Comprehensive Analysis of StarHub’s Financial Performance
Date: Thursday, 14 November 2024
Broker: UOB Kay Hian Private Limited
Company Overview
StarHub is a prominent telecommunications company in Singapore, providing a myriad of services that include mobile, pay-TV, broadband solutions for the consumer market, and ICT solutions for the enterprise market.
Company Results and Performance
Share Price and Target Price
The current share price of StarHub is S\$1.19, with a target price set at S\$1.41, representing an upside potential of 18.4%. The company is listed under the GICS sector of Communication Services with a Bloomberg ticker of STH SP. StarHub has 1,717.8 million shares issued, resulting in a market cap of S\$2,044.3 million (US\$1,526.5 million).
Price Performance
Over the past year, StarHub’s price performance has been quite varied. The 52-week high and low are S\$1.29 and S\$1.04, respectively. Over different periods, the performance percentages are as follows:
- 1 month: -0.8%
- 3 months: -7.0%
- 6 months: -2.5%
- 1 year: 11.2%
- Year-to-Date: 7.2%
Major Shareholders
Temasek Holdings Pte Ltd holds a majority stake of 56.4%, while NTT Communications owns 10% of the shares.
3Q24 Results
StarHub’s third-quarter results for 2024 were largely in line with expectations. The company reported a higher Profit After Tax and Minority Interests (PATMI) of 11.0% year-over-year (yoy), driven by cost efficiencies and benefits from the DARE+ initiatives. Despite challenges in the mobile and entertainment segments, the broadband segment showed positive growth.
Segment Performance
Mobile
The mobile segment generated operating revenue of S\$143.3 million, a decrease of 6.5% yoy. This decline was attributed to lower prepaid and postpaid revenue, reduced value-added services, decreased plan and data subscriptions, and lower voice and International Direct Dialing usage. However, the postpaid and prepaid Average Revenue Per User (ARPU) remained stable quarter-over-quarter (qoq), supported by new add-on verticals such as cybersecurity and device protection products.
Entertainment
The entertainment segment faced a revenue decline of 8.1% yoy, amounting to S\$52.1 million. The subscriber base reduced by 32,000 yoy and 7,000 qoq due to the cessation of tactical promotions. ARPU was stable at S\$45/month but fell slightly from the previous quarter’s S\$46/month due to promotions aimed at customer retention.
Broadband
The broadband segment benefitted from higher subscription revenue, particularly for higher-speed plans of 5Gbps and 10Gbps. Revenue for the segment increased by 1.4% yoy to S\$63.2 million. Subscribers grew by 1,000 yoy and qoq, with ARPU increasing to S\$35/month.
Enterprise
The enterprise segment showed a slight revenue decline of 3.1% yoy, primarily due to the timing of project revenue recognition from cybersecurity services. However, network solutions and regional ICT services revenues grew by 9.4% and 29.2%, respectively, driven by increased managed services and project completions.
Financial Performance and Key Metrics
EBITDA and Margins
For 3Q24, EBITDA stood at S\$114.6 million, reflecting a 4.5% increase yoy, despite a 3.0% qoq decline. The EBITDA margin improved by 2.0 percentage points to 19.9%. Service EBITDA grew by 6.6% yoy to S\$108.9 million, with the margin increasing to 22.1%.
Subscribers and ARPU
StarHub’s total subscriber base reached 2,251,000, marking a 4.4% yoy growth. Postpaid ARPU was stable at S\$30, while prepaid ARPU remained unchanged at S\$7. Entertainment ARPU was S\$45/month, and broadband ARPU increased to S\$35/month.
Key Financials
The company’s financial forecast for the years 2024 to 2026 shows steady growth:
- Net turnover is expected to increase from S\$2,428.5 million in 2024 to S\$2,570.8 million in 2026.
- EBITDA is projected to grow from S\$485.5 million in 2024 to S\$550.5 million in 2026.
- Net profit is anticipated to rise from S\$169.3 million in 2024 to S\$228.7 million in 2026.
Dividend Yield
StarHub offers a lush dividend yield of 6.6% for 2024, with an expected dividend of around 7.9 S cents per share, implying an 80% PATMI payout.
Stock Impact and Future Prospects
Mobile Segment
Despite headwinds, the mobile segment showed resilience with stable ARPU and a significant increase in postpaid subscribers. The segment remains competitive, driven by new add-on services and strong uptake of giga! and MVNO brands.
Entertainment Segment
The entertainment segment experienced a decline in revenue and subscriber base. The company has focused on tactical promotions to retain customers, which has kept ARPU relatively stable.
Broadband Segment
The broadband segment continues to perform well, with growing demand for higher-speed plans and increasing ARPU. The segment’s revenue is expected to remain strong amid stiff competition.
Enterprise Segment
The enterprise segment’s fundamentals remain intact, with growth in network solutions and regional ICT services. The timing of project revenue recognition from cybersecurity services has impacted short-term revenue but is expected to balance out in future quarters.
Valuation and Recommendation
Valuation
StarHub maintains a BUY recommendation with a DCF-based target price of S\$1.41, reflecting an 18.4% upside potential. The stock is expected to trade at 6x 2025 EV/EBITDA, which is -1 standard deviation to its long-term average mean EV/EBITDA.
Share Price Catalysts
Key catalysts for the share price include market consolidation with the exit of MVNOs, faster-than-expected 5G adoption, and the realization of DARE+ initiatives benefits sooner than anticipated.