Analysts are generally positive but still keeping a neutral stance on StarHub following its latest 3QFY2020 business update announcement, which came in rather muted.
For the third quarter ended September, earnings dropped by 23.3% y-o-y to $44.5 million, while revenue fell some 14.5% y-o-y to $489.7 million. The fall in revenue was mainly due to lower contributions from the group’s mobile, pay TV and sales of equipment segment. This was partially offset by higher contributions from the broadband and enterprise businesses.
See: StarHub posts 23.3% fall in 3Q earnings to $44.5 mil
With that, DBS Group Research is keeping its “hold” recommendation on StarHub with a higher target price of $1.21 from $1.16 previously.
In a Nov 6 report, analyst Sachin Mittal believes that the stock’s 5% dividend yield is still attractive, despite StarHub announced its dividend payout cut from FY2020 to ride out the strain on its cashflows.
“Mobile services revenue continues to be decline due to SIM-only plans and heightened competition. While we believe that TPG does not have a business case in Singapore, the capital injection of about $170 million into TPG might help it to sustain for another two years and industry consolidation could be delayed to FY2022,” says Mittal.
Meanwhile, StarHub’s 5G-related capex is expected to be relatively low due to its joint venture with M1. But these savings may not translate into dividends if StarHub chooses to reinvest the savings into acquisitions.
PhillipCapital also has kept its “neutral” stance on StarHub with a target price of $1.24.
Analyst Paul Chew refers to StarHub’s mobile business as its “Achilles heel”, as it dragged overall revenue down despite improvements in Pay TV and broadband contributions.
“Without roaming revenue, mobile ARPU dived to a record low. Postpaid ARPU was down 25% y-o-y. Prepaid subscribers shrank by 108,000 or 33% y-o-y. There was less demand with fewer tourist arrivals,” says Chew.
“A significant resumption of international travel is key to its earnings recovery. There are little signs yet,” he adds.
Separately, the launch of non-standalone 5G has garnered a better-than-expected response. Customers are transitioning faster to 5G phones. Faster speeds, lower latency and bundled content subscription have encouraged take-up by niche customers such as gamers and other heavy-content users.
Similarly, RHB Group Research is reiterating its “neutral” call on StarHub with a target price of $1.30.
RHB notes that Starhub’s 3QFY2020 results were ahead of its estimate, but in line with consensus, on stronger opex efficiencies. Its enterprise business remains the proverbial growth driver, buffering mobile weakness, with stability returning to broadband and pay TV.
On the 5G front, StarHub is hopeful for a stronger ARPU, on the back of the positive response to its trial service.
Management highlighted the take-up rate of the Mobile+ plans ($10.00 premium over regular 4G plans) have exceeded internal expectations since the launch of the 5G trial service in September (widest population coverage of 70%). Deployment of the standalone (SA) 5G network on the 3500MHz band would commence by year-end, with commercial services slated for 2QFY2021- 3QFY2021.
“We see the recent launch of the iPhone 12 5G as further piquing subscriber interest, given the earlier delay in the launch, due to the pandemic,” says RHB.
As for StarHub’s leadership void, the list of candidates for a new CEO have been narrowed to less than 10. StarHub intends to have its new CEO be 2QFY2021.
On the other hand, CGS-CIMB Research is more upbeat on StarHub than its peers as it maintains its “add” recommendation on the stock with a target price of $1.60.
Although StarHub’s mobile segment was rather weak in the third quarter, it expects there will be continued deferment of new investments that will result in projects being delivered next year.
Lead analyst Foong Choong Chen says, “We raise FY2020 core EPS by 12.0% to factor in lower cybersecurity/content costs, higher device margin and Strateq’s consolidation; cut FY2021’s by 8.4% to bake in a more gradual recovery in roaming revenue (with international travel affected for much of FY2021 (previously projected till mid-FY21); and raise FY2022’s by 6.6% for higher enterprise profitability.”
“We now see core EPS tanking 40.2%/30.8% y-o-y in FY2020/2021 due to Covid-19 and mobile competition, then rebounding 53.6% y-o-y in FY22,” he adds.
Core EPS for FY2020 is estimated to come in at 7 cents, 5 cents for FY2021 and 7 cents for FY2022.
As at 1.30pm, shares in StarHub are trading at $1.22 or 15.8 times FY2020 earnings with a dividend yield of 5.1%, according to DBS’ estimates.
