Following StarHub’s latest 3QFY2021 ended September earnings update, analysts are rather positive on the group’s future growth prospects.
The telco group reported earnings of $40.2 million, down 9.5% y-o-y, with revenue improving by 5.6% y-o-y to $517.2 million.
Excluding the effects of payouts for the jobs support scheme (JSS), net profit after tax attributable to shareholders (or earnings) increased 5.1% y-o-y to $40.0 million.
See: StarHub posts 9.5% lower earnings of $40.2 mil in 3QFY21
Following its business update, CGS-CIMB Research is keeping its “add” call on StarHub with an increased target price of $1.70 from $1.65 previously.
Analyst Foong Choong Chen notes that despite the stiff competition, 3QFY2021 mobile revenue was down just 0.6% y-o-y (lower excess data usage). On a q-o-q basis, it rose 2.4% due to 3.6% higher postpaid average revenue per user (ARPU) on take-up of 5G plans, and 1.0% postpaid subs growth.
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Fixed Enterprise revenue grew a robust 17.3% y-o-y, led by Strateq (+17.0%) and cybersecurity (+73.1%). StarHub said the latter’s growth is sustainable, underpinned by a strong and growing orderbook into FY2022. Meanwhile, Pay TV revenue dipped 4.5% y-o-y on lower subs, while fixed broadband revenue rose 9.5% y-o-y thanks to reduced discounts and subs upgrading to higher-priced 2Gbps plans.
The analyst has raises FY2021-2023 core EPS estimates by 14-29%, to factor in the postponement of IT transformation-related Opex to FY2022 onwards and higher revenues from the mobile and enterprise segments.
“We now see core EPS being stable y-o- in FY2021, down 7.9% y-o-y in FY2022 (IT transformation Opex), then up 12.8% y-o-y in FY2023 (full roaming revenue recovery, further Enterprise growth). Based on 80% payout ratio, we project 5.6-6.3 cents DPS in FY2021-2023, with 3.6 cents expected in 4QFY2021,” says Foong.
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DBS Group Research is also keeping its “buy” recommendation on the stock with a target price of $1.60.
Analyst Sachin Mittal likes the stock for its three engines of sustainable growth. “StarHub offers 10% annual earnings growth over FY2021-2023 led by recovery from the pandemic in FY2022, reversing five years of decline from mobile services; sustained growth in fixed broadband business as consumers shift to higher speed plans while content costs for TV business are reigned in; and growth of cybersecurity & regional ICT services,” he says.
On top of that, StarHub is trading below its five-year historic PE ratio of 15.5 times. Hence, the analyst expects the stock to rerate towards its +2 standard deviation PE ratio of 18.1 times with revival of earnings growth after 5-years of decline. The stock offer an FY2021 dividend yield of 4.9% and FY2022 dividend yield of 5.4%, based on an 80% payout ratio.
Along with its results announcement, StarHub also announced that it will be acquiring a 60% stake in HKBN JOS in Singapore and Malaysia for a consideration of $15 million.
See: StarHub acquires 60% stake in HKBN JOS in Singapore and Malaysia for $15 mil
Mittal sees this as a financially accretive acquisition that could help the group enhance its ICT business.
On the other hand, UOB Kay Hian is less upbeat as it keeps its “hold” call on StarHub with a target price of $1.30.
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For analyst Chong Lee Len, StarHub’s latest results came in within expectations, with 9MFY2021 core net profit coming in at $107.3 million, an increase of 6% y-o-y, accounting for 75% of his full-year forecast.
Overall, Chong is positive on StarHub’s growth as revenue for the group’s mobile, enterprise and broadband segments saw improvement. Although Pay-TV saw a 5% y-o-y decline in revenue amid lower subscriber base and lower commercial and advertising contribution, ARPU improved y-o-y and q-o-q at $43/month due to the increased price for HomeHub bundled plans.
Chong too expects StarHub’s latest acquisition to be earnings accretive with potential cost synergies stemming from the consolidation of office/warehouse space for rental savings and joint procurement strategies.
Similarly, PhillipCapital has kept its "neutral" call on StarHub with a target price of $1.24.
Analyst Paul Chew likes that the group saw a significant improvement in its cybersecurity segment in 3QFY2021 and that broadband ARPU also jumped 13% y-o-y. But he remains cautious of the group's "still soft" mobile revenue as roaming contributions remain low due to the pandemic.
On the outlook, Chew expects the border re-opening, especially in Malaysia and China, will be key drivers for roaming revenue to return.
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As at 3.35pm, shares in StarHub are trading at $1.27 or 5.9 times FY2021 book with a dividend yield of 5.0%, according to DBS’ estimates.
Photo: StarHub
