start of DARE+ benefits. We retain StarHub’s TP (still applying 20% discount) as we rollover the DCF base year, offset by 25bps higher risk-free rate of 2.75% (recent rise in government bond yields), while the depreciation adjustment is non-cash. We reiterate Hold given the weak 2H22F earnings outlook. Upside/downside risks: lower-than-expected costs/stiffer competition.