Brokers' take: Analysts cut StarHub earnings estimates on higher upfront investments
ANALYSTS have cut their earnings estimates for StarHub CC3 for the financial years 2022 and 2023, as earnings are likely weighed down by higher upfront investments over the next 3 years.
As a result, Citi downgraded the counter to "sell" from "buy", and reduced its target price to S$1.16 from S$2.00. It had cut FY2022 earnings estimates by 62.2 per cent and FY2023 estimates by 19.3 per cent.
DBS Group Research also downgraded the counter to "hold" from "buy" and cut its target price to S$1.31 from S$1.60. Analyst Sachin Mittal had cut estimates for FY2022 earnings by 29 per cent and FY2023 earnings by 13 per cent.
Meanwhile, RHB maintained its "neutral" call on the counter, but lowered its target price to S$1.29 from S$1.39, after cutting FY2022 and FY2023 earnings estimates by 14 to 15 per cent.
Shares of StarHub closed at S$1.28 on Monday (Feb 14), down S$0.05 or 3.8 per cent.
The telco on Friday posted a 27.5 per cent increase in earnings for the second half of the year ended Dec 31 to S$81 million, excluding the effect of the Jobs Support Scheme, largely due to higher service Ebitda margins that outperformed the company's own guidance for the period.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
However, StarHub also guided for lower Ebitda margins of at least 20 per cent for FY2022 and 23 per cent for FY2023, on higher upfront investments to support its Dare+ business initiatives.
Citi's research team said while this may be the correct longer-term strategy, this places the company "in a difficult position", as StarHub is unlikely to offer compelling earnings growth in a post-Covid-19 market recovery scenario, with earnings cuts also making its valuations expensive.
"Investors simply have better options on near to medium-term growth, yield and relative value," the research team said, adding that investors may not readily accept a longer-term promise on earnings growth given ongoing market volatility.
DBS's Mittal also said the guidance was "disappointing", noting that the investment - of which a big portion will be treated as an operating expense - may lead to a 29 per cent decline in earnings for FY2022, as the bulk of the investments will be front-loaded in the year.
Mittal added that StarHub's operating expense guidance is likely "too conservative", and expects the service Ebitda margins will grow 23 per cent in FY2022 and 25 per cent in FY2023 instead.
As for RHB, its research team said the stock's risk-reward profile looks "balanced".
Although its contribution was minimal in FY2021, RHB expects the enterprise segment to spearhead growth moving forward, with double digit expansion driven by a scale-up of the business.
READ MORE:
- Investors, grab your popcorn: StarHub, Singtel are trying to boost their entertainment value
- StarHub to drive growth through bundled services, digitalisation of operations
- Singtel, M1-StarHub tie-up, and TPG provisionally awarded 2.1 GHz spectrum rights for 5G networks
Copyright SPH Media. All rights reserved.
