Brokers’ take: Analysts cut targets for StarHub on rising expenditure

ANALYSTS from CGS-CIMB, DBS Group Research and RHB have slashed their target prices for StarHub, citing higher expenditure on the back of the telco's transformation plan, Dare+.

This comes after the group posted a 32 per cent year-on-year decline in net profit for its third quarter ended Sep 30.

CGS-CIMB lowered its target to S$1.10 from S$1.40, with reduced earnings estimates of S$111 million for FY2023, down from its earlier estimate of S$125 million.

Meanwhile, DBS cut its target to S$1.02 from S$1.31, based on a higher weighted average cost of capital (WACC) of 8.2 per cent, from 7.5 per cent previously.

WACC refers to the average rate that a company expects to pay to finance its operations and assets. A lower WACC is typically viewed as reflecting a lower risk profile.

Both CGS-CIMB and DBS maintained their "hold" calls on StarHub. They noted that the telco will see an uptick in costs for the broadcast rights to the English Premier League (EPL), which it won in February this year.

RHB also maintained its "neutral" call, lowering its target to S$1.07 from S$1.20.

Bucking the trend, Maybank Securities raised its target slightly to S$1.33 from S$1.32, while maintaining its "buy" call. The research house raised estimated net profit for FY2023 to S$144.1 million from S$135 million previously, noting that StarHub's newly-integrated businesses JOS and MyRepublic are set to have a positive contribution to earnings.

Analysts from DBS, RHB and Maybank are also optimistic about StarHub's mobile segment, with revenue led by roaming set to increase as travel recovers.

However, all four brokerages concurred that StarHub will face increased expenditure for Dare+, putting pressure on its earnings in the coming year.

Dare+ is a five-year transformation plan that includes the establishment of StarHub's 5G network and other IT expenditures. The telco has already deferred some of its Dare+ expenditure previously marked for FY2022 to FY2023.

"Further delays in (capital expenditure) into FY2023 might also drag on net profit through higher depreciation costs," said Maybank analyst Kelvin Tan, while acknowledging that Dare+ involves "necessary investments into new growth areas".

Combined with costs incurred for the EPL broadcast rights, DBS' Sachin Mittal said that StarHub's expenditure may "largely set off the recovery in mobile and enterprise".

StarHub shares rose 1.9 per cent or S$0.02 to S$1.05 as at 11.11 am on Friday (Nov 11).

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