SINGAPORE (Jan 17): CIMB is maintaining its “hold” call on StarHub with a higher target price of $2.80 compared to $2.30 previously, while continuing to expect EBITDA and core earnings per share (EPS) to fall 12% and 36%, respectively, over FY16-20.
This comes despite a positive outlook on the growth of StarHub’s fixed network services (FNS) businesses, which the research house expects will be accelerated by the group’s recent acquisition of Accel Systems & Technologies and the proposed purchased of D’Crypt.
See: StarHub to acquire 51% stake in cyber security systems integrator for $19.4 mil
See: StarHub acquires cryptographic and digital security firm D’Crypt for $122 mil
In a Wednesday report, analyst Foong Choong Chen says that while he likes the prospects of StarHub’s FNS business, it will not be able to fully offset the group’s declining revenues from the mobile, pay TV and broadband segments, in his view, as they make up the balance 75% of service revenue.
He also sees little room for dividends per share (DPS) to rise beyond 16 cents over FY18-20F.
While the analyst mentions the possibility of StarHub making further FNS-related acquisitions accretive to the group’s net profit, he also highlights there is no guarantee that the group can find more good companies to acquire at reasonable prices.
The degree of mobile competition post TPG’s market entry is also likely to have a bigger impact on the group’s earnings outlook in FY19-20F, he adds.
“In our base case, we have assumed a cumulative 10% impact on StarHub’s mobile average revenue per user (ARPU) in FY19-20F from TPG’s market entry. In the bull case, if the cumulative impact is only 5%, then its EBITDA/net profit will decrease by a lower 4.4%/23.6% in FY16-20F,” elaborates Foong.
“In the bear case, if mobile ARPU is impacted by a cumulative 15%, EBITDA/net profit will drop by a more substantial 18.6%/47.4% over the same period,” he adds.
Foong recommends $2.50 and below as a good entry point in a bear case scenario, with the exit point being above $3.10 in the bull case.
A key upside risk to his projections is a lower-than-expected impact from TPG’s entry, and vice-versa for downside risks.
As at 10:18am, shares in StarHub are trading 3 cents higher at $2.95, or about 18 times FY18 forward core earnings.
