SINGAPORE (June 23): DBS Group Research is downgrading its call on StarHub to “hold” from “buy” with a lowered target price of $1.37 from $1.75 previously.
This is because there may be a delay in industry consolidation.
In a Monday report, analyst Sachin Mittal says, “While we continue to believe that TPG does not have a business case in Singapore, the recent capital injection of $174 million into TPG might help it to sustain for another two years and industry consolidation could be delayed to 2022, as compared to our previous expectation of 2020 or 2021.”
TPG, Australia previously announced plans to demerge its Singapore operations into a new entity called ‘Tuas Group’ before completing its own merger with Vodafone’s Australian business. Tuas Group will comprise Tuas, TPG Singapore and Tuas Solutions.
Tuas Group will take over TPG’s 4G network in Singapore and will be hived-off and listed as a separate stand-alone entity on the Australian Securities Exchange (ASX).
Mittal previously forecasted TPG to exit Singapore operations in FY20 or FY21, given the funding constraints. However, given the additional net funding of $174 million in May 2020, TPG Singapore is now expected to see its life extended by two years, thus pushing its potential exit from Singapore market to the end of FY22.
Hence, the analyst has cut StarHub’s FY21/22 earnings by 7%/10% and expect earnings stabilisation from FY22 onwards, compared to FY21 previously. FY20/21 dividend per share (DPS) estimates have also been reduced to 7.35 cents/6.9 cents (representing 80% payout ratio), from 9 cents each as the analyst believes that StarHub might want to retain some cash for future acquisitions.
“We project StarHub to cut its dividend payout to 80% from FY20F onwards to ride out the strain on its cashflows,” Mittal adds.
As at 12.15pm, shares in StarHub are trading at $1.30 or 6.5 times FY20 book with a dividend yield of 5.6%.
