Analysts from Maybank Securities and DBS Group Research have raised their respective target prices for StarHub CC3 following better-than-expected 3QFY2023 earnings.
For the three months ended Sept, StarHub's various key businesses, mobile, broadband, enterprise and cybersecurity all reported higher y-o-y revenue, lifting overall service revenue by 8.9% y-o-y to $526 million. Earnings increased by 36.5% y-o-y to $37.3 million in the same quarter.
"We foresee further earnings and cost synergies as the group continues to improve cost efficiencies through infrastructure and capacity optimisation," says Maybank analyst Kevin Tan, who has slightly raised his target price to $1.10 from $1.08.
Sachin Mittal of DBS is more bullish, as he upgraded his call from "hold" to "buy" along with a higher target price of $1.25 and $1.05.
Mittal notes that StarHub has managed to negotiate lower costs it incurs in reorganising its internal IT systems, which in turn, has helped bring down maintenance costs as well as depreciation and finance costs too.
Due to this combination of lower costs and a recovery in revenue, Mittal has raised his earnings projection by 26% and 25% for FY2024 and FY2025, which leads to an earnings CAGR of 8% between FY2023 and FY2025.
His new target price of $1.25 is based on 15x FY2024 earnings, a higher multiple from 12x accorded earlier, but still lower than 18x at which StarHub fetched in the last four years.
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With StarHub maintaining a dividend guidance of 5 cents per share, or 80% payout ratio, the counter at the $1.25 target price will give a yield of 5.7%.
Mittal points out that his revised earnings estimate is ahead of his peers by 13% for the current FY2023 and 6% for the coming FY2024. "We expect consensus to be raised soon," he says.
Paul Chew of PhillipCapital, in his Nov 10 note, has flagged an overlooked aspect of StarHub's business. He maintains that investors have yet to recognise the value of Ensign, StarHub's relatively low-profile cybersecurity unit, as it is still loss-making, although it is been building up its franchise.
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He has kept his "accumulate" call and $1.21 target price, which is pegged to 6.5x FY2023 EV/Ebitda.
UOB Kay Hian, CGS-CIMB and RHB Singapore, meanwhile, have flagged that StarHub's capex might increase in the current 4QFY2023, thereby weighing down the bottomline.
Kenneth Tan and Lim Siew Khee of CGS-CIMB, citing uncertainty over the pace of the IT spending - which could intensify ahead - have kept their "hold" call and $1.15 target price.
RHB Singapore, which has a "neutral" call and $1.15 target price, is cheered by the better-than-expected earnings and the 10% forward yield at current price levels.
However, it expects the IT spending to "play catch-up" in 4QFY2023 and in FY2024.
UOB Kay Hian's Chong Lee Len and Llelleythan Tan Yi Rong have the most bullish target price of $1.37, even as they warn of margins softening into 4QFY203 from higher IT spending.
"At our fair value, the stock will trade at 6x 2023F EV/EBITDA, -1SD below its five-year mean EV/EBITDA of 7x; it also offers a decent dividend yield of 4.8% for
2023," the analysts state.
