Analysts are relatively neutral on StarHub in light of the telco’s bleak FY2022 earnings outlook, mitigated by new initiatives on the horizon.
For the 1QFY2022 ended March, StarHub reported net profit of $29.7 million, down 2.6% y-o-y and 27.7% q-o-q.
Total revenue for the quarter increased by 5.3% y-o-y but fell by 7.1% q-o-q to $512.7 million.
Service revenue grew by 10.7% y-o-y and 0.6% q-o-q to $416.0 million.
Operating expenses increased by 7.2% y-o-y but fell 4.6% q-o-q to $470.7 million.
The telco’s ebitda fell 11.1% y-o-y and 17.4% q-o-q to $109.1 million.
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Service ebitda for the quarter fell 12.8% y-o-y and 18.0% q-o-q to $100.7 million while service ebitda margin fell 6.5 percentage points y-o-y and 5.5 percentage points q-o-q to 24.2%.
The lower ebitda was attributable to the lower margin, which more than offset the higher revenue.
Core earnings per share (EPS) fell 0.6% y-o-y and 24.5% q-o-q thanks to the lower depreciation, net interest cost and tax.
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CGS-CIMB sees results as in line with expectations
CGS-CIMB Research analysts Foong Choong Chen and Sherman Lam have kept their “hold” rating on StarHub with an unchanged target price of $1.40.
“While StarHub’s 1QFY2022 ebitda and core EPS made up 25% and 37% respectively of our FY2022 estimates, we deem this largely in line as we expect a sequential pick-up in IT transformation costs and capex for the rest of FY2022,” say Foong and Lam in their April 30 report.
Moreover, the analysts note that StarHub’s 1QFY2022 service ebitda margin contracted sharply owing to higher operating expenses (opex), which includes approximately $9 million that StarHub incurred for initial investments related to its IT transformation initiatives.
“While 1Q margin is tracking above its FY2022 guidance by at least 20%, this is partly due to timing delays in the recognition of its IT transformation costs, which will pick up in the subsequent quarters,” explain the analysts.
There are however some clear positives for StarHub as well, with its 1QFY2022 mobile service revenue in line rising 3.9% y-o-y and postpaid average revenue per unit (ARPU) stable q-o-q, with some roaming recovery and 33% rise in 5G subs to over 400,000.
“We see ARPU improving in 2HFY2022 as roaming recovers. Prepaid ARPU (-20.0% qoq) was dragged by tighter competition, particularly from low-end postpaid SIM-only offers,” say the analysts.
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Nevertheless, StarHub says tourist SIM sales have begun to recover in light of the greater reopening of international borders of late .
In addition, StarHub’s 1QFY2022 fixed enterprise revenue rose 18.9% y-o-y with the consolidation of HKBN Jardine OneSolution Holdings (JOS) Singapore and Malaysia since Jan 3.
Without JOS, StarHub’s revenue for its fixed enterprise segment was up by a mere 0.8% y-o-y as cybersecurity growth was offset by weaker network solutions and Strateq. The segment’s revenue slid 14.9% q-o-q as 4QFY2021 had a major cybersecurity project delivery.
For 1QFY2022, StarHub’s orderbook and pipeline for Strateq, cybersecurity and JOS remain at healthy levels.
Meanwhile, broadband revenue climbed 9.6% y-o-y on ARPU accretion with higher 1Gbps prices, 2Gbps take-up, while entertainment revenue from pay TV and OTT was up 4% y-o-y on subscriber gains.
While Foong and Lam’s target price represents a 20% discount to the telco’s discounted cash flow (DCF)-based fair value, given the projected weak earnings outlook for FY2022, the analysts are advocating investors to revisit the counter in 1HFY2023.
This is ahead of its potential earnings turnaround in 2HFY2023, they write.
Maybank sees potential in StarHub’s new initiatives even as 1QFY2022 patmi missed expectations
Maybank Securities analyst Kelvin Tan has also kept his “hold” rating on StarHub as the telco’s patmi missed his estimates at 23% of his full-year forecasts.
“Overall, 1QFY2022 net profit was underwhelming with increased mobile competition and the lumpy nature of its cybersecurity business, which we think will be backend loaded,” Tan writes in his May 1 report.
He has, however, upped his target price estimate on the telco to $1.32 from $1.29 previously. Tan has also kept his forecasts for FY2022 to FY2024 unchanged following the MyRepublic acquisition. A recovery is also expected in StarHub’s roaming revenues as international borders reopen.
In addition to noting the operational costs that dragged the telco’s bottomline as well as the improving operational parameters, Tan is positive on the telco’s new initiatives that may drive future growth.
“We see potential in leveraging the newly integrated MyRepublic’s regional market presence to explore new growth engines and offer differentiated solutions to its enterprise clients,” writes the analyst.
Management is also upbeat about more infinity play products and a Super App platform launching at the end of 2022, he adds.
On the counter’s value proposition, Tan says dividend yield has been a key investment thesis or StarHub. Despite the telco’s reducing its payout commitment from 20 cents to 16 cents, the potential for its distribution per share (DPS) to exceed its EPS remains.
PhillipCapital sees tailwinds in roaming segment albeit cost pressures in the near-term
PhillipCapital Group Research analyst Paul Chew has upgraded StarHub’s rating to “accumulate” from “neutral” with an unchanged target price of $1.35.
StarHub’s 1QFY2022 revenue and ebitda met the expectations of the analyst at a respective 23% and 27% of his FY2022 estimates.
Chew observes how StarHub’s broadband revenue has also reached a five-year high, with broadband revenue progressively growing through higher prices, lower discounted contracts and upsizing to higher speed 2Gbps plans. This is especially so as broadband has become an essential service amid Covid-19.
However, the analyst also considers how costs are piling up for StarHub, with service ebitda margin down almost 7% points to 24.2%, though it remains above FY2022 guidance by at least 20%.
The analyst expects higher costs in the coming three quarters, with ebitda margin recovery only expected in FY2023.
“We expect ebitda margins to contract further in the remaining three quarters of the financial year due to upfront investments in IT and staff costs,” says Chew, in light of how StarHub’s Ebitda most recently declined 11% y-o-y to $109 million.
The analyst also observes how mobile revenue growth was also softer than expected despite higher postpaid ARPU and subscribers. This is in addition to how there was a deterioration in prepaid revenue of more than 20% y-o-y.
As at 11.24am, shares in StarHub are trading at 1 cent up or 0.79% higher at $1.27 at a FY2022 P/B ratio of 3.3x and dividend yield of 4% according to Maybank’s estimates.
