DBS Group Research has raised its price target for StarHub to S$1.54 from S$1.25 with expectations for the company’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’s recently-divested subsidiary, D’Crypt.
In Mittal’s view, the business breakeven represents a “stepping stone” towards Ensign’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 “conservative” two to three times price-to-revenue ratio for Ensign in FY2024.
“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,” said Mittal of the new price target’s implied valuation.
The analyst has assumed Ensign’s enterprise value at S$730 million to S$1.1 billion, with StarHub’s 55.73 per cent stake in the company entitling the group to some S$406 million to S$610 million – or some 20 to 30 per cent of the group’s S$2.1 billion market capitalisation.
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“Ensign remains pivotal for StarHub and its Dare+ programme, and its platform-based offering is scalable across the region,” noted Mittal.
The analyst is also positive on the telecommunications company’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’s Dare+ initiative builds on the telco’s 5G network and other IT expenditures as part of its five-year growth map. Mittal opined that the group’s expenses regarding this initiative are “coming to an end”, given the transformation programme’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’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.
Shares of StarHub : CC3 0% were trading S$0.04 or 3.4 per cent higher at S$1.23 on an ex-dividend basis as at 4.34pm on Monday.
