Its goal for DARE+ is to double down on digital across everything StarHub does, accelerating value creation, realising growth without frontiers, and delivering an endless continuum of experiences that enrich customers’ lives.
“We expect to see expanding margins along with earnings growth (starting 2H2024) from the ongoing realisation of DARE+ benefits, which are likely to lead to higher dividends in our view,” say the analysts, adding that this will be driven by ongoing realisation of some DARE+ benefits coupled with cost optimisation efforts.
Starhub had already incurred roughly $191 million of the $270 million total DARE+ investments by end-2023 and is expected to incur the majority of the remaining $80 million by 2024, tapering off towards end-2024.
With a shift to an asset-light opex model, the group is expected to greatly reduce existing business-as-usual (BAU) capex while also reducing operating costs as the group shifts its legacy systems to its new Cloud platforms. “Driven by this ongoing capex-to-opex substitution, we expect a net profit CAGR of 14-15% for FY2023-FY2026,” say Chong and Tan. StarHub’s financial year ends in March.
StarHub has also guided for dividends of at least 6.0 cents or at least 80% of underlying net profit. The analysts are bullish and estimate a dividend of around 7.9 cents, implying a yield of about 6.7%, backed by the group’s improving margins and expected earnings growth in FY2024.
Meanwhile, StarHub’s data roaming recovery is on track, although it has yet to reach pre-pandemic levels. “Despite roaming dilution from stiff domestic competition, we expect data roaming to continue its uptrend in 1H2024 as outbound travel continues to pick up,” say Chong and Tan.
The analysts noted that the group remains committed to its $50 million share buyback programme to repurchase up to 3% of the group’s total issued share capital or 51.9 million shares. As of end-4QFY2023, Starhub had repurchased 16.7 million shares at a total cost of $17.6 million or $1.05 per share, representing around 1% of the group’s total issued share capital.
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Market consolidation
“In our view, we opine that Singapore’s telco industry is ripe for market consolidation in the short-medium term, given industry-wide falling mobile service revenue and sliding ARPUs. We reckon that the domestic mobile space of four mobile operators and at least 10 Mobile Virtual Network Operators (MVNO) remains too crowded which has led to the ongoing mobile price war,” say Chong and Tan.
Although competition from MVNOs and Simba Telecom were aimed primarily at the lower-value prepaid market, existing customers from the three incumbent mobile operators have progressively traded down, resulting in the incumbents ceding market share.
The analysts believe that StarHub, backed by a strong balance sheet, would be the prime candidate to lead market consolidation with M1 as the likeliest acquisition target, given existing capex and operating cost synergies.
See more: StarHub and M1 potential merger said to be back on
“Furthermore, with a combined 46% (Starhub+M1) of domestic mobile market share in Singapore, we opine that a Starhub-M1 merger deal would not face regulatory risks, unlike any merger deal with the number one domestic mobile operator Singtel which already commands 46% of domestic mobile market share,” say the analysts, adding that StarHub’s management has noted that it is “ready and able” to consolidate with other local players.
As at 2.30pm, shares in StarHub are trading 2.4% lower at $1.22.
