StarHub - Maybank Research 2022-11-10: DARE+ Expenses Kicking In

• StarHub (SGX:CC3)'s 9M22 EBITDA at S$339.2m and PATMI at S$88.3m met MIBG expectations at 75%/76% of our FY22e estimates. However, PATMI (-18% y-o-y) was underwhelming relating to one-off expenses for premier league and ongoing DARE+ investments.
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Newly integrated businesses boost earnings

• Service revenue lifted to S$1,353m (+13% y-o-y) in 9M22 on broad-based strength with Mobile (+5.5% y-o-y), Entertainment (+9.1% y-o-y), Broadband (+23.8% y-o-y) and Enterprise (+16.7% y-o-y). This was due to the consolidation of HKBN JOS SG & MY and MyRepublic Broadband lifting both revenue and subscriptions.
• Notably, mobile revenue grew 6.5% q-o-q on higher postpaid revenue, offset by lower prepaid revenue.
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  • Prepaid ARPU remained stable at S$8 with increased subscribers due to gradual travel recovery from reopening.

Weaker 2H22 as DARE+ costs start to build

• A lofty IT transformation outlay, mostly treated as opex to fuel its multi-year DARE+ program, will likely lead to a drop in StarHub's EBITDA margin to 20.4% in FY22E from 23.2% as at Sep-22 as costs are expected to rise in 4Q22.
• We are also cautious that further delays in capex spending into FY23 might also drag on net profit through higher depreciation costs. Unless roaming revenue gains momentum or fresh revenue begins to contribute meaningfully, we think StarHub's earnings will be sluggish in 2H22.

Proxy to capture re-opening opportunities

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Kelvin Tan Maybank Research | https://www.maybank-ke.com.sg/ 2022-11-10 SGinvestors.io

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