The cybersecurity business has further potential to grow at a compound annual growth rate of 20%, the research house says

 

DBS Group Research has raised its price target for StarHub to S$1.54 from S$1.25 with expectations for the company&rsquo s cybersecurity business, Ensign InfoSecurity, to go public before October 2025.

 

Analyst Sachin Mittal on Monday (Apr 22) highlighted the cybersecurity business as a profitable one, given how it achieved operating profit breakeven in FY2023, excluding StarHub&rsquo s recently-divested subsidiary, D&rsquo Crypt.

 

In Mittal&rsquo s view, the business breakeven represents a &ldquo stepping stone&rdquo towards Ensign&rsquo s spin off and public listing.

 

He estimated that the business has further potential to grow at a compound annual growth rate (CAGR) of 20 per cent and has assumed a &ldquo conservative&rdquo two to three times price-to-revenue ratio for Ensign in FY2024.

 

&ldquo We expect StarHub to re-rate from a 13 times FY2024 price-to-earnings ratio to 17 times, still lower than its last five-year historical average of 18 times,&rdquo said Mittal of the new price target&rsquo s implied valuation.

 

The analyst has assumed Ensign&rsquo s enterprise value at S$730 million to S$1.1 billion, with StarHub&rsquo s 55.73 per cent stake in the company entitling the group to some S$406 million to S$610 million &ndash or some 20 to 30 per cent of the group&rsquo s S$2.1 billion market capitalisation.

 

&ldquo Ensign remains pivotal for StarHub and its Dare+ programme, and its platform-based offering is scalable across the region,&rdquo noted Mittal.

 

The analyst is also positive on the telecommunications company&rsquo s retention of its assigned rights on Ensign for another two years, with the automatic termination date being fixed for Oct 4, 2025.

 

Launched in 2021, StarHub&rsquo s Dare+ initiative builds on the telco&rsquo s 5G network and other IT expenditures as part of its five-year growth map. Mittal opined that the group&rsquo s expenses regarding this initiative are &ldquo coming to an end&rdquo , given the transformation programme&rsquo s slated completion by FY2024.

 

He also observed a lower maintenance capital expenditure for the programme over the last three years, which has boosted StarHub&rsquo s earnings growth.

 

Mittal said he expects StarHub to turn in an 8 per cent earnings CAGR over FY2023 to FY2025 and a yield of more than 6 per cent.

 

Its cybersecurity business alone could fetch S$0.23 to S$0.35 per share based on FY2024 revenue projections, added the analyst.