StarHub: 1Q25 results below, expect weaker mobile ARPU and lower cybersecurity projects
1Q25 normalised earnings of SGD32mn (-21% y/y, -16% q/q) was below consensus. For 1Q25 (Dec YE), StarHub (STH) reported normalised earnings (excluding D’Crypt) of SGD32mn, (-21% y/y, -16% q/q), below the consensus of SGD38.3mn, on lower-than-expected revenue. STH’s 1Q25 total revenue of SGD541mn (-1% y/y, -21% q/q) missed expectations of SGD593mn, led by the decline in Mobile and Cybersecurity segments. Mobile revenue declined by 4.1% y/y (-3.3% q/q) to SGD139mn, 5% below the consensus of SGD147mn due to a decline in roaming, IDD, VAS, and excess data usage revenues. Blended mobile ARPU was SGD21 compared to SGD22 in 4Q24 and SGD23 in 1Q24. Cybersecurity segment revenue of SGD63.5mn (-13% y/y, -62% q/q) was affected by timing of project recognition.
STH’s service revenue of SGD464mn (+1.1 y/y, -21% q/q) was 10% below expectations of SGD516mn, led by the decline in Mobile and Cybersecurity segment revenues, partially offset by Managed Services, which recorded a revenue of SGD78.3mn (+20% y/y). Service EBITDA declined 5.7% y/y (-16% q/q) to SGD95.5mn, recording a margin of 20.6% (vs 22.1% in 1Q24), compared to the consensus of SGD108mn with a 20.9% margin.
StarHub maintained FY25F guidance for EBITDA to remain stable, and capex at 9-11% of total revenue. Street expects service revenue to grow by ~3% y/y and service EBITDA to grow by ~1.5% y/y in FY25F, with an EBITDA margin of 21.3%. Management continues to guide on defending and growing consumer business revenue market share with no specific growth target, to retain flexibility in its guidance. STH forecasts DARE+ transformation expenditure to end by 1H25F, but to yield benefits from FY26F and beyond. StarHub continues to guide for stable EBITDA in FY25F. STH also expects higher amortisation cost for the 700MHX spectrum in 2H25F. As such, we project a 5% decline in earnings in FY25F. The stock offers a 5.3% dividend yield in FY25F on DPU of 6.2 cents (stable y/y) per share.
Revised down our earnings for FY25F/FY26F by 5% each. We revised down our forecasts for mobile revenue for FY25F/26F by 2%/1% as we expect mobile ARPU of STH to decline in FY25F/26F with the rising competition from digital and SIM-only plans. We also raised our projections for depreciation and amortization for FY25F/26F by 2%/3%, as we expect STH’s amortisation costs to rise in 2H25F for the newly acquired 700MHz spectrum. This increase is expected to outweigh any cost savings from reduced transformation costs. STH incurred ~90% of its total transformation costs of SGD270mn (~SGD243mn) in FY24, with the residual 10% to be spent in 1H25F. Hence, we have projected ~SGDSGD27mn in transformation costs for 1H25F (55% capex and 45% opex)
Cut FY25F/26F earnings by 5%/5% on weaker mobile ARPU and higher depreciation cost expected in 2025/2026
Net Income – DBS (SGDmn) | 2024 | 2025F | 2026F | 2027F |
Revised | 159.7 | 152.1 | 164.1 | 190.2 |
Previous | 159.7 | 160.8 | 172.5 | 202.3 |
Revision % | -5% | -5% | -6% |
Source: Company, DBS
Our FY25F/26F earnings projections are 4%/6% below consensus
Net Income (SGDmn) | 2024 | 2025 | 2026 | 2027 | CAGR 2025-2027 |
DBS | 159.7 | 152.1 | 164.1 | 190.2 | 12% |
Consensus | 159.7 | 158.3 | 174.3 | 189.2 | 9% |
% | -4% | -6% | 1% |
Source: Company, Visible Alpha, DBS
STH’s cybersecurity business could fetch a valuation of SGD0.24- 0.40 per share, based on FY25F revenue. Ensign recorded revenue of SGD383.7mn in FY24 (+26% y/y) due to higher project recognition, and achieved an operating profit of SGD4.8mn in FY24. STH is focused on driving growth in its cybersecurity business through strategic investments in R&D and talent. Ensign has grown by an estimated 30% over the last five years but incurred losses as it continued to invest for growth. Ensign secures 51% of its revenue from services and 49% from products.
STH has retained the assigned rights of Ensign for an additional two years, with the automatic termination date being fixed for 4 Oct 2025. Achieving breakeven excluding D’Crypt should be a stepping stone towards the public listing of Ensign, in our view. Based on the peer average price to revenue multiple of for cybersecurity companies that are largely product focused, we apply a conservative valuation of 2x-3x on FY25 revenue (excluding D’Crypt) given Ensign’s relatively smaller size and a lower product business contribution. We estimate Ensign to be worth SGD0.75-1.2bn. STH’s 55.73% effective stake in Ensign is worth SGD0.24-0.40 per share. This represents 19%-32% of STH’s market cap of SGD2.2bn.
Maintain BUY with a lower TP of SGD1.38 (prev: SGD1.46), with Ensign assuming to fetch SGD0.32 per share (mid-point of assumption). We use DCF methodology on unchanged assumptions of WACC of 8.2%, beta of 1.1x, and terminal growth rate of 0% to arrive at SGD1.06 per share (prev SGD1.14) excluding Ensign. We conservatively value Ensign at SGD0.24- 0.40 per share at 2x-3x FY25F revenue with mid-point at SGD0.32 per share.
Sum-of-the-parts valuation for STH
TOTAL VALUATION | Per Share (SGD) |
STH - excluding Ensign | 1.06 |
Ensign 0.32 | 0.32 |
STH valuation | 1.38 |
Source: Company, Reuters, DBS
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