StarHub Ltd
SGX:CC3
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StarHub Ltd
Earnings Call Analysis
Q3-2023 Analysis
StarHub Ltd
The company has seen impressive growth across various business lines, with an 8.9% increase in service revenue for the third quarter and 8.2% for the year-to-date, signaling both resilience and strategic prowess in a competitive market. They've achieved a noteworthy expansion in their mobile entertainment and cybersecurity offerings, even while facing significant competition and market erosion. The commitment to an asset-light and capital-efficient strategy, through capital expenditure (CapEx) to operating expenditure (OpEx) substitution, is paying dividends, enabling the company to post a robust 37% growth in net profit for the third quarter and almost 30% for the year-to-date.
The company's financial health is exemplified by their strong service EBITDA growth of 7% year-on-year for the third quarter and steady for the nine-month period. Free cash flow stood at about $131 million, and with a low leverage of 1.43x, they possess a substantial 'war chest' for strategic initiatives under the DARE+ program, which includes acquisitions and enhancing shareholder returns. This sound financial positioning underscores a conscious shift from a model reliant on heavy capital investment to one that emphasizes operational expenditure, which aligns with the modern business landscape.
The Mobile sector had a remarkable quarter with service revenue soaring by 11% year-on-year for the nine months, a result of a strategic focus on monetizing their offerings and improving the average revenue per user (ARPU), rather than competing on price in the lower-end market segment. The Broadband and Entertainment sectors also demonstrated positive trajectories, with the latter benefiting from high-value content packages like the Premier League, which have significantly increased revenue market share.
On the Enterprise front, the company reported a 14% growth for quarter three and 6.5% for the nine months in comparison to the previous year, especially highlighting their Cybersecurity and Managed Services. This success can be partly ascribed to project completions leading to higher revenue recognition, despite an operating loss incurred due to investments in talent acquisition. The emphasis on Cybersecurity is also evident in their DARE+ strategy, highlighting their commitment to growth in this critical market segment.
The company provided a glimpse into their future with announcements such as the extension of a significant contract as part of their focus on Cybersecurity, consolidating their position in an increasingly digital world. The DARE+ strategy, while still incurring costs, is expected to enhance efficiencies and drive profitability in the future. Notably, service revenue guidance for the year exceeds expectations, currently at about 8%, and they are performing in line with the anticipated EBITDA margin and proficiently managing their CapEx, which underscores the effectiveness of their ongoing strategic endeavors.
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Hi. Good evening, everybody. Thank you for joining us at our 3Q and 9M 2023 Business Performance Update Call.
My name is Amelia, and I take care of StarHub Investor Relations. This evening, as usual, we have with us, our Chief Executive Officer, Nikhil Eapen; our CFO, Dennis Chia; Chief of Consumer, Johan Buse; and Kit Yong Tan, Head of Enterprise Business Group. We'll start off with the opening remarks and an overview of our performance from Nikhil, followed by Dennis on financials, and then Johan and Kit on business highlights, and we'll then open the floor to Q&A thereafter. Nikhil, over to you, please.
Okay. Well, thank you, everyone, and good evening to all of you. Thank you for joining us for our 3 months and 9 months year-to-date results of 2023. And as we have always talked about in '23, an important year for us as part of our DARE+ [indiscernible].
So with that, perhaps we can start with the financial highlights. So let's start with service revenue on the top right-hand side of the page, we experienced strong growth, as you can see, 8.9% for the third quarter and 8.2% for 9 months year-to-date, both year-on-year numbers.
Now we grew across all business lines for 9 months year-to-date and across most business lines for the third quarter. And in fact, we had a double-digit percentage growth for mobile entertainment and cyber and recent growth for others.
And this was, as we'd like to point out, despite significant competition and market erosion broadly. Now number 2, on service EBITDA. Despite material debt plus investment costs that we have been incurring through the year, we were able to grow service EBITDA 7% year-on-year for the third quarter and 2 months for the 9 months.
Now on net profit, we grew net profit very strongly by 37% for the third quarter year-on-year and almost 30% for the 9 months year-to-date year-on-year.
Now this strong growth was a function of a few things. It was obviously in tandem with growth on top line and EBITDA. But it also reflects something that we'd like to talk about more and more, which is CapEx to OpEx substitution, which we are driving across the board and in line with our more asset-light and capital-efficient strategy.
Now on this page and to steal my CFO's thunder a little bit, our free cash flow was also strong and mounting at about $131 million for 9 months 2023. So our leverage at this point is very low at about 1.43x, giving us a big war chest for our DARE+ program for acquisitions and, of course, for shareholder return, and we expect to continue reducing our leverage.
Now overall, across these numbers, 2 important points. First of all, CapEx to OpEx is something that I mentioned. So when you look at [indiscernible] rollout in joint venture with the #3 operator as well as our IT and Network, which we are moving more from sort of legacy to cloud-based models, we are shifting from CapEx to cloud OpEx.
So this is our fundamental business that have model evolution, as I said, more asset-light and what you will receive. So far to date, as well as over time as our net income and free cash flow become more pertinent than EBITDA, for instance, which doesn't necessarily have that ROI focus, and you will see our net income percentage of EBITDA and free cash flow as a percentage of EBITDA increasing and is something that Dennis will elaborate on, and we'll focus on it on Investor Day.
Now on DARE+ which is the second important point that I would like to make. As you know, we invested between cash and accruals about 36% of the $310 million in 2022. We continue to spend materially on DARE+ this year, and we will be spending next year.
Now as Dennis has mentioned in prior calls, we expect to reduce that total bill for DARE+ from the $310 million to something lower, which, again, we'll update on in due course. But once that spend is done -- once the spend will tail off, we will also start harnessing and driving DARE+ efficiency. It hasn't really happened yet. We expect and are very focused on driving continued profitability growth beyond that point. And again, the company will elaborate on that at our Investor Day.
So with that, next page. So segmented revenue. So year-on-year, we grew across all segments for 9 months year-to-date. Now on Mobile, we grew service revenue substantially by 11% year-on-year for the 9 months and 7% for the third quarter. And our focus has been on monetizing and increasing ARPU rather than fighting the price fight in the market at the low-end segment.
But we captured roaming upside, but we also held or increased our base in ARPU. And again, I'd like to say that this is in stark contrast to the market, which has been eroding. I think many of you have seen the year-on-year reduction in consumer revenue with the #3 operator, which includes Broadband, by the way. So we estimate our revenue market share to be quite substantive with #3 operator and approaching almost 500 basis points.
Now on Broadband, we have market leadership. We've grown 4% year-on-year. On 3Q, we faced a small decline. We have consciously withdrawn premiums and promotions. Hence, we actually have a little bit of profitability improvement on the segment. And we're also strongly growing and are very focused on driving increased penetration of [indiscernible] which we defined as 2G and 10G-XGS-PON [indiscernible].
Now on Entertainment, we've seen strong growth year-on-year as well as for the quarter year-on-year. Now this was, of course, due to a few things, but we will call out Premier League but also pull-through from Premier League into high-value packages.
So when you look at our sports lineup. We have F1, we have Rugby World Cup, we have the ICC World Cup. So we have completely and most comprehensive offerings but also the general entertainment.
And this is reflected in a significant lead in revenue market share in the Entertainment segment. Now on the Enterprise side, we saw sustained year-on-year growth, mainly driven by 22% growth year-on-year for Cyber for the 9 months and actually 45% in 3Q. We've always talked about the fact that our Cyber business and our joint venture [indiscernible] is growing strongly with back-ended growth in third quarter and fourth quarter. And we continue to see strong pipeline and strong growth for the Cyber Security segment.
Regional ICT is down. And then with Network Solutions, we continue to see strong competition on the connectivity businesses, which are a little bit more comparable across competitors, but we are growing our managed services quite aggressively. And we are also reorienting our Enterprise business really towards selling new platforms around multi-cloud network and [indiscernible], et cetera, et cetera, really driving that thesis around converting cloud, cyber security and connectivity on the new platform.
So with that, I'm just updating versus our guidance. So we had service revenue guidance of 3% to 5% for the year. So far for 9 months, we are ahead of that at about 8%. On service EBITDA margin year-to-date, we're in line. And then on CapEx, we are outperforming in [indiscernible], although we do expect we will catch up, which our team CFO will elaborate on.
So with that, I'll hand over to Dennis, for a more detailed financial overview.
Thanks, Nikhil, and good evening, everyone, and thanks for joining us. Some key call-outs on Slide 7. In terms of operating expenses, you would see year-on-year increase and that's primarily representing the transmission expenses that we have incurred and continue to incur in respect of our DARE+ strategy. That also is the same trend and explanation so far as 9 months number is concerned.
EBITDA for the quarter was at $114 million for 9 months, sitting at $344 million. You'll see that our net profit number is strong, and we closed quarter at about $37 million, representing about 37% year-on-year increase. And for the 9 months, we have a 29% increase in our net profit number.
You'll see that the net profit number has grown significantly faster than our EBITDA number, and that goes to the point that Nikhil had mentioned regarding our CapEx to OpEx shift and the fact that our depreciation and amortization bucket has reduced. And we do have a year-on-year net reduction in our net interest expense.
Net profit after tax of $37 million represents $2.3 on an EPS basis. And for the 9 months, we have EPS of about $6.7. Free cash flow of $131 million for the 3 months for the quarter as well as for the 9 months, sitting at $131 million or $7.7 per share. And our leverage, as Nikhil mentioned, is 1.43x.
With that, I will hand over to Johan to talk about Consumer.
Yes. Thank you very much, Dennis, and good evening, everyone. So Nikhil gave already most of the information. So I'll pick it up here from the bottom of the page.
So Mobile did really well. We had a strong quarter. So year-on-year for the quarter, up 7% [indiscernible] and year-to-date 10%, close to 11%. ARPU increased marginally year-on-year. That's due to higher roaming [indiscernible] and as you could expect, offset by lower overall usage revenue.
Postpaid base grew marginally, mainly due to giga and the churn rate remained pretty stable at 1%.
Prepaid is a different thing altogether, prepaid is at $7, flat, and we ended a promotion, which led to a decrease of the base to 574. But in this market, keeping prepaid ARPU stable is quite a good statement.
Broadband on the next page. Broadband stands at $34 ARPU. Jointly between us, MyRepublic and StarHub have increased to 579,000 subs and the churn rate remains very stable at 0.6 and the rest already covered by Nikhil. So we do see Broadband still improving in terms of revenue year-on-year. The offset in the quarter revenue is due to premiums, as mentioned by Nikhil, but not impacting service revenue.
Entertainment, the last one. Entertainment had a real good quarter. Again, as highlighted by Nikhil, mainly due to PL, we really see a very good pull-through in terms of the content and we closed the quarter on $45 ARPU.
Stock-based, you do see a decline, but due to the fact that at the beginning of the year, we moved some active base reporting, and we ended one specific promotion leading to a marginal decrease. Churn rate, therefore, is flat at 1%. And segment revenue, as you can see, both order as well year-to-date showed a really good improvement.
So that's from my side. Handing over to Kit Yong Tan.
Right, for the Enterprise picture itself, if we get quarter 3 '22 and quarter 3 '23, we're having a 14% growth for 9 months, we have 6.5% growth.
Look at the revenue mix itself, Regional ICT, Data & Internet, Cybersecurity, Managed Services [indiscernible]. Now when you break it down for Network Solutions itself, you can see that there is a higher year-on-year growth for the 9 months on the revenue, mainly due to Managed Services. But then they are also offset by decline in Data & Internet and Voice Services.
[indiscernible] Data & Internet and Voice Services revenue. right?
Managed Services is growing strong for us. For Cybersecurity services, you can see that both the higher revenue for year-on-year and due to recognition of the projects that have been completed, right? Just note that the segment recorded operating loss of $5.1 million in Q3 compared to operating profit of [indiscernible] despite higher service margin.
It is mainly due to investment into talent and to continue to grow the business. When it comes to Regional ICT services, it's almost flat for year-to-year for Q3 versus '23. And if you look at -- for the 9 months '22, '23, that is 6.8%, right? This is mainly due to the lower hardware sales that we are seeing for Q3.
Then move to the next slide.
Ensign.
Ensign?
Yes. On Ensign, we have announced in our press release, and we would like to further announce today that we have actually extended our [indiscernible] for another 2 years. This is reflective of our focus on Cybersecurity, and Cybersecurity is core to our DARE+ strategy. It is reflective of our focus on Cybersecurity as part of overall platform with cloud and cloud connectivity and multi-secure and multi-cloud networking as well as smart city development. And it's reflective of the fact that we have a strong alignment with [indiscernible] and we're focused on driving the growth of Ensign together.
So with that, I think we can move to Q&A. Amelia?
Yes, we can.
Yes. And I noticed Sachin put his hand up for questions like about 2 minutes after we started, Sachin.
Sachin, please unmute yourself.
Congrats on a good set of results. My question, I mean I have a natural question because [indiscernible].
That's okay. We love your enthusiasm and your passion and your support.
I saw that -- I didn't see any update on the transformation cost during this quarter and during the 9 months and the OpEx to CapEx mix, if you can update that and actually, I can ask my follow-up question on that, yes.
I'll leave it to Dennis to decide what he wants to update on now and what he may patiently ask you to wait for, I think, 2 to 3 more weeks.
Yes. So Sachin, our intent was to actually provide an update on 28th November, which is our Investor Day, which we are really excited about. So this was not necessarily intentionally left out of this, but we felt that the update will be more relevant at the Investor Day. So suffice to say that the CapEx to OpEx mix that we previously provided guidance to in the half year results still remains.
And in terms of where we think we're going to end up for the year in terms of total transformation expenses that we provided, it will be slightly lower than what we thought it would be. So I'll just leave it at that for now, and we'll provide more details on the Investor Day.
Yes. So actually, one more question which is related is because second half was supposed to have more transformation cost than first half. And looking at your guidance, it seems that you're expecting the margins to be stable, which means we are not expecting a ramp-up in fourth quarter transformation cost. Is that the right way of looking at things? Because if bulk has to be incurred in fourth quarter, then margins should have come down, but you are not updating your guidance on margins. Is it right?
Yes, we actually updated our guidance on margins when we went over our half year results in August, right? So that guidance that we moved up in fact, actually at the point we had started the year with a 20% guidance. And we then said that it would be about 22% when we release our half year results. We are staying with that guidance or that updated guidance that we gave for the half year results. And that guidance had already factored in the transformation expenses that we actually expect to incur in 2023, both in the third and fourth quarter.
So Sachin, we are spending materially in the fourth quarter, but we'll update in terms of the timing phasing as well as Dennis said, on the total quantum, which is no longer $310 million, it is lower and we'll put that together and we'll chat about it on Investor Day.
And last question, now Mobile is in the green category, growing. Are you seeing any risks through Mobile growth in the near to medium term? Or do you think we will probably see some growth going forward in the mobile space irrespective of how many number of players -- now we have four players in Singapore, just to have your view on that.
Johan, that's a question for you.
That's a question for me. Thank you very much. It's hard to predict, to be honest. We have been doing very well on Mobile this year, on the back of roaming. Roaming still hasn't fully recovered. So there is potentially some upside still on roaming. Having said that, there is obviously some headwind in the market with some of the operator players coming in at relatively low price points. We have a strategy in place. So I'm not in a position to make forward-looking statements, obviously. But I do think we can say today that we have more things within our control and we can play if needed, than those which are outside of our control.
But to be very clear, Sachin, we don't like the way the market is headed. We don't like the way -- the sort of the #3 and #4 operators in the MVNO, we don't like a trend in there. We've tried to stay away from it. We focused on revenue market share, we focused on monetization. But our tactical and strategic plans are built on the premise that market competition remains extreme.
Sachin, we hope that answers your question.
This is Somesh Agarwal. I just started covering the sector at UBS. So Dennis, I wanted to start with this. You mentioned that there's a mismatch between EBITDA growth and profit growth, right? And most of it comes because you've moved DARE+ CapEx to OpEx and accordingly, the depreciation cost and interest costs have come down. Could you give us a sense of by how much depreciation cost year-on-year and interest cost year-on-year have come down?
Somesh, so if you look at the absolute difference or the growth in numbers between EBITDA, and so EBITDA for the quarter has grown about $4 million. And if you look at the net profit attributable to shareholders is growing by 10%. So you kind of look at that, you can kind of extrapolate the depreciation and net interest -- the depreciation costs have come down for the quarter by about $4 million, and the net interest expense has come down by about $2 million So that is kind of the breakdown between the 2 numbers.
I do want to correct one point. It is not the DARE+ transmission that has moved from CapEx to OpEx because DARE+ transformation costs are incurred in both CapEx and OpEx. However, if you look at our 5G network, the radio component is in the form of OpEx because that is incurred in wholesale costs through our joint venture, our competitor.
And in terms of some of our cloud loads in our IT [indiscernible] that has also been in the form of OpEx stores. By the way, those 2 components used to be CapEx. When we had our 4G network, we had radio -- the radio network incurred in the form of CapEx and therefore, the depreciation on that goes through the book as well as in our IT [indiscernible] largely on-prem, those will be CapEx as well. So that's the 2 primary shifts in the CapEx to OpEx model that we want to call out.
So just to doubly and triply clarify, it is not DARE+ CapEx that is moving to OpEx, as Dennis said. The impact of DARE+ is to move BAU CapEx or avoid BAU CapEx and instead reflect it as OpEx. Part of that is [indiscernible], part of that is IT moving to the cloud. And then as we've talked about in the past, what we're doing, which is very unique globally, in fact, is cloudifying our network as well. So that has an impact in moving CapEx in fairly material term.
4
Sure. Staying on that, so in the fourth quarter, will this trend continue, given that you have recently adopted this? And from a year-on-year perspective in the fourth quarter versus the fourth quarter of last year, will this trend continue going into net profit?
The answer to that, Somesh, is yes, because we actually started this journey last year in 2022. So this is not a journey that we just commenced. So if you kind of look at this and our results prior to 2022, which is 2021, you would see that the gap between our EBITDA and net profit is a lot wider than what you saw in 2022 and what you're now seeing in 2023. So this is not a journey that we just started.
And I would caution it's not -- these are -- this isn't really about quarterly trends because as we shift CapEx from OpEx, it has kind of long-term tail effect. And then we -- as that accumulates, the impact gets larger and larger. So it's a cumulative impact.
Yes. Yes. And my last question on DARE+ and the ensuing CapEx, right? The guidance is for 11% to 12% for the year, you're trending 7%. Does that imply higher investments in the fourth quarter, especially?
Yes, for sure. So we've got a couple of initiatives that we are expecting to incur commitments with respect to those initiatives in Q4.
Yes. We're reiterating our CapEx guidance, we're not revising it.
Next up, we have Arthur.
Just two questions, please. Firstly, can you elaborate what's happening on the Broadband side? Where are you seeing the segment, given the pressure, what are the various operators doing to drive down the revenues?
Second question is on the Enterprise side, it's up 15% Q-on-Q, quite strong. I'm just wondering, are there any lumpy revenue bookings? Or is this a benchmark level that we should look at going forward, given that they are newfound capabilities?
Thanks for the question, Arthur. On Broadband, as I mentioned earlier, it's important to split out what we call premium revenue from service revenue. Over the last 2 years, the market in certain situations moved to selling premiums in combination with broadband when they come at a cost, and that's booked technically as a form of revenue. If you for ourselves strip out that revenue, the service revenue year-on-year is actually flat, literally flat. And within that, I don't mind saying that we do see a continuous uptick of customers taking higher-speed broadband packages.
Now what is happening in the market is that some of the players, particularly the smaller ones, are becoming increasingly price-aggressive, probably preempting, I would say, personally maybe, unnecessary on arrival of SIMBA in the broadband space.
So that's basically what is going on. We have focused ourselves more on the higher-speed plans, which will, we believe, help continue to grow our revenues in that space. And obviously, what works very well is at the moment for us is a combination between Broadband and Entertainment as complementary service. So that hopefully is answering your question in terms of what is happening in the market.
Right for Enterprise itself, you see the 15% typically, the star for the quarter is actually our Cybersecurity services, right? This is a project services. So you have -- it is lumpy in different quarters. So this quarter will happen to harvest the projects that's finished completion.
So I would say that this is the quarter for Cybersecurity due to the product services that we have completed. If you look at Network Solutions and regionalize [indiscernible] slight decline, right [indiscernible] decline, so we can contribute that as Cybersecurity.
Yes. But I would say it's both. So yes, it's lumpy. But with Cybersecurity in particular, yes, there is an ongoing and increasing trend.
Next up, we have Paul.
Just one question on DARE+. I know you'll share more details on the Investor Day, but dare I ask, so I just want to say -- what happens once the DARE+ initiative is over? Does it mean that these costs will not be recurred, there will be a gap down? Just trying to understand again, that's my first question.
The second is just on the Cybersecurity. You mentioned strong pipeline and also order book. What has been some of the initiatives done? Is it like you have new product launch, new geographies? Just some clarity would be helpful.
Yes. Maybe I'll start on DARE+ and Dennis can add. So what happens when DARE+ is done as we stop spending money on DARE+. The other thing that happens is we have the ability to harness efficiencies. So for instance, we can decommission existing legacy system, therefore, saving money. And through all the automation initiatives that we're doing, we can reduce costs across the business.
And then the third thing that can happen is, of course, to drive revenue through new platform. Now it's not clear. Those are sort of phased initiative by initiative. And that's something, as we said, we'll sort of continue to update on. Dennis, anything to add?
Yes. Paul, I'd just like to update that so far as how we define the DARE+ transformation costs, there are these investments that we are incurring to actually, for example, transform our IT stacks, right?
So as we install and implement new IT stacks, these are considered as transmission costs. When these new stacks are in place and in flight and being implemented, these will become business as usual cost. So when you have new IT platforms, there will be license costs that you have to incur on these new platforms. Those when they become the stable and they will take the stake of our IT platforms, those become part of our cost structure going forward.
So that, therefore, then -- there's a part of it that will remain and recur. So it's not -- as Nikhil said, it's [indiscernible] it just doesn't mean that what you've done with the entire market just disappears. It just simply means that the part of it is still there, but the cost in respect of some of the old and legacy systems drop off. In fact, I think, that's how you should be looking at it.
Yes. And then to your question on -- to your question on Cybersecurity, there are shifts underway within Ensign. Ensign is moving really to a model where it brings together quite a lot of state-of-the-art product and capabilities with interesting overlays on top to drive things like visibility, end-to-end visibility, automation, et cetera, et cetera.
There are also a lot of new platforms that apply data analytics and artificial intelligence on top of data lakes to really drive threat detection as well as incident response in ways that are very, very agile and highly automated. So some of these things we can update on, some of these things we cannot. The customer base that Ensign has is quite unique and quite demanding in terms of the threats that they face and what they need Ensign to do. But we will continue to update in new costs, starting with the Investor Day, in fact.
Just a quick follow-up. In terms of the drop-off in the legacy cost, is it occurring as the years progress or in FY '24, you see that big drop-off or has been gradually happening as you've been kind of incurring these new BAU costs or these new IT systems there?
So there will -- it would not be a cliff. It is a gradual drop-off. So as -- and our IT architecture, as we are proud of it, it's not necessarily a simple one-to-one replacement in some cases. So as the old systems are being decommissioned, there will always be an overlapping period where you actually test the new systems have been implemented while you decommission old ones. So there is a period where both are running parallel and you will incur both costs at the same time.
So -- and as and when the new system is then stable, you drop off the old system. So it is a gradual drop-off because it's not a onetime replacement of everything, right? It is stack after stack, and it's a phased approach.
So everything is phased. So the DARE+ -- when we stop spending on DARE+, we stop spending on DARE+ and that tails off. But there are so many different streams of DARE+ with time lines associated with each of those streams, but again, it's not a cliff. And then as Dennis says with the decommissioning, again, it's going to be phased because it's an exercise where we look at our systems, we decommission them when we can and different systems at different times. And it's the same with the automation initiatives.
I just wanted to clarify that once the data by 2024, the DARE+ OpEx at least disappears, you're not going to see that big gap down in OpEx like you mentioned, some of these are BAU costs. Just wanted to clarify.
[indiscernible].
Hi, it's Neel. For some reason [indiscernible] last 3 quarters. Congratulations on a decent set of numbers. But what I want a little bit of clarity on is CapEx. Now I -- that's just my thinking. I don't think Spectrum Rights, which is part of your CapEx guidance is really CapEx, it's OpEx, right? So if you strip that out, how much of the balance is maintenance, network CapEx for the business lines and how much is pending 5G related? If you can give me just a broad guideline?
Okay, Neel. Just to clarify on the first point that you made, Spectrum Rights are considered CapEx [indiscernible] because they are classified as into our balance sheet as [indiscernible] equipment and all intangibles, and they are amortized accordingly, right?
So far as the new spectrum bands are concerned where they are being assigned to a joint venture [indiscernible] 5G, they are still capitalized in our book and then amortized accordingly. So I just want to clarify on that point. And therefore, our CapEx guidance do include Spectrum Rights.
However, for purposes of 2023, the 5G spectrum, which were previously awarded, the 3,500 band, which was awarded, I think in 2018 and the 2100 band, which was awarded [indiscernible], those spectrum bands would have been considered CapEx commitment in those respective years. Since there are no new spectrum bands that we have bidden for in 2023, embedded in our CapEx guidance for this current financial year, it does not include Spectrum Rights.
To your other question on the CapEx, we have guided to 11% to 13%. We have consistently said that on a steady state, our BAU CapEx would be in the region of 5% to 7%, so you can therefore infer that on our growth initiatives, which includes 5G and some of our various DARE+ initiatives, it will be in the region of 6%.
So Dennis, so would I then infer that the balance 6-odd percent between what you spent now versus the 11% to 13% guidance is roughly what you would be spending on the balance of the 5G network rollout or how should I think about it?
It's not just 5G because we have gone out -- as you know, the 5G rollout is still in flight. So there will be ongoing investments in 5G, which is the components that do not fit in StarHub, obviously excluding the radio, which sits in our joint venture, the other components of the 5G network sits within StarHub and that's embedded in that number.
But we've also gone out and said that there's a whole bunch of DARE+ initiatives, which include our IT transmission, so that's CapEx with respect to that. There's also the classification of our network. And that CapEx is also [indiscernible], so that's a whole bunch of initiatives, which we already advised the market on and those initiatives are being implemented.
Thanks Dennis. Are you at liberty to give a ballpark, whether there's another $300 million or $400 million whereabouts, what the number is, how much you need to spend on the rest of the 5G build-out or not...
Yes. We are not at liberty to disclose that number because that kind of goes into our strategy in terms of what and how we intend to architect our network resources. So I'm not in a position to provide that number. And also, I just want to note that there are currently 2 5G bands, which is the 3,500 and 2100. So the rollout is for those 2 bands. So far as other spectrum bands are [indiscernible] 5G in the future, there will potentially be other investments for those new bands.
Also it is not an end -- there's no end in -- for example, when we complete the current rollout, there may be future rollouts as well as it morphs into 5G from the 4G as well. So it's an ongoing journey, in fact.
Next up, we have Kenneth.
Just 2 questions from my side. The first is on the DARE+ cost. I understand that you can't share the amount of costs incurred in third quarter. But could you comment whether there was a quarter-on-quarter increase versus second quarter?
And my second question is on Regional ICT. There was deeper operating losses in the third quarter. What was driving this? Was it unfavorable service mix or something else altogether?
Dennis, would you like to start?
Okay. On transformation expenses Q-on-Q, it was a slight increase in Q3 versus Q2. It's not a significant increase so far as the OpEx bundle is concerned. So I hope that addresses your question on the transmission as well. But for the full year, we do expect to incur a relatively higher capital investments as well as OpEx investments for the quarter, that means the last quarter of the year, so as we build up the remaining portion of what we intend to invest for the DARE+ initiatives as we close out the year.
To your second question on -- sorry, if I may just pause there to see if that answers your question.
Yes. That's Great.
Okay. Thank you. So on the Regional ICT, the margins, yes, there is a margin mix typically depending on the nature of the project. So insofar as there are more service components embedded in the ICT Solutions or the projects are being delivered, then naturally, the margins tend to be relatively higher.
So it depends very much on the nature of the projects that are being delivered within the quarter. So that effectively does explain the positive or negative shift in the margins from quarter to quarter. The way to look at it really is looking at the full year number because that will kind of show up the blended projects or the total number of projects or the mix of projects that we would have delivered during the course of the year.
I hope that answers your question.
Next, we have Arthur.
Sorry, just a follow-up question to clarify the guidance. So your official guidance on margins at 22% for the year, 9 months, we're already at 22%, but 3Q was at 20%. So that implies that you're basically expecting 4Q margins to be better versus the third quarter margins. But you also imply that the DARE+ costs will ramp up into the fourth quarter. So does this mean that the bookings for DARE+ into the fourth quarter will mainly be CapEx-related, not OpEx? Is that how I should look at this?
So Arthur, the answer is no because effectively, we have closed 3 quarters at 21.8% service margin. So our guidance for the full year at approximately 22% implied that, that would be the margin that we expect to deliver, notwithstanding the relatively higher OpEx that we expect to record in the fourth quarter versus the previous quarters.
But we also have visibility on a number of other initiatives that we're rolling out and as well as our business and the various subsidiaries that we have within our portfolio. And the mix of it, effectively, we do see some improvements that we will recognize in the fourth quarter that will serve to offset some of these relatively higher transformation expense.
So we do have some time to take any more questions that you might have. While we wait for the next question, it's a perfect opportunity for me to [indiscernible] on the 28th of November. It's a perfect chance for you to [indiscernible] and also get the experience for yourself and [indiscernible].
Okay. Great. We have a question from Zhiwei.
Congrats on a strong set of numbers. Just want to clarify one thing. On your fourth quarter, I think you mentioned that you'll be decommissioning systems along the way. Just to be absolutely sure we won't see any sort of like kitchen sinking of legacy equipment or whatsoever, right?
Okay. So I'll just bring you back to fourth quarter of '22 when we actually took some impairment charges for certain legacy infrastructure that we expect to decommission or to sunset. At that point, those have already been considered. So that's a long way of answering your question today that we do not expect to have a onetime kitchen sink charge in respect of decommissioning.
Effectively, what we will do, however, is when -- where we decommission, the cost of running those systems will follow, but there would not be an impairment charge in respect of those systems that are being sunset. We have taken those into consideration in the fourth quarter of 2022.
Zhiwei, I hope that answers your question.
We have one question in the chat.
We have one question.
With regard to the lower [indiscernible] due to high interest rate [indiscernible]? Nikhil, would you like to take this?
No, we used to have a more regular hardware sales, just like it's the cycle of the business. In this quarter, there are certain deals of delay right into the next quarter and some are beyond. So that's why you see a higher hardware sales.
But as a whole, the hardware sales, you can say that based on the macroeconomics, IT spend has been subdued because of many economic challenges. So we are seeing a tightening trend, as we speak. But in this case, mainly due to some of the deals that we have, the purchase of equipment has been preferred. That's why there's a higher hardware sales [indiscernible].
Do we have any more questions? All right. Then I think you can end the call early this quarter. Thank you, everybody, for spending your Wednesday evening with us. As always, if you have a follow-up question, you know how to reach me. And we hope to catch up with you on November 28th for the Investor Day.
Thank you, have a great evening, and good night.
Thanks all. Thank you very much.