Brokers' Digest: StarHub, UMS Holdings, Genting Singapore

Analysts from RHB Bank Singapore, CGS-CIMB Research and Maybank Securities have kept their “hold” and “neutral” calls on StarHub as the telco’s 1QFY2023 results ended March 31 were broadly in line with expectations.

While RHB and CGS-CIMB have kept their target prices unchanged at $1.11 and $1.15 respectively, Maybank has lowered its target price to $1.10 from $1.15 previously.

StarHub’s 1QFY2023 ebitda of $113 million and patmi at $38 million exceeded Maybank’s expectations at 28% of its FY2023 forecasts. StarHub’s 1QFY2023 ebitda and patmi surpassed the market’s expectations at 31% of its FY2023 forecasts.

However, Maybank’s analyst Kelvin Tan expects FY2023 to be another year of slower earnings growth for StarHub given their operating expense in funding their DARE+ transformation.

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“From FY2022’s low base, we see core earnings per share staying depressed in FY2023 held by DARE+ upfront investment costs,” says Tan.

But the analyst expects StarHub to climb 24.2% y-o-y by FY2024, as it should be able to reap growth opportunities on continued enterprise growth and the start of DARE+ benefits.

“We further adjusted our FY2023/FY2024 earnings forecast for StarHub by –0.3%/–2.1% after factoring in three to five months delay in completing the DARE+ transformation and bulk of the investment mostly incurred in the next two years,” he says.

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“Our discounted cash flow (DCF)-based target price is thus trimmed to $1.10 from $1.15 as we believe ebitda will return to the FY2021 baseline of US$500 million ($667.89 million) by FY2024,” he adds.

Still, Tan notes that StarHub has “positive improvements across all segments” as its service revenue lifted to $462 million (+11% y-o-y) for 1QFY2023 on broad-based contributions from all segments.

Mobile revenue grew 13% y-o-y on higher postpaid and prepaid revenue, and postpaid average revenue per user (ARPU) rose 5.5% y-o-y on higher roaming and value-added service (VAS) revenue due to travel recovery.

Contributions from the consolidation of MyRepublic and Premier League subscriptions lifted broadband (+20% y-o-y) and entertainment (+21% y-o-y) revenue respectively.

Meanwhile, both RHB and CGS-CIMB have kept their “hold” call at unchanged target prices of $1.11 and $1.15 respectively.

RHB analyst expects opex and capex related to the DARE+ transformation program to ramp up in subsequent quarters, notwithstanding the strong 26% y-o-y pick up in 1QFY2023 earnings which they attribute in part to seasonally stronger ebitda margins.

“With [around] 43% of DARE+ open and capex booked to date (of the $310 million guided for FY2022 to FY2026), a significant ramp up in subsequent quarters is to be expected,” says RHB.

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RHB analysts also anticipate revenue momentum for mobile roaming and prepaid to improve, as StarHub management highlights that roaming revenue has yet to normalise to pre-pandemic levels.

They are also confident that StarHub notes the good take-up of higher speed plans with the launch of Singapore’s first 10 Gbps fibre plan, which will contribute to broadband revenue.

Meanwhile, CGS-CIMB analysts Kenneth Tan and Lim Siew Khee highlight the new multi-year contract that StarHub was awarded as part of the development of Punggol Digital District (PDD).

StarHub will focus on developing an intelligent software-defined network integrated with 5G and network automation, a move that Tan and Lim from CGS-CIMB believe is a good start for the telco to “transition away from a vanilla telco towards a digital solutions provider”.

They also see the potential for further smart city contract wins in the future. — Nicole Lim

UMS Holdings
Price targets:
Maybank Securities ‘hold’ 94 cents
DBS Group Research ‘buy’ $1.20

Worst is not yet over

Analysts at Maybank Securities and DBS Group Research have lowered their target prices on UMS Holdings to 94 cents and $1.20 respectively, in anticipation of a weaker quarter following the company’s 1QFY2023 ended March results announcement.

For its 1QFY2023, UMS reported a patmi of $17.4 million, higher than Maybank analyst Jarick Seet’s estimate of $14.5 million. Its semiconductor integrated system sales remained strong in 1QFY2023, surging 37% y-o-y to $40.9 million. Component sales revenue, however, was down 26% to $32 million.

For 2QFY2023, Seet forecast UMS to record a 15%–20% decline q-o-q in sales of components and integrated systems on the back of lower demand. “We think 2QFY2023 will be the bottom as we believe demand will pick up in 2HFY2023,” he adds.

DBS’s Ling Lee Keng echoes Seet’s sentiment — the analyst is hopeful of a stronger 2HFY2023 and a recovery in 2024 on the back of a strong recovery in the semiconductor industry. She cites a forecast by consulting firm Gartner, which predicts a global semiconductor market rebound of 18.5% y-o-y in 2024.

That said, Ling notes that the industry outlook is remaining soft in the near term, expecting worldwide semiconductor shipments to dip further in the coming months. As at March, shipment data had eased 23% from the peak in May 2022 to US$39.8 billion ($53.33 billion). There may be another 10% to 20% drop in the months ahead based on historical trends, the analyst points out.

“However, the longer-term uptrend remains intact. Drivers would include the growing semiconductor content across technology nodes, continued advancement of leading-edge technologies, increasing investment in legacy nodes and innovation and growth of new enabling technologies such as artificial intelligence,” says Ling.

Maybank’s Seet points out that UMS’s new customer may delay its ramp-up due to weak semiconductor demand. As a result, he believes UMS may face higher cost pressures — coupled with a lower revenue base, the company’s margins could decline further in the quarters ahead.

The slowdown in order momentum coupled with margin pressure has led DBS to cut its FY2023 and FY2024 earnings forecast for UMS by 29% and 23% respectively. Ling now expects net margins of 21.7% and 23.1% for FY2023 and FY2023, keeping her “buy” call.

Although Seet remains optimistic about UMS’s longer-term prospects, the analyst believes the share price has not fully priced in the weak near-term performance. Amid the uncertain outlook, Maybank keeps its “hold” call on UMS. — Khairani Afifi Noordin

Genting Singapore
Price targets:
UOB Kay Hian ‘buy’ $1.25
CGS-CIMB Research ‘buy’ $1.26

On track for recovery despite hiccup

Despite a q-o-q ebitda decline in 1QFY2023 ended March 31 and missing analysts’ expectations, both UOB Kay Hian (UOBKH) and CGS-CIMB Research have maintained their “buy” call on Genting Singapore (GENS) at target prices of $1.25 and $1.26 respectively, in anticipation of better quarters ahead.

GENS’s 1QFY2023 core adjusted ebitda of $191.7 million fell by 25% q-o-q from the previous quarter, due to lower non-gaming revenues and less favourable normalisation of the “luck factor”. On a y-o-y basis, however, the group’s core adjusted ebitda stood 54% higher y-o-y.

UOBKH analyst Vincent Khoo says Resorts World Singapore’s (RWS) 1QFY2023 adjusted ebitda accounted for 16% of his full-year forecasts. Gaming and non-gaming revenue fell 9% q-o-q and 15% q-o-q respectively from the seasonally strong 4QFY2022, with the gaming division accounting for 70% of group revenue in 1QFY2023, Khoo points out.

Similarly, analyst Tay Wee Kuang from CGS-CIMB notes that GENS’s 1QFY2023 revenue of $484.5 million was weaker than expected at 21.6% and 20.2% of CGS-CIMB and Bloomberg’s consensus’ FY2023 estimates respectively.

“GENS said the recovery of the non-gaming business remains constrained by lagging visitor arrivals from traditional visitor source markets, i.e. North Asia, as a result of airline capacity constraints and elevated airfares during the festive season, which could have impacted visitor volumes,” says Tay.

That said, the group’s gaming volumes remain “resilient”, says UOBKH’s Khoo. In its press announcement, the group disclosed that RWS’s hold-normalisation gross gaming revenue (GGR) would’ve improved by 12% q-o-q to $530 million for 1QFY2023, which works out to a hypothetical 34% share of Singapore’s GGR, he says.

CGS-CIMB’s Tay notes that GENS’s GGR market share remains similar to its historical level of 40% since RWS and Marina Bay Sands by Las Vegas Sands started operations in 2010, suggesting that the competitive dynamics have remained stable.

In the year ahead, Khoo and Tay remain positive that GENS’s non-gaming and gaming revenues will continue to improve in the coming quarters, due to a steady improvement in foreign visitation as intra-Asia flight capacities slowly restore to pre-pandemic levels by 4QFY2023 or 1QFY2024.

In addition, RWS’s ongoing works are being carried out without disruption — the fully renovated and rebranded Hotel Ora soft-launched and became operational in April 2023, ahead of CGS-CIMB Tay’s anticipated May 2023 opening timeline.

CGS-CIMB’s Tay trimmed his FY2023 adjusted ebitda by 7.3% due to a slower tourism recovery in 1QFY2023, but retained his FY2024-FY2025 forecasts, with the target price pegged to 10 times FY2024 adjusted ebitda.

Meanwhile, UOBKH’s Khoo pegged his target price to 9.9 times FY2023 EV/Ebitda. — Nicole Lim