SHARES of StarHub : CC3 -6.31% fell as much as 8.1 per cent on Wednesday (Feb 8), after the telecommunications company reported a 98.4 per cent drop in net profit for the second half of the financial year on Tuesday night.

 

The telco shed as much as 8.1 per cent or S$0.09 to S$1.02 as at 10.31 am. By 11.35 am, the counter was down 7.2 per cent or S$0.08 to S$1.03. The last time StarHub closed near this level was Jan 13.

 

There were no married deals recorded, according to ShareInvestor data.

 

The share price decline came after the company on Tuesday reported a 98.4 per cent year-on-year decline in net profit to S$1.3 million for the second half of the year ended Dec 31, 2022 from S$81.4 million, despite higher revenue.

 

StarHub attributed the fall in net profit to lower profit from operations, including provisions from its Dare+ transformation initiative &ndash a five-year transformation plan that includes the establishment of its 5G network.

 

It had also anticipated additional utilities costs due to higher electricity prices as well as building staff capabilities, which contributed to higher operational expenses, said StarHub chief financial officer Dennis Chia.

 

Maybank on Wednesday downgraded StarHub to &ldquo hold&rdquo from &ldquo buy&rdquo , with a lowered target price of S$1.15 from S$1.33. The new target represents a potential upside of 11.6 per cent. 

 

The downgrade came after StarHub&rsquo s results missed Maybank&rsquo s expectations, although the research team expects the group&rsquo s earnings before interest, taxes, depreciation, and amortisation (Ebitda) to return to its FY2021 baseline by FY2024.

 

Maybank analyst Kelvin Tan added that the group&rsquo s earnings recovery is expected to be delayed to FY2024, due to higher transformation operating expenses in FY2023 related to Dare+.

 

Although StarHub&rsquo s FY2022 results missed consensus estimates, Citi&rsquo s analyst Arthur Pineda said these expectations do not provide a good benchmark due to the timing of the company&rsquo s transformation-related cost bookings.

 

The Citi research team has trimmed its estimates for the company&rsquo s net profit after tax for FY2023 to FY2024 by 13 to 15 per cent, to factor in spillover transformation costs. 

 

&ldquo Given these fluid expense bookings in 2023 and 2024, we believe investors will not find confidence in StarHub&rsquo s near-term earnings, rendering relative value as difficult to predict,&rdquo Pineda said. 

 

He also expects the group&rsquo s Ebitda margins to remain flat year-on-year at 20 per cent, and revenue to grow at a &ldquo healthy&rdquo level of 8 to 10 per cent. 

 

Meanwhile, Maybank has reduced its FY2023 bottom line forecast for StarHub by 6 per cent and its FY2024 forecast by 2 per cent, to reflect &ldquo lumpy&rdquo capital expenditure and anticipated operating costs.

 

Maybank also views StarHub&rsquo s dividend per share of S$0.05 per share as &ldquo decent&rdquo with a yield of 5 per cent, despite the weaker short-term performance. Citi believes the group&rsquo s commitment to a minimum dividend allows for downside protection. 

 

Pineda raised StarHub&rsquo s target price to S$1.10 from S$1.00 to factor in its 5 per cent yield target, and maintained the company at &ldquo neutral&rdquo . The new target price implies a potential upside of 6.8 per cent.