StarHub Earnings: Mobile Competition Continues to Constrain Outlook

StarHub’s second-quarter result was broadly in line with our expectations, with both service revenue and EBITDA growing by 1% and net profit growing 10%. The higher net profit growth was largely driven by depreciation and amortization expenses declining by 4.1%, which is at least partially attributable to Dare+. Again, the higher-margin telecom network service revenue of mobile, entertainment, and broadband declined amid high levels of competition, while the likely lower-margin enterprise revenue grew. Near-term profitability continues to be partially a function of the level of included Dare+ expenses. Management guides for around SGD 100 million of Dare+ investments to be completed between 2024 and 2025, with 90% of that to be completed in 2024. It had previously indicated that around 55% of that would be capital expenditure and the remainder in operating expenses. No clear estimate of what Dare+ expenses were incurred in the first half of 2024 was provided. The second-quarter result was broadly in line with the unchanged full-year 2024 guidance and we retain our SGD 1.26 fair value estimate. We also make no change to our narrow moat rating for StarHub based on cost advantage and efficient scale, with the company continuing to earn returns above its cost of capital in our forecast period and for most of the period of declining profits from 2015 to 2022. With a decrease in Dare+ spending after 2024 and some recovery in mobile revenue driven by roaming, we forecast return on invested capital to increase from 10.5% in 2023 to 15.8% in 2028, compared with an 8.1% weighted average cost of capital.