StarHub recently announced its 1QFY2024 ended March business update. For the first quarter, normalised earnings (excluding D&rsquo crypt that was divested in February) were 8.1% higher y-o-y at $40.1 million, while revenue held steady at $545.4 million, down 0.1% y-o-y.

 

Service revenue, which excludes items such as the sale of equipment, increased by 1.9% y-o-y to $458.9 million, which is in line with its FY2024 guidance of growing between 1% and 3%.

 

Mobile revenue, its single largest business segment, saw a 4.6% y-o-y drop in revenue to $145.2 million, no thanks to lower average revenue per user. This was a result of users movement to SIM only plans and lower excess usage revenue. The group seeks to address this issue by promoting handset-bundling plans along with new services.

 

Its enterprise segment recorded a 10.4% jump in revenue to $197.7 million, thanks partly to higher revenue from cybersecurity services and network revenue.

 

Following which, analysts have been rather positive and keeping their &ldquo buy&rdquo recommendations on the telco player.

 

DBS Group Research has maintained its &ldquo buy&rdquo call and $1.54 target price, on 8% earnings CAGR over FY2023-FY2025, coupled with 5.8% dividend yield.

 

StarHub had earlier guided transformation cost of $54 million (20% of $270 million) to be incurred in FY2024 and the remaining $27 million in FY2025, with capex/opex split of 60%/40%. This has been revised, where it expects about $100 million of transformation cost in FY2024 with no residual in FY2025.

 

Furthermore, there has been a change in the capex/opex split, to 55%/45% from 60%/40% earlier. Due to this, DBS believes that the FY2024 earnings could be adversely impacted by $15 million. However, StarHub maintains its FY2024 service EBITDA margin and capex guidance on cost efficiencies. 

Meanwhile, UOB Kay Hian too continues to rate StarHub &ldquo buy&rdquo with the same target price of $1.41.

 

Analysts Chong Lee Len and Llelleythan Tan views StarHub&rsquo s 1QFY2024 results as in-line estimates, as it also met most of its own FY2024 guidance, while exceeding its capex guidance.

 

&ldquo Moving into 2QFY2024, we expect some downside to service revenue growth given stiff competition in the group&rsquo s consumer segments, likely meeting the lower end of its guidance. Also, service EBITDA margin is expected to stay muted as capex commitment would likely increase from increased frontloaded DARE+ investments, offset by realisation of DARE+ cost efficiencies,&rdquo say the analysts. They have estimated a dividend of about 7.9 cents, implying an 80% Patmi payout and 6.3% yield.

 

On the outlook, Chong and Tan expect mobile competition to remain intense amid the group&rsquo s soft performance, while entertainment is affected by seasonality due to the cessation of promotions and absence of one-off revenue contributions from the Cricket World Cup.

 

As for broadband, the group remains quite stable in this segment despite stiff competition, supported by new customer acquisitions and ongoing migration to the ARPU accretive 10Gbps plans.

 

The enterprise segment however is the outperformer, with revenues surging 10.4% y-o-y in 1QFY2024, driven by increased network solutions and cybersecurity services revenue, offset by regional ICT services. The growth was led by increased contributions from data-centre related revenue and project deliveries. &ldquo Also, Starhub is set to launch regional data centre cloud connectivity services in 3QFY2024 which we reckon would help support segmental revenue growth,&rdquo say the analysts.

 

Maybank Research too has similar sentiments as it keeps its &ldquo buy&rdquo call and $1.44 target price on StarHub. Analyst Hussaini Saifee has also pointed out that a mobile industry consolidation remains a potential catalyst, amid strong competition in the consumer segment.

Despite slower top-line growth, earnings grew by a faster pace, helped by efficiency realisation from its earlier DARE+ investments. &ldquo StarHub has pushed forward DARE+ investments in FY2024, which means higher opex/capex but should also mean earlier efficiency realisations,&rdquo says Saifee.

 

Factoring in slightly lower consumer revenues and higher upfront DARE+ investments, the analyst has trimmed FY2024-FY2026 earnings estimates by 1%-3%. He expects core net profit for FY2024 to come in at $161.3 million, $185.3 million in FY2025 and $199.6 million in FY2026.

 

PhillipCapital too maintained its &ldquo accumulate&rdquo call on StarHub with a target price of $1.29.

 

Analyst Paul Chew is upbeat on the group&rsquo s strong cybersecurity revenues in 1QFY2024, but is cautious on the weakness in mobile ARPU, no thanks to the competitive environment.

 

&ldquo We believe SIM-only plans allow competitors to offer aggressive price plans with less capital intensity, such as phone subsidies, and MVNOs can compete with comparable network quality. Competition is also entering the lucrative mobile roaming plans. DARE+ becomes a necessity to move away from commoditised network accesses. It allows StarHub to sell more value-added services, including insurance, entertainment, and health-related services,&rdquo says Chew.

 

Morningstar on the other hand, has given a three-star rating out of a maximum five with a target price of $1.26.

 

Analyst Dan Baker too shares similar sentiments with the street, as he remains cautious on the group&rsquo s declining mobile revenue. However, he does expect some near-term profitability, partially a function of the level of DARE+ expenses.

 

&ldquo There was again some discussion at the result briefing around potential consolidation in the Singapore telecom market. With a net debt/EBITDA ratio of around 1.4x and StarHub management&rsquo s stated comfort with this level increasing to around 2.5x if the right investment opportunity comes along, we believe StarHub could be a consolidator,&rdquo says Baker.

 

Simba, the fourth mobile operator, would be the most likely target in Baker&rsquo s view, although its strong share price appreciation since November 2023 would make such a deal expensive. While he sees Simba&rsquo s spectrum assets as attractive for StarHub, he is however less excited about its customer base and network. &ldquo We expect the customer base will potentially have a higher churn, and the network may not be easy to integrate with StarHub&rsquo s existing mobile networks,&rdquo says Baker.

 

The analyst also thinks a merger with M1 is possible, given they already have a network-sharing deal for 5G. Depending on the price, this deal may make more sense from a network perspective.

 

  However, given how hard the Singapore regulators worked to get a fourth entrant into the market, it is unclear how they would react to such a merger proposal if it came about. &ldquo As a general rule, we think the other non-consolidator market players are more certain beneficiaries of market consolidation as it usually leads to a less competitive pricing environment, and they get that for free,&rdquo says Baker.

Total revenue dips to S$545.4 million over the same period a year ago, from S$546 million

 

STARHUB : CC3 0% : CC3 0%on Tuesday (May 14) posted an 8.1 per cent rise in net profit to S$40.1 million for the first quarter ended Mar 31, from S$37.1 million a year earlier.

 

This comes as total revenue dipped 0.1 per cent to S$545.4 million over the same period a year ago, from S$546 million.

 

The company attributed the rise in net profit to a higher share of profits from joint ventures and associates, lower net finance costs, lower depreciation and amortisation and taxation charges.

 

However, total revenue fell as a result of lower sales of equipment, which were partially offset by higher service revenue that rose 1.9 per cent year on year.

 

As for its segments, only its enterprise segment registered revenue growth, rising 10.4 per cent to S$197.7 million.

 

The company attributed this to higher revenue across its network solutions and cybersecurity services businesses, which climbed 5.1 per cent and 37.1 per cent in Q1 year on year, respectively.

 

StarHub added that it expects to launch its low-latency data centre connect solution in the third quarter of this year. It will offer &ldquo ultra-low&rdquo latency connectivity between data centres, with network slicing and bandwidth-on-demand features.

 

This was offset by a decline in regional ICT services revenue, which fell 19.9 per cent year on year.

 

Meanwhile, the company&rsquo s mobile, broadband and entertainment segments fell 4.6 per cent, 0.9 per cent, and 4.2 per cent, respectively.

 

StarHub said the lower postpaid average revenue per user of S$31 for the quarter, from S$32 a year ago, was mainly due to lower voice and data subscription revenues, lower IDD and excess data usages, as well as lower roaming charges.

 

Meanwhile, its broadband segment saw lower revenue from premiums related to tactical promotions, which was offset by higher subscription revenue.

 

The company noted that it has seen continued migration to higher bandwidth offerings, with its 10 gigabits per second subscriber base growing by 4.5 times in the first quarter of this year, compared to the preceding quarter.

 

Furthermore, entertainment revenue declined as a result of a drop in subscriber bases, although average revenue per user rose to S$45 in Q1, from S$43 a year earlier.