Analysts are remaining largely neutral on StarHub even though the telco’s earnings of $67.9 million for the 1HFY2021 ended June stood in line with expectations.
See: StarHub posts 12.3% drop in 1H earnings to $67.9 mil on lower JSS
CGS-CIMB Research is the only exception, with an unchanged “add” call on StarHub.
The brokerage has also raised its target price to $1.65 from $1.60 as StarHub’s 1HFY2021 earnings beat its expectations due to low operating expenses and depreciation.
In addition, CGS-CIMB analysts Foong Choong Chen and Sherman Lam have raised their core EPS expectations for the FY2021 to FY2023 by 17% to 35% after StarHub’s 1HFY2021 EBITDA and earnings per share (EPS) beat their expectations at 56% and 91% of its FY2021 forecasts respectively.
“We now see FY2021 core EPS sliding 23.0% y-o-y due to Covid-19, mobile competition and cost normalisation before rising 1.1%/16.4% in FY2022/2023 as Covid-19 subsides, aided by cybersecurity growth,” they write in an Aug 6 report.
The analysts say they have kept their dividend expectations of 5 cents per share for the FY2021 to FY2022, but have upped their dividend expectations to 5.6 cents per share (from 5 cents previously) for the FY2023, or an 80% payout.
To Foong and Lam, key re-rating catalysts include cost cuts that come in above guidance.
“Its FY2022 EV/operating free cash flow (OpFCF) of 11.0 times is 21% (-1.1 standard deviation or s.d.) below its 13-year mean, with decent FY2021-2023F yields of 4.0-4.5% per annum,” they write.
Greater mobile competition, naturally, poses as a downside risk to the counter.
PhillipCapital’s head of research Paul Chew has maintained “neutral” on StarHub with the same target price of $1.24.
The valuations are based on regional peers’ 6 times FY2021 EV/EBITDA, he writes in an Aug 10 report.
Chew has also kept the rest of his estimates unchanged as StarHub’s revenue and EBITDA for the 1HFY2021 stood in line with his expectations at 47% and 52% of his FY2021 forecasts.
“StarHub is paying 4% dividend yields with earnings upside from roaming revenue if international borders re-open,” he says.
This comes as border closures are likely to remain an overhang for now, he notes.
To Chew, StarHub’s mobile revenue remains soft as postpaid average revenue per unit (APRU) fell 10% y-o-y in the 2QFY2021. The segment was the telco’s largest drag in its earnings results.
Meanwhile, broadband is expected to remain an important source of growth for StarHub, “provided there is subscriber stability”, says Chew.
“A major growth segment is cybersecurity. As more IT services move to the cloud and cyber threats intensify, demand will likely rise. Profitability, however, will depend on the scale and type of services. Higher-value labour-intensive consulting and managed services and proprietary software are expected to drive margins,” he adds.
While StarHub is bullish on the prospects of 5G, Chew is less sanguine as there are only a few use cases in 5G that can “materially lift prices” so far.
“It remains unclear if 5G can avoid the same price competition based on commoditised bandwidths and speeds.”
The team at RHB Group Research have maintained “neutral” on StarHub with a lower target price of $1.35 from $1.38 previously even though StarHub’s 1HFY2021 results were in line.
“Growth was expectedly led by the enterprise segment, with both mobile and pay-TV revenues turning the corner. We see near-term opex pressure as the group shifts from a capex to opex model, partially offset by longer-term savings from its transformation programme,” writes the team in an Aug 6 report.
To the team, the counter is currently trading at -1.5 s.d. of its historical EV/EBITDA mean, “which already captures downside risks, supporting by a 4% forward dividend yield”.
The team has also changed its core earnings estimates for the FY2021 and FY2022 by +1% and -4% respectively after tweaking APRU and capex assumptions. Its earnings estimates for the FY2023 remain unchanged.
Competition, the monetisation of 5G services, as well as lower-than-expected dividend payout are deemed by the RHB team as key risks to the counter.
UOB Kay Hian analysts Chong Lee Len and Chloe Tan have maintained “hold” on StarHub with a target price of $1.30. The analysts have deemed the entry price on the counter to be at $1.15.
“At our fair value, the stock will trade at 6 times FY2021 EV/EBITDA, 1 s.d. below its five-year mean EV/EBITDA of 8.5 times,” they write in an Aug 6 report.
“The stock offers a sustainable dividend yield of 4.8% for FY2022,” they add.
To Chong and Tan, StarHub’s 1HFY2021 results stood within their expectations, with its core net profit for the period coming in at 48% of their FY2021 forecast.
StarHub’s interim dividend of 2.5 cents per share also came in within their FY2021 estimates of 5 cents per share.
The analysts have kept the rest of their earnings estimates unchanged.
To them, a key re-rating of the counter includes the return of international tourists to Singapore. The exit of mobile virtual network operators (MNVOs) – resulting in a market consolidation, as well as a shift to an asset-light business model are catalysts to StarHub’s share price as well.
Maybank Kim Eng analyst Kareen Chan has kept “hold” on StarHub with the same target price of $1.25.
According to Chan, StarHub’s earnings were in line at 47% of her FY2021 forecast.
While she doesn’t see “meaningful profitability” to come till the medium term for StarHub’s enterprise segment, she notes that the telco saw broad-based q-o-q growth across its key business segments.
Chan says she remains positive on the telco sector with a preference for Singtel and NetLink NBN Trust instead.
Chan has given Singtel and NetLink NBN Trust “buy” calls with target prices of $2.81 and $1.11 respectively.
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On dividends, she has kept her dividend estimate for the FY2021 at 6 cents, translating to a yield of 4.9%.
StarHub is the second-biggest operator in a mature, high-income Asean economy, writes Chan, although the entrance of a fourth operator may threaten its market share, returns and cost of capital.
Its dividend yield has been a “key investment thesis”.
“Despite reducing payout commitment (from 20 cents to 16 cents), [the] potential for [its dividend per share] to exceed EPS remains; as in prior years,” she writes.
As at 12.38pm, shares in StarHub are trading 3 cents higher or 2.4% up at $1.28, or 3.7 times P/B, according to RHB’s estimates.
Photo: StarHub
