Maybank Research Pte Ltd

May 13, 2025

StarHub (STH SP) 1Q25: A Rocky Start Signals Earnings Trim

StarHub’s Weak 1Q25 Performance

StarHub’s first-quarter results for 2025 reveal a concerning downturn, primarily stemming from underperformance in its mobile and cybersecurity sectors. Net Profit After Tax (NPAT) experienced a significant drop, declining by 18% year-over-year (YoY) and 16% quarter-over-quarter (QoQ). This places the company’s earnings at just 19% of street forecasts and 20% of Maybank Investment Banking Group’s (MIBG) full-year projections. [[1]]

A deeper dive into the financials shows that service revenues contracted by 1% YoY, largely pulled down by mobile services (-4% YoY) and cybersecurity (-13% YoY). These declines were partially mitigated by a 10% YoY growth in enterprise services. However, increased operating costs and depreciation & amortization (D&A) due to Dare+ related investments led to a 5% YoY decrease in Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). [[1]] Despite the weak start, management has maintained its guidance for stable EBITDA and a minimum dividend of SGD6 cents. [[1]]

Key Takeaways from the Analyst Call

• Intense Mobile Competition: Management highlighted that the mobile market remains fiercely competitive, leading to a decline in high-margin roaming revenues. [[1]]
• Active Market Participation: StarHub is actively engaging across all market segments, preventing smaller operators and Mobile Virtual Network Operators (MVNOs) from gaining significant market share. [[1]]
• Consolidation Potential: There is potential for market consolidation, especially for smaller operators like M1, which face increasing revenue and earnings pressure due to their cost structure and legacy revenue streams. [[1]]
• MVNO Impact: While MVNOs contribute materially to Mobile Network Operators’ (MNOs) mobile revenue, they indirectly erode MNO revenue by competing in the same market. Management believes MVNOs’ razor-thin margins may lead to more rational pricing strategies in the future. [[1]]-[[2]]
• Cybersecurity Rebound: Cybersecurity revenues are inherently lumpy, but management remains optimistic about strong structural growth drivers in this sector. [[2]]
• Dare+ Investments: Approximately SGD30 million in Dare+ investments are expected to be incurred by the first half of 2025, after which the company plans to decommission certain legacy assets. This should lead to a reduction in cost and D&A growth. [[2]]

Earnings and NPAT Forecast Adjustments

In light of the weaker-than-expected first quarter, Maybank has adjusted its financial forecasts. EBITDA estimates for FY25-27E have been trimmed by 4%, and NPAT estimates have been reduced by 8-10%. The FY25 EBITDA is now projected to decline by 3% YoY, compared to management’s flat guidance. [[2]] Factoring these revisions, the target price (TP) has been adjusted to SGD1.10, while maintaining a HOLD rating. These forecasts are 5-9% below street estimates, suggesting a potential risk of further forecast trimming by other analysts. The consumer market is expected to remain highly competitive due to the presence of sub-scale players like Simba, which continues to demonstrate strong growth despite market pressures. [[2]]-[[3]]

Revised Financial Estimates

The following table summarizes the earnings revisions:

Inferred: [[2]]

Comparison with Street Estimates

Maybank’s estimates are compared against street consensus in the following table:

Inferred: [[2]]

Company Description and Statistics

StarHub, the second-largest wireless service provider and the largest pay-TV operator in Singapore, presents the following key statistics: [[4]]

• 52-week High/Low (SGD): 1.29/1.13
• 3-month Average Turnover (USDm): 34.2
• Free Float (%): 55.8%
• Issued Shares (m): 1,732
• Market Capitalisation: SGD2.0B / USD1.6B
• Major Shareholders:
  • Singapore Technologies Telemedia Pte Ltd (9.9%)
  • Nippon Telegraph & Telephone Corp. (0.9%)
  • The Vanguard Group, Inc.

Price Performance Analysis

An analysis of StarHub’s price performance reveals the following: [[4]]

• Absolute Performance: -1M: 1%, -3M: (6)%, -12M: (4)%
• Relative to Index: -1M: (9)%, -3M: (6)%, -12M: (19)%

Financial Highlights

Key financial highlights for FY23A to FY27E are as follows: [[4]]

• Revenue: FY23A: 2,373, FY24A: 2,368, FY25E: 2,397, FY26E: 2,416, FY27E: 2,437 (SGD m)
• EBITDA: FY23A: 468, FY24A: 460, FY25E: 446, FY26E: 469, FY27E: 490 (SGD m)
• Core Net Profit: FY23A: 150, FY24A: 161, FY25E: 154, FY26E: 158, FY27E: 180 (SGD m)
• Core FDEPS (cts): FY23A: 8.6, FY24A: 9.2, FY25E: 8.9, FY26E: 9.1, FY27E: 10.4
• Net DPS (cts): FY23A: 6.7, FY24A: 6.2, FY25E: 6.5, FY26E: 6.8, FY27E: 7.2

Key Investment Theses

• Dare+ Investment Cycle: StarHub is nearing the end of its Dare+ investment cycle, which is expected to boost earnings post-2025. [[3]]
• Competitive Landscape: Intense mobile competition is expected to persist, with limited benefits from consolidation due to the presence of MNOs and MVNOs. Cybersecurity growth may rebound. [[3]]
• Dividend Yield: A key investment thesis is StarHub’s dividend yield, with an expected SGD6.5 cent dividend for 2025, implying a 6% yield. [[3]]

Singapore Telcos Revenue Market Share

Simba is actively gaining market share among Singaporean telcos: [[3]]

• YoY Growth:
  • Singtel: -1%, -2% HoH
  • Starhub: -6%, -1% HoH
  • M1: -6%, -4% HoH
  • Simba*: 31%, 16% HoH
• Simba Revenue Market Share: 4.5%, 5.1%, 6.0%

Financial Metrics and Expectations

• ARPU Pressure: Pre-paid mobile Average Revenue Per User (ARPUs) may remain under pressure due to competition from Simba. [[3]]
• Enterprise Revenue Growth: Expect better Enterprise revenues driven by Dare+ initiatives and strong cybersecurity growth. [[3]]
• Margin Improvement: Margins are expected to improve by 1 percentage point over 2023-26E as StarHub realizes Dare+ linked opex rationalization. Capex/sales is projected to decline from 11% in 2023 to 9% in 2026E. [[3]]

Swing Factors

• Upside:
  • Market consolidation leading to competitive rationality. [[3]]-[[4]]
  • Realization of targeted Dare+ synergies, potentially leading to NPAT hitting SGD230m by 2027E. [[4]]
  • Expansion in dividend yield alongside improvement in FCF yield. [[4]]
• Downside:
  • Failure to consolidate, leading to continued mobile competition and escalating competition in fixed broadband. [[4]]
  • Margins failing to expand and capex intensity not contracting post-Dare+ investment cycle. [[4]]
  • Faster-than-expected shift in consumer preference towards Over-The-Top (OTT) players. [[4]]

ESG Risk Analysis

StarHub faces inherent cybersecurity and data leakage risks. However, the company complies with the Cybersecurity Act and Personal Data Protection Act. [[4]] Internal frameworks govern cyber threat protection and customer data treatment. StarHub supports youth, social, and digital inclusion, donating >SGD1m to support disadvantaged groups. [[4]]

Material E Issues

• Carbon tax introduction led to increased energy costs. [[4]]
• Achieved 16.3% reduction in Scope 1 and 2 GHG emissions from 2021, on track for 2030 target. [[4]]-[[5]]
• Achieved interim target of 14% energy use from renewable sources. [[5]]
• Recycled 100% of ICT e-waste from corporate office and warehouse. [[5]]
• Reduced total water consumption by 20.2% in 2023 from 2022 levels. [[5]]

Key G Metrics and Issues

• Board consists of 55% independent & non-executive directors, 27% are female. [[5]]
• Independent directors chair key committees. [[5]]
• No incidents of non-compliance in 2023. [[5]]
• Compliance with Cybersecurity Act and Personal Data Protection Act. [[5]]
• Internal data protection frameworks implemented. [[5]]

Material S Issues

• Maintained zero incidents of non-compliance regarding health and safety impact of products and services. [[5]]-[[6]]
• 27% of the board and 41% of the workforce are female. Whistleblowing program in place. [[6]]
• 17,865 hours of training provided to 97% of employees. [[6]]
• Reached more than 4,180 beneficiaries with donations, with staff contributing more than 1,215 volunteering hours. [[6]]
• Adopted an inaugural Board Diversity Policy in 2022 and set a new target to maintain a minimum of 25% female representation on the Board within the next 3-5 years. [[6]]

Key Financial Ratios

Inferred: [[5]]

Income Statement (SGD m)

Inferred: [[5]]

Balance Sheet (SGD m)

Inferred: [[5]]

Cash Flow (SGD m)

Inferred: [[5]]-[[6]]

Key Ratios

Inferred: [[6]]