Introduction
The integrated telecommunications sector in Asia has faced a dynamic period of transformation in recent quarters. Our comprehensive analysis scrutinizes Starhub’s latest performance, strategic challenges and recovery outlook, along with detailed peer comparisons spanning key telco markets in Indonesia, Malaysia, the Philippines, Singapore, and Thailand. This report provides an in-depth look into current performance metrics, strategic initiatives, and future guidance – equipping investors with robust insights into the competitive landscape.
In-Depth Analysis of Starhub
Performance and Financial Results
Starhub’s 2H24 core net profit reached S\$58 million, marking a 30% year-on-year decline despite excluding a one-off S\$20.6 million provision reversal. The company’s performance missed market expectations as its core EBITDA margin stood at 17.1%, well below the estimated 19.4%. The final dividend per share for FY24 was delivered at 6.2 Scts, down from 6.7 Scts in FY23, further reflecting the muted recovery in its earnings profile.
Strategic Challenges and Market Dynamics
The report highlights a stabilised FY25F EBITDA outlook as Starhub’s management anticipates that the benefits from its Dare+ initiative—aimed at cost efficiencies and margin recoveries—would take more time to materialise. The domestic mobile market remains “hypercompetitive,” with both postpaid and prepaid Average Revenue Per User (ARPU) recording steep declines. The mobile segment has been particularly pressured by an aggressive push towards lower-end SIM-only plans, despite positive subscriber growth driven by SIM-only brands.
Enterprise Growth and Diversification
On the brighter side, Starhub’s enterprise business is showing robust performance. Revenue from managed services and cybersecurity has experienced notable improvements, with 2H24 figures showing a 22% and 10% year-on-year increase respectively. The company’s order book for managed services is rapidly expanding, providing a potential catalyst for strong revenue growth in FY25F.
Valuation and Recommendation
In light of slower mobile revenue growth, higher depreciation and amortisation expenses from the commencement of the new spectrum and increased interest costs from debt refinancing, the analyst has dialed back EPS recovery expectations. Consequently, Starhub’s core EPS growth forecast for FY24-27 has been moderated to a CAGR of 10%. The DCF-based target price has been revised downward to S\$1.30, and the rating has been downgraded from Add to Hold despite a decent FY25F yield of 5.7%. Integral risks include intensified mobile competition and the challenge in harvesting meaningful Dare+ benefits.
Regional Peer Comparison Analysis
Indonesia Telcos
The Indonesian telco landscape is represented by prominent names like Indosat, Telekomunikasi Indonesia, and XL Axiata. Indosat has garnered an “Add” rating with an optimistic outlook supported by robust EBITDA and market performance. Telekomunikasi Indonesia similarly carries an “Add” recommendation, reflecting confidence in its recovery potential. By contrast, XL Axiata is assigned a “Hold” rating, highlighting a more cautious stance amid competitive pressures.
Malaysia Telcos
In Malaysia, key players include Axiata Group, CelcomDigi, Maxis, and Telekom Malaysia. Axiata Group continues to receive “Add” recommendations, underpinned by strong market fundamentals. CelcomDigi is regarded as a “Hold” due to conservative outlook expectations and gradual recovery timelines. Both Maxis and Telekom Malaysia are favoured with “Add” ratings, demonstrating investors’ confidence in their ability to deliver improved financial performance, with competitive median dividend yields and valuation multiples accentuating the positive sentiment.
Philippines Telcos
The competitive dynamics in the Philippine market feature Globe Telecom Inc. and PLDT Inc. Globe Telecom has not been rated, reflecting an uncertain outlook, while PLDT is supported with an “Add” rating. PLDT’s financial metrics, including a promising dividend yield and attractive forward earnings projections, play a considerable role in justifying the recommendation.
Singapore Telcos
In the Singapore telco market, the key contenders are SingTel and Starhub. SingTel maintains an “Add” rating backed by solid market performance and robust financial metrics. Meanwhile, Starhub—despite being a significant market player—is currently rated as “Hold” due to its underwhelming mobile revenue performance and the challenges it faces in realising Dare+ synergies.
Thailand Telcos
The Thai market sees Advanced Info Service and True Corporation as its principal representatives. Both of these companies hold a “Hold” rating. Advanced Info Service’s relatively modest growth prospects and True Corporation’s mixed performance metrics contribute to a conservative stance among analysts.
ESG & Sustainability Initiatives
Starhub’s commitment to sustainability is also a notable highlight. The company has made significant strides in reducing its environmental footprint by lowering carbon emissions by 16% in 2023 compared to 2021. With 14% of its energy consumption derived from renewable sources and an ambition to increase this to 30% by 2030, Starhub is at the forefront in the sustainable telco space. Moreover, the integration of sustainability-linked KPIs into senior management compensation from FY24 further reinforces the company’s dedication to its ESG objectives. In recognition of these efforts, Starhub was ranked by Corporate Knights as the world’s most sustainable wireless telecommunication provider in 2023.
Financial Summary & Future Outlook
Starhub’s revenue for FY24 fared in line with consensus forecasts, forming about 86-85% of projections. The operational metrics reflect muted growth, with EBITDA margins hovering around 19.4% and modest net profit recovery anticipated in future forecasts. The company faces upward pressure on D&A expenses and higher interest costs, challenging its earnings recovery trajectory. The DCF valuation pathway, which incorporates adjustments for working capital, capex, and net finance costs, solidifies a target price of S\$1.30 per share. With core EPS forecasts lowered by 11-17% for FY25-26, the market remains cautious of additional cuts amid volatile mobile market conditions.
The broader telco landscape sees significant investor interest driven by robust dividend yields and solid valuations in some regions. However, the ability of companies to navigate intense mobile competition and capitalise on enterprise growth opportunities remains a key determinant of future performance.
Final Recommendation & Conclusion
In summary, while Starhub’s current yield remains appealing at 5.7% and its enterprise segment shows promise, the challenging mobile competition and slower cost-synergy benefits from the Dare+ program have prompted a downgrade in its recommendation to “Hold.” This conservative stance contrasts with several peer companies across the region that maintain “Add” ratings—reflecting a mix of confidence and caution that underlines the diverse recovery trajectories in the telco sector across Indonesia, Malaysia, the Philippines, Singapore, and Thailand.
Investors are advised to watch for re-rating catalysts such as the timely execution of mergers and acquisitions, quicker realization of cost benefits, and accelerated margin growth through enhanced enterprise services. The evolving competitive dynamics and strategic initiatives across the region remain critical factors driving future valuations.
