Analysts are generally “neutral” on StarHub, with most keeping their “hold” calls on the stocks following its latest FY2020 ended December results announcement, which saw earnings drop some 15.2% y-o-y to $157.9 million and total revenue falling some 13.0% y-o-y to $2.02 billion.
Comparing the results for the quarter, 4QFY2020 earnings was 3.5% higher y-o-y than the previous year, with revenue just a slight 4.8% y-o-y lower at $579.5 million.
According to the group’s new CEO Nikhil Eapen, the drop in revenue was due to the Covid-19 pandemic.
But luckily, as at end-December 2020, StarHub is sitting on a large war chest of $403.7 million in cash and cash equivalents, and free cash flow of $387.7 million, a 77.3% y-o-y increase. Eapen attributed this to “cost management, working Capital Management and tax deferrals," and expects that the "strong free cash flow and funding position should position us to fulfill our obligations as well as drive transformation and growth for 2021”.
StarHub declared a final dividend of 2.5 cents per share for the period, bringing total FY2020 dividend payout to 5 cents, a 44% drop from 9 cents in FY2019.
See: StarHub sees 3.5% growth in 4Q20 earnings of $36.1 mil, 15.2% lower earnings for FY20 of $157.9 mil
PhillipCapital’s head of research Paul Chew notes that the group’s cost-control has helped save the day. With his “neutral” call and target price of $1.24 on the stock, Chew also notes that the operating costs were 4.7% lower y-o-y, in tandem with the fall in revenue.
Despite StarHub’s cost control measures and healthy cash-flows, Chew is concerned about StarHub’s roaming pain on average revenue per user (ARPU). “Dragging down mobile revenue was a 25% y-o-y collapse in postpaid ARPU to $30. This was due to a loss of roaming revenue from international travel restrictions. Another negative for mobile was a loss of 40,000 subscribers in 4QFY2020. In contrast, M1 and Singtel added 23,000 and 24,000 postpaid subscribers respectively in 4QFY2020,” he says.
Meanwhile, Pay TV subscribers resumed churns after three quarters of stability. There was an exodus of 7,000 subscribers in 4QFY2020, more than double its 3,000 losses in the prior quarter.
On the outlook, Chew sees the group’s cybersecurity business to be its “silver lining” albeit with low profitability. “Cost management will be crucial for sustaining margins. However, major rationalisation of staff costs and variable pay TV content expenses are at their tail end. So are operating efficiencies,” says Chew.
Maybank Kim Eng too has kept its “hold” recommendation on StarHub on a mixed bag of results and outlook. But overall, the research house is positive on the Telco sector on potential 5G ARPU uplift and post-Covid recovery, while preferring Singtel and NetLink NBN Trust within the space.
Despite a drop in mobile, Pay TV and equipment sales revenue, StarHub has seen encouraging uptake of their higher-priced 5G plan, driven by the launch of popular 5G premium handsets. The group has also seen a gradual resumption of business activities and its Managed Services segment has seen a recovery in orderbook as Enterprise customers commit to strategic initiatives in FY2021 and beyond. Meanwhile, StarHub has recently secured an exclusive distributorship of Disney+ content in Jan 2021.
Analyst Kareen Chan does see StarHub’s outlook stabilising, but she has cut revenue estimates by 2-3%, as she believes that revenue will take more time to recover. As a result of lower service EBITDA margin guidance, FY2021-2022 EPS estimates are reduced by 0-5% . “We forecast FY2021 DPS at 6 cents, translating to a yield of 4.7%,” says Chan.
RHB Group Research also continues to rate StarHub “neutral” with a higher target price of $1.38 from $1.30 previously.
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According to the RHB Research Team, StarHub’s results beat its expectations and the research team is positive on the sequential q-o-q improvement in the group’s mobile revenue.
However, EBITDA is set to weaken further in FY2021 despite EBITDA margin (service revenue) outperforming guidance. FY2020 EBITDA margin (service revenue) of 31.1% outperformed management’s guidance of 27-29% on good OPEX savings from cost rationalisation.
Moving into FY2021, StarHub has guided for stable service revenue, with growth in enterprise offsetting the decline in mobile and pay TV revenues. The weakness in mobile revenue is expected to persist, with border restrictions still in place for the better part of the year.
“Service EBITDA margin should ease further to 24-26% from the change in revenue mix, investments made for its IT transformation, 5G OPEX and lower JSS payouts. Capex/sales of 9-10% (excluding spectrum and 5G) implies incrementally higher capex on selected IT investments,” says RHB.
With a more bullish stance on StarHub, CGS-CIMB Research reiterates its "add" call on StarHub with an unchanged target price of $1.60.
In a Feb 22 report, analyst Foong Choong Chen likes the stock for its growing enterprise segment, and more specifically, its cybersecurity business. Covid-19 has heavily affected the group's consumer mobile business, due to the lack of roaming and tourist prepaid revenue, but this was partially offset by the growth in enterprise.
Overall, Foong expects lower revenue across the board and higher net interest cost, as well as 5 cents per annum DPS in FY2021-2023.
As at 12.00pm, shares in StarHub are trading at $1.26 or 3.5 times FY2021 book with a dividend yield of 3.9%, according to RHB’s estimates.
