StarHub shares tumble after earnings miss analysts’ forecasts

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Shares of telecom StarHub tumbled 9.79 percent to S$2.58 by 11:20 A.M. SGT on Thursday after its earnings results disappointed Analysts.

On Wednesday after the market close, the telco reported that fourth-quarter net profit was S$14.3 million, down S$39.7 million from the year earlier period. For the full year, net profit was down 27 percent at S$249.6 million.

Daiwa said in a note on Wednesday that the results missed its forecast, with fourth-quarter net profit 64 percent lower than its estimate, mainly on cost pressures. It noted that after normalizing for some expenses, EBITDA was broadly in line with its forecast.

“StarHub’s 4Q17 results suggest that while the company is making inroads into the enterprise segment with its acquisition-driven strategy, its legacy mobile and pay TV businesses are confronting significant revenue and cost pressures,” Daiwa said.

It pointed to three key issues in the results: Firstly, its paid mobile performance and quarter-on-quarter average revenue per user (ARPU) drop underperformed its competitor, M1.

Dividend concerns

Daiwa also noted that StarHub’s 2018 guidance indicated the operator doesn’t expect revenue pressures in the mobile and cable businesses to let up. Secondly, it said the extent of the margin erosion expected was also a surprise.

The third issue was the dividend policy, which Daiwa said may not be sustainable into 2019 amid upcoming spectrum payments of S$282 million. The investment bank cut its dividend forecast for 2019 to S$0.14 from S$0.16.

Daiwa also cut its 2018-19 earnings per share forecasts by 16-19 percent after lowering its mobile and cable revenue estimates by 1-2 percent and cutting service EBITDA margin assumptions by 2.6-2.9 percentage points.

That led to a target price cut to S$1.95 from S$2.25. Daiwa kept its rating at Sell.

The stock was a tad off its intraday low of S$2.57, which might serve as an initial shaky support, followed by its 52-week low of S$2.54.