Mon, Sep 14, 2020 – 1:15 PM

UOB Kay Hian (UOBKH) on Monday upgraded StarHub to “buy”, citing recovery trends in the second half of this year.

The telco appears “well positioned” to defend its market share by activating customer acquisition activities and new products, said analysts Chong Lee Len and Chloe Tan.

UOBKH maintained its target price of S$1.40 for the stock, pointing out that the share price has fallen 18 per cent in the year to date and largely factored in StarHub’s weak 2020 earnings.

The counter was flat at S$1.16 as at 1.10pm on Monday.

The research team noted that although StarHub had reinstated its earnings guidance to project a 10-12 per cent decline in 2020 service revenue, this will be cushioned by a “decent” dividend yield.

Starhub’s management has alluded to recovery trends in the second half of the year, guiding that dividends for the next six months could potentially exceed the 2.5 Singapore cents paid in the first half. UOBKH forecast dividend per share of 5.5 cents for 2020 and six cents for 2021, based on a 60 per cent dividend payout, which translate to net dividend yields of 4.7 per cent and 5.2 per cent respectively.

Noting that telcos are deemed essential spending, the analysts said StarHub is expected to resume its customer acquisition activities, reactivate marketing plans and launch new products as the Singapore economy reopens. This will help the company defend market share going into 2021, wrote Ms Chong and Ms Tan.

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They added that the telco had seen “encouraging” take-up of its recently launched 5G pricing package, and that the proliferation of affordable 5G handsets will yield higher 5G adoption.

However, they believe the potential increase in average revenue per user from Starhub’s 5G rollout will be limited, as consumers are unlikely to migrate to a 5G service priced at a premium when existing 4G/LTE networks already provide adequate speed for daily use.

Nevertheless, StarHub has said that opportunities in 5G will come from bundling mobile plans with services beyond connectivity, such as gaming and virtual or augmented reality services.

Incremental opportunities for 5G investment will rely heavily on the telco’s enterprise business solutions, UOBKH wrote. Some of the business cases may include artificial intelligence-driven industrial devices, network-slicing monetisation and Internet of Things services for smart buildings and cities, according to the research team.

“That said, earnings accretion will remain elusive in the medium term, given the heavier system integration process,” it added.



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