Compiled by Annabeth Leow
STARHUB | HOLD
TARGET PRICE: $2.80
JAN 17 CLOSE: $2.95
CIMB, Jan 16
Despite factoring in contributions from recently acquired cyber-security solutions providers Accel Systems & Technologies and D'Crypt, we still expect StarHub's earnings before interest, taxes, depreciation and amortisation, and core earnings per share to decline by 11.6 per cent and 35.6 per cent respectively from 2016 to 2020.
While we see fixed network services revenue growing healthily to a quarter of total service revenue by 2020, it will not be able to fully offset declining revenues at its mobile, pay-TV and broadband businesses, which make up the balance 75 per cent of service revenue.
We also see little room for dividend per share to rise beyond $0.16 this year through 2020.
We believe StarHub could make further fixed network services-related acquisitions. Based on its balance sheet, we estimate it may have room to invest up to a further $300 million or so.
However, despite its intentions, there is no guarantee that StarHub can find more good companies to acquire at a reasonable price.
Our discounted cash flow-based target price is raised by 12 per cent to $2.80 after fine-tuning our operating expenditure and capital expenditure assumptions to avoid the risk of being overly conservative; including the potential value creation from its recent acquisitions; and deferring the negative impact from TPG Telecom's market entry to the forecast for next year.
With a net positive return of only 1.4 per cent, we maintain our "hold" rating.
A good entry point is below $2.50 (bear case) and exit point above $3.10 (bull case).
FOOD EMPIRE HOLDINGS | BUY
TARGET PRICE: $1.00
JAN 17 CLOSE: $0.69
RHB, Jan 16
Caffe Bene is Food Empire's 22 per cent-owned associate.
It has been undergoing financial difficulties due to excessive debts assumed before the investment made by the group.
We note that Caffe Bene recently filed for a court-led corporate rehabilitation process and is currently awaiting the court's approval.
Given that a court-led business organisation might occur over a fairly long period of time, we believe it would be most prudent for Food Empire to take this opportunity to kitchen-sink its entire Caffe Bene exposure and have a clean slate for this year's earnings.
Based on our estimate, the group has an exposure of around US$10 million (S$13.2m) to Caffe Bene, representing 4 per cent of its market capitalisation.
We think this is the maximum impairment if Food Empire writes off its entire equity stake in the coffee house chain and shareholder's loans.
Maintain "buy", with an unchanged target price of $1.00. Food Empire remains our top pick for Singapore's consumer sector this year.
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