CGS International, UOB Kay Hian and DBS Group Research are among the research houses that have maintained their respective positive calls on StarHub CC3 , following the telco's 3QFY2024 earnings that chalked up the seventh consecutive quarter of improvement.
For the three months ended Sept, StarHub reported revenue of $493.7 million, down 6% y-o-y and slightly off its own guidance due to variances in the timing of revenue recognition for certain projects. Nonetheless, the telco remains on track to meet its full-year ending December guidance.
Even with the lower revenue, earnings increased by 11% y-o-y to $40 million, as the telco reaped more cost efficiencies, headlined by its so-called DARE+ multi-year technology infrastructure revamp programme.
However, given the stiff competition marking the telco industry, UOB Kay Hian analysts Chong Lee Len and Llelleythan Tan Yi Rong, expect that StarHub's revenue growth this current 4QFY2024 ending December will likely remain under pressure.
Nonetheless, with StarHub at the tail-end of its DARE+ programme, Chong and Tan believe that StarHb should be able to at least maintain or if not slightly improve its ebitda margin.
Chong and Tan are keeping their "buy" call and $1.41 target price, which is at 6x 2025 EV/EBITDA, -1 sd to its long-term average mean.
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Another key reason for their optimism is their expectation that StarHub will pay a FY2024 dividend of 7.9 cents in total, which implies a payout ratio of 80% and a "lush" 6.6% yield.
Kenneth Tan and Lim Siew Khee of CGS International, on their part, expect StarHub to enjoy a speedier pace of earnings growth in the coming FY2025, with the completion of Dare+.
They've kept their "add" call and $1.40 target price on the stock, citing StarHub's "accelerated earnings recovery trajectory ahead" and also "attractive" dividend of 6.3% seen for FY2024 and 6.7% for FY2025.
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Another possible plus point, according to Tan and Lim, is possible market consolidation. Without naming M1, the obvious target, StarHub's management, according to Tan and Lim, is "highly interested" in such a move.
StarHub, the analysts note, has enough financial power to make a deal given its "healthy" 3Q net debt to ebitda ratio of 1.25x.
Similarly for UOB Kay Hian's Chong and Tan, a possible market consolidation is an upside for the stock.
Other scenarios include faster-than-expected 5G adoption and new business users coming on board, as well as faster-than-expected realisation of Dare+.
DBS Group Research while keeping its "buy" call as well, has more bullish target price of $1.54.
In its Nov 14 note, DBS expects StarHub to enjoy cost savings of between $10 and 12 million for each of FY2025 and FY2026. This means a direct lift to its bottomline for these two coming financial years, or an earnings CAGR of 10%.
On the other hand, RHB Bank Singapore is more restrained, maintaining its "neutral" call and $1.18 in its Nov 14 note.
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StarHub's 3QFY2024 numbers were broadly in line with what RHB was projecting. "We see StarHub's risk-reward profile a largely balanced, with attractive dividend yields of more than 6% lending share price support."
Meanwhile, PhillipCapital's Paul Chew has upgraded his call to "accumulate" with an unchanged target price of $1.29 even though StarHub's 3QFY2024 results were "marginally" below expectations due to the telco's project timing in the enterprise business. StarHub's 9MFY2024 revenue stood at 72% of Chew's full-year estimates while 9MFY2024 ebitda stood at 71% of his full-year forecast. Yet, the upgrade due to the weakness in the telco's share price, Chew writes.
"Consolidation in the mobile industry is rational, as the current competitive intensity and upcoming spectrum payments only depress the return profile of the entire industry. However, any price repair from consolidation still depends on the behaviour of competitors," he says.
StarHub shares changed hands at $1.19, unchanged thus far today.
