Analysts are have rather opposing views on StarHub following its recent Investor Day 2020.
On one hand, UOB Kay Hian is positive on the stock as it keeps its “buy” call with a target price of $1.40. On the other, RHB Group Research is remaining cautious as it maintains its “neutral” recommendation with a target price of $1.30.
UOB’s analyst Lee Len Chong likes the stock for its focus on good customer experience and network quality to drive near-term profitability. This will be complemented by cost discipline and ongoing IT transformation to support high customer satisfaction over 2021-2023.
In addition, StarHub’s GIGA has also garnered good traction, and customer experience has been bolstered by its fully digitalised and simplified distribution platform. Naturally, StarHub expects the enhanced customer experience to help stabilise average revenue per user (ARPU) and create customer stickiness in the longer run.
StarHub has embarked on an IT transformation to support good customer experience since 3QFY2020. This will be the next phase of transformation for 2021-2025, following the $210 million cost transformation programme (2019-2021).
The savings will only materialise from 2022 onwards but StarHub may look into reinvesting those savings to remain relevant and agile as operating parameters remain competitive.
Going into 1QFY2021, Lee cites channel checks that suggests “fairly benign competitive landscape for the telecommunications sector for 2HFY2020-1QFY2021”.
“This, we believe, will pave the way for incumbents to sustain market share as customers shift to telcos with nationwide 5G access, better network quality and wider coverage,” she adds.
Lee also likes that Starhub also aims to forge more partnerships to strengthen its enterprise businesses, which can be monetised as Singapore transitions into a 5G era.
Conversely, RHB’s research team is less rosy on the near-term outlook, as it continues to see near-term challenges for StarHub, mainly in the mobile segment, from competition and border closures. This would be partly mitigated by cost efficiencies from its digitalisation agenda.
“Broadly, the key takeaways from the sessions do not alter our view of 5G monetisation challenges for the group, with near-term weakness in the mobile segment stemming from competition and travel restrictions,” says RHB.
Meanwhile, StarHub’s ongoing IT transformation would build on its earlier three-year cost-out programme (2018-2021), for which more than 75% savings have been realised to date.
Aside from workforce optimisation (39% of savings), other cost wins include the restructuring of pay-TV operations/content (36%) and opex efficiencies (25%).
As for its dividends, Temasek’s call option for the 20% assigned shares of Ensign (acquired in 2018) is exercisable in 3QFY2021. This could see some proceeds being returned to shareholders. StarHub has maintained its 80% dividend payout guidance, excluding one-off transactions, such as job support scheme (JSS) credits and asset disposals/gains.
As at 11.05am, shares in StarHub are trading at $1.32 or 3.9 times FY2020 book with a dividend yield of 3.8%, according to RHB’s estimates.
