Maybank Securities is upgrading its call on local telco StarHub to “buy” from “hold” with an unchanged target price of $1.32, as analyst Kelvin Tan sees tailwinds for the group from the economy reopening.
“Starhub remains on track with its Infinity Play and Super App strategies that will see the creation of new revenue streams. Roaming revenue is improving and it would be in a good position to capture business opportunities from the re-opening of China’s economy,” says Tan, who sees any pullback as an opportunity to “accumulate”.
With that, he believes that the group is on track to beat its own guidance and continue to offer a 4% sustainable annualised dividend yield.
StarHub has previously mentioned that its DARE+ transformation will position it better to capture growth from new trends in the market. But CEO Nikhil Eapen in a previous interview with The Edge Singapore has also said that FY2021 and FY2022 will be the years that the group will front load its expenses and costs for this transformation.
After which, Eapen expects the group to be on an upward trend as its transformation will allow it to better capture opportunities for growth.
“We acknowledge that FY2022 will be a transition year for StarHub to undertake the necessary investments into new growth areas under the DARE+,” says Tan, who expects opex to rise further in 2HFY2022 ending December from IT outsourcing, EPL content, software licensing and 5G wholesale cost.
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“Unless roaming revenue gains further momentum or fresh revenue begins to contribute meaningfully, we think earnings will be sluggish in 2HFY2022. We thus expect ebitda margin to drop from 24.6% in 1HFY2022 to 17.4% in 2HFY2022,” adds Tan.
Meanwhile, StarHub’s environmental, social and governance (ESG) efforts have shown some promising improvement. Tan notes that it has comprehensive sustainability policies in place, and its overall ESG score of 55 is above average on his ESG rating.
The way Tan sees it, StarHub could stand to improve its greenhouse gas (GHG) emission and energy intensity, which has been on the uptrend, as well as its chairman and management salary, which has increased over the past two years and falling number of independent and women directors on the board.
As at 12.30pm, shares in StarHub are trading 1.8% higher at $1.12, giving it a FY2022 P/E of 16.7x with a dividend yield of 4.5%.
