Brokers’ take: Maybank upgrades Starhub to ‘buy’ on reopening potential

MAYBANK Securities has upgraded its call on StarHub from “hold” to “buy”, as it expects the telecommunications company to benefit from the global economic recovery as the Chinese economy re-opens.

The research house’s target price on the counter remains unchanged at S$1.32, implying a potential upside of more than 20 per cent from the share price of S$1.12. 

In a report on Friday (Sep 30), analyst Kevin Tan noted that the group continued to face rising operating costs due to its ongoing Dare+ strategic transformation, as well as higher operating expenses booked in H1 FY2022. 

Tan projects FY2022 revenue and Ebitda (earnings before interests, taxes, depreciation and amortisation) of S$2.3 billion and S$453 million, respectively, but warns of “sluggish” earnings in H2 of FY2022 due to rising operational expenditure from Dare+. 

“Unless roaming revenue gains further momentum or fresh revenue begins to contribute meaningfully, we think earnings will be sluggish in 2H22. We thus expect Ebitda margin to drop from 24.6 per cent in H1 FY2022 to 17.4 per cent in H2 FY2022.”

Tan is however optimistic on StarHub’s prospects as JOS Singapore and JOS Malaysia - the group’s businesses under its regional ICT (information and communications technology) - are due to announce their full-year contributions, coupled with an improvement in the group’s roaming business from the expected reopening in China. 

“We think the stock has been oversold and transient risks are largely priced in,” said the analyst, who also likes the stock for its 4 per cent sustainable annualised dividend yield. 

“We acknowledge that FY2022 will be a transition year for StarHub to undertake the necessary investments into new growth areas under the Dare+. Starhub remains on track with its Infinity Play and Super App strategies that will see the creation of new revenue streams,” added Tan. 

As at 11.14 am on Monday, shares of Starhub were trading S$0.01 or 0.91 per cent higher at S$1.11.