StarHub 1QFY2023 results meets analysts' expectations, but Maybank lowers TP amid DARE+ funding concerns

Analysts from RHB, CGS-CIMB and Maybank kept “hold” call, but Maybank lowered TP to $1.10.

Analysts from RHB Bank Singapore, CGS-CIMB Research and Maybank Securities have kept their “hold” and “neutral” calls on StarHub CC3 as the telco’s 1QFY2023 results ended March 31, are broadly in line with expectations. While RHB and CGS-CIMB have kept their target prices unchanged at $1.11 and $1.15 respectively, Maybank has lowered its target price to $1.10 from $1.15 previously.

StarHub’s 1QFY2023 ebitda of $113 million and profit after taxation and minority interests (patmi) at $38 million exceeded Maybank’s expectations at 28% of its FY2023 forecasts. StarHub’s 1QFY2023 ebitda and patmi surpassed the market’s expectations at 31% of its FY2023 forecasts.

However, Maybank’s analyst Kelvin Tan anticipates that FY2023 will be another year of slower earnings growth for StarHub given their operating expense in funding their DARE+ transformation.

“From FY2022’s low base, we see core earnings per share staying depressed in FY2023 held by DARE+ upfront investment costs.” says Tan.

But the analyst expects StarHub to climb 24.2% y-o-y by FY2024, as it should be able to reap growth opportunities on continued enterprise growth and the start of DARE+ benefits.

“We further adjusted our FY2023/FY2024 earnings forecast for StarHub by -0.3%/-2.1% after factoring in three to five months delay in completing the DARE+ transformation and bulk of the investment mostly incurred in the next two years,” he says.

“Our discounted cash flow (DCF)-based target price is thus trimmed to $1.10 from $1.15 as we believe ebitda will return to the FY2021 baseline of US$500 million ($667.89 million) by FY2024,” he adds.

Still, Tan notes that StarHub has “positive improvements across all segments”, as its service revenue lifted to $462 million (+11% y-o-y) for 1QFY2023 on broad-based contributions from all segments.

Mobile revenue grew 13% y-o-y on higher postpaid and prepaid revenue, and postpaid average revenue per user (ARPU) rose 5.5% y-o-y on higher roaming and value-added service (VAS) revenue due to travel recovery.

Contributions from consolidation of MyRepublic and Premier League subscriptions lifted broadband (+20% y-o-y) and entertainment (+21% y-o-y) revenue respectively.

Meanwhile, both RHB and CGS-CIMB have kept their “hold” call at unchanged target prices of $1.11 and $1.15 respectively.

RHB analyst expects opex and capex related to the DARE+ transformation program to ramp up in subsequent quarters, notwithstanding the strong 26% y-o-y pick up in 1QFY2023 earnings which they attribute in part to seasonally stronger ebitda margins.

“With [around] 43% of DARE+ open and capex booked to date (of the $310 million guided for FY2022 to FY2026), a significant ramp up in subsequent quarters is to be expected.” says RHB.

RHB analysts also anticipate revenue momentum for mobile roaming and prepaid to improve, as StarHub management highlights that roaming revenue has yet to normalise to pre-pandemic levels.

They are also confident that StarHub notes the good take-up of higher speed plans with the launch of Singapore’s first 10 Gbps fibre plan, which will contribute to broadband revenue.

Meanwhile, CGS-CIMB analysts Kenneth Tan and Lim Siew Khee highlight the new multi-year contract that StarHub was awarded as part of the development of Punggol Digital District (PDD).

StarHub will focus on developing an intelligent software-defined network integrated with 5G and network automation, a move that Tan and Lim from CGS-CIMB believe is a good start for the telco to “transition away from a vanilla telco towards a digital solutions provider”.

They also see potential for further smart city contract wins in the future.

Shares in StarHub closed 1 cent down or at $1.01 on May 16.

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