CGS-CIMB Research analysts Kenneth Tan and Lim Siew Khee have maintained “hold” on StarHub CC3 with a higher target price of $1.19 from $1.15 previously.
In their Nov 28 note, the analysts expect FY2024 to be a better year in terms of profitability for StarHub, given lower DARE+ operating expenditure.
At its investor day, StarHub notes that it expects to incur $85 million in DARE+ investments for FY2023 from $120 million previously. This is due to delays in implementing certain initiatives as well as savings reaped from cost optimisation.
StarHub also lowered its total expected DARE+ investment amount to $270 million from $310 million previously, with $50 million and $30 million earmarked to be incurred in FY2024 and FY2025 respectively. The company does not expect further material delays to DARE+ spending in FY2024 as most initiatives are at their tail end, the analysts point out.
To account for the lower-than-expected DARE+ investment costs incurred, Tan and Lim have raised their FY2024 and FY2025 EPS estimates by 15% and 21% respectively.
Despite better profitability expectations, the analysts see key uncertainties from costs from the ramp-up of newer initiatives and continued DARE+ transformation expenses.
Meanwhile, StarHub’s cybersecurity Ensign was highlighted as the company’s growth avenue ahead. About 20% to 30% of Ensign’s customer base used services across all its four segments, with scope for further growth as it ramps up businesses from the commercial sector.
Although Ensign’s ebit contribution is currently relatively small at 9% of FY2022’s ebit, CGS-CIMB believes the subsidiary is well positioned to capture longer-term tailwinds from growing cybersecurity spending across Asean.
As at 3.38pm, shares in StarHub are trading 1 cent higher or 0.9% up at $1.09.
