Analysts from RHB Group Research, UOB Kay Hian and Maybank Securities have all maintained their “hold” calls and target prices on Starhub, with RHB, UOB and Maybank’s target prices for the telco standing at $1.20, $1.30 and $1.32 respectively.
Despite this, there seem to be different sentiments in their reports. UOB’s Chong Lee Len and Llelleythan Tan says Starhub’s 2QFY2022 results are “within expectations,” while RHB’s Singapore Research team say that the results “fell short of our estimates”.
Maybank trims earnings forecasts
Maybank’s Kelvin Tan straddles the middle ground, saying while Starhub’s ebitda and patmi met expectations, patmi was “underwhelming”.
On Aug 4, StarHub reported earnings of $60.9 million for the 1HFY2022 ended June, 10.3% lower than the earnings of $67.9 million in the year before.
The lower earnings were mainly due to the higher operating expenses and lower other income.
During the period, operating expenses increased by 10.5% y-o-y to $967 million due to higher cost of sales, other operating expenses, cybersecurity services and regional ICT (or information communications technology) services.
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The lower earnings were also attributable to the lower other income, which fell by 36.6% y-o-y to $4.1 million due to the lower jobs support scheme (JSS) payouts and recovery of tunnel fees.
These more than offset the 8.7% y-o-y growth in revenue of $1.06 billion for the 1HFY2022.
As a result of the lower earnings, Maybank has cut its FY2022-FY2024 bottom line forecasts by 8-10% to reflect the ongoing concern on near-term cost pressures.
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However, moving forward, Tan sees potential in the return of high margin roaming and incoming EPL revenue in August to provide major earnings tailwinds for 2HFY2022.
However, earnings are expected to be weighed down by increasing mobile competition, lagging post-paid revenue and higher capex from front-loading investments in IT and content as part of its DARE+ transformation roadmap.
“As such, we think that EBITDA margins are expected to deteriorate over the next two quarters,” Tan says, although some rerating catalysts that he sees are the returning of roaming revenue, cost savings from DARE+ and enterprise growth.
His top pick in the telco sector still remains Singtel, with a “buy” rating and target price of $3.02.
UOBKH more optimistic
In contrast to Maybank, UOB Kay Hian’s Tan and Chong think that Starhub is on track to meet or exceed its 2022 guidance.
Starhub earlier guided a 10% revenue growth target for FY2022, with an EBITDA margin of at leat 20% and capex to make up 12% to 15% of total revenue. Tan and Chong noted that on all metrics, Starhub’s 1HFY2022 has beaten its guidance, with revenue growth coming in at 11.7%, ebitda margin of 24.6% and capex at 7.5% of revenue.
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They write, “given that revenue contribution from the newly-launched English Premier League packages only starts in 2HFY2022, along with an expected recovery in roaming data in 2HFY2022, we expect 2HFY2022 service revenue growth to exceed the group’s 2022 guidance.”
However, its EPL services were hit with disruptions over the weekend of Aug 6, with social media users expressing anger over issues like broadcast lags, low quality images and sudden freezes during matches.
However, Tan and Chong forecast that ebitda margin from Starhub’s service segment is expected to compress in 2HFY2022 due to lumpy timing recognition of its upfront IT transformative investments.
Furthermore, inflation-induced higher utility costs, 5G wholesale fees and higher low-margin enterprise revenue mix may also drag margins.
RHB wary of cost pressure
As mentioned, RHB’s Singapore research team says that StarHub’s results “fell short of our estimates.” While the positive revenue trends were sustained, “the expected surge in opex and capex related to its transformation initiativeswill weigh heavily on its bottomline.”
The team noted that while mobile revenue was distorted by a one-off accounting standard adjustment on handset subsidies, the entertainment and broadband segments were “moving in the right direction.”
The 1HFY2022 revenue figure was led mainly by broadband (+21.5% y-o-y), and enterprise (+16.9% y-o-y).
For the mobile segment, management highlighted that while roaming revenue is recovering, it has yet to revert to pre-pandemic levels.
The team does warn, however, that it sees a significant scale-up in 2HFY2022 opex and capex with management reaffirming its guidance.
They lower their core earnings forecast by 13.8% in FY2022, 5.8% in FY2023, and 10.3% in FY2024, based on the latest opex run-rates and to factor in the lumpy transformation expense and higher 5G wholesale costs, adding that FY2022 will still see “acute earnings compression”.
As of 12.37pm, shares of Starhub were trading at $1.25, with an FY2022 P/B ratio of 3.5x and dividend yield of 4%, according to RHB.
