RHB Group Research is staying "neutral" on StarHub with an unchanged target price of $1.38, following the group's latest 1QFY2021 business update, which saw earnings drop by 24.0% y-o-y to $30.5 million, while revenue was 3.8% lower y-o-y at $487.1 million.
See: StarHub posts 24% drop in 1Q earnings to $30.5 mil
"StarHub’s 1QFY2021 earnings were in line with our expectations but a consensus miss. We expect near term earnings pressure from its IT transformation exercise, extended roaming and international direct dialling (IDD) weakness and 5G rollout, partly buffered by opex efficiencies," says RHB's research team.
While FY2021 is expected to be weak for the group, the research team predicts FY2021 core earnings to fall 16% y-o-y before seeing a 10% recovery in FY2022 from a rebound in mobile revenue.
In this business update, RHB notes that all lines of StarHub's business saw sequential q-o-q weakness with the exception of broadband, which grew by 2.8% q-o-q.
"We expect mobile revenue to decline a further 6% in FY2021 (FY20: -23%), as border restrictions should remain for the better part of the year. Despite the stiff competition, StarHub continues to execute well on its digital plan (giga) with more than a five-fold increase in subs y-o-y," says the research team.
Meanwhile, StarHub noted that projects deferred previously (due to the pandemic) are making a comeback.
"We expect the enterprise business to remain the fastest growing segment with a FY2020-2022 CAGR of 13% (FY20:+12.2%). This should be supported by demand for cyber-security and cloud computing solutions, higher adoption of 5G enterprise use cases and the Internet of Things (IoT)," adds the research team.
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As at 11.35am, shares in StarHub are trading at $1.25 or 3.8 times FY2021 book with a dividend yield of 3.8%.
