Analysts have largely kept their "neutral" calls on StarHub following its FY2021 earnings that dipped slightly, but with positive guidance for the current FY and next.
On Feb 11, the telco reported earnings of $149.3 million for the year ended Dec 31 2021, down 5.5% y-o-y, as it booked lower government subsidies. Excluding the payouts meant to help Singapore based companies cope with the pandemic, StarHub would have reported earnings of $148.3 million, up 17% y-o-y.
FY2021 revenue was largely unchanged at 0.7% higher y-o-y to $2.04 billion, mainly due to higher contributions from broadband and enterprise business, partially offset by lower revenues from mobile, entertainment and sales of equipment.
The company declared a final dividend of 3.9 cents, higher than 2.5 cents declared in the previous year. This brings StarHub’s FY2021 distribution to 6.4 cents, or a payout ratio of 80%, in line with its dividend policy.
StarHub also guided for its service revenue to improve by at least 10% in FY2022 and another 5% to 10% in FY2023. It has also guided Ebidta margins to be at least 20% in FY2022 and 23% in FY2023.
For both FY2022 and FY2023, StarHub is committed to pay a dividend of at least 5 cents per share.
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See: StarHub posts 5.5% drop in FY2021 earnings to $149.3 mil; guides for a better FY2022 and FY2023
PhillipCapital analyst Paul Chew likes StarHub’s DARE+ transformation-led cost controls, which brough service Ebitda margin to 30% for FY2021, beating his expectations of 26% and StarHub’s guidance of 26%. “We believe StarHub’s transformation efforts to realign pay TV programming and digitalise processes resulted in lower content cost, dealer commissions and staff cost,” says Chew.
On the other hand, Chew is concern about StarHub’s lack of revenue growth. FY2021 revenue was marginally 0.7% higher y-o-y at $2.04 billion, but 4QFY2021 saw revenue unchanged at $1.07 billion from the previous year, with a 1.4% y-o-y drop in service revenue. ARPU for mobile was also flat y-o-y during the quarter despite 300,000 5G subscribers (or 20% of postpaid). Chew finds that the absence of roaming remains a major headwind for the group.
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Meanwhile, StarHub’s cybersecurity segment is “still in investment mode” according to Chew. Although FY2021 revenue for cybersecurity enjoyed a 22% y-o-y jump to $268 million, Ebitda was 7% lower y-o-y at $25.5 million. Net profit was almost halved to $1.7 million and profitability from this segment was impacted by an inventory write-off of $4.2 million.
Overall, Chew, who has kept his "neutral" call and $1.35 price target on the stock, notes that StarHub has made tremendous headway in removing fixed cost, while its aggressive cost initiatives have supported earnings.
With most of the cost restructuring almost completed, StarHub needs to invest for growth (DARE+ FY2022 to FY2026 growth roadmap). The current upfront investments in technology and staff are to further digitalise its internal platforms and 5G network. After the completion of these investments, StarHub’s management has guided $220 million in profit opportunities and cost savings $280 million.
Maybank Securities Singapore's Kelvin Tan, who recently took over coverage of the stock, describes StarHub's earnings as above his expectations.
“The DARE+ strategy points to early signs of rising ARPUs across all segments and a strong 5G adoption rate is positive. But higher upfront capex in executing the new strategy and lingering uncertainty on regional re-opening are major offsetting factors,” says Tan, who kept his “hold” call on StarHub but with an increased target price of $1.45 from $1.25.
Similarly, UOB Kay Hian has its “hold” recommendation with a $1.30 target price.
Although that research team likes that good cost discipline and lower depreciation has contributed to StarHub’s improvement in net profit, it still remains somewhat cautious on StarHub's short term prospects.
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With StarHub expecting Ebitda margins to fall to 20% in FY2022 from 30% currently, due to frontloaded transformation investments, UOBKH is cutting its earnings estimates by 12% for FY2022 and 6% for FY2023.
“The DARE+ transformation will yield positive cost savings from 2023 onwards, suggesting savings from utilities coupled with new growth strategy including 5G products and services,” says UOBKH, while noting that the group has guided for margins to recover to at least 23% in FY2023.
DBS Group Research's Sachin Mittal too has maintained his “hold” call on StarHub with a target price of $1.31.
StarHub will invest $270 million on digital platforms & 5G networks over the next three years. The bulk will be front-loaded in FY2022, and benefits will accrue from FY2023 onwards. A big portion of these investments will be treated as an operating expense, which Mittal reckons might lead to 29% earnings decline in FY2022, followed by a 36% growth in FY2023 and a further 10% growth in FY2024.
To that end, Mittal projects a dividend of 5 cents in FY2022, before a strong recovery in FY2023.
The way he sees it, any mobile sector consolidation in the next six to 12 months would be a key catalyst to the stock, which could lead to his bull-case target price of $1.55.
As at 3.10pm, shares in StarHub are trading at $1.28 or 14.8 times FY2022 earnings with a dividend yield of 3.8%.
