StarHub shares lost ground on Friday after it reported weaker earnings and signs of weaker mobile and pay TV subscriptions.
The stock was down 1.30 percent at S$2.28 at 12:16 P.M. SGT. Both buy and sell orders were clustered around S$2.28 and the stock has traded in a S$2.27-S$2.29 range for the session so far, suggesting it may stay stuck in a rut.
StarHub reported its net profit after tax for the first quarter fell 13 percent on-year to S$63 million, while total revenue fell 4.7 percent on-year to S$561.0 million, mainly on lower revenue from mobile and pay TV services, coupled with lower equipment sales.
Daiwa said the results were “broadly in line” after adjusting for accounting changes.
“Even so, the underlying deterioration in its operations, evident in customer losses across key business lines, continues to be a cause for concern for us,” Daiwa said in a note on Thursday.
Two key concerns
The bank said its two key concerns were that operational trends pointed to continued deterioration in pay TV and that StarHub’s performance appeared “inferior” to smaller rival M1.
Mobile revenue fell 7.1 percent in the quarter to S$205.1 million, with both pre-paid and post-pair ARPUs (average revenue per user) falling by S$2 to S$13 and S$43 respectively, the telco said in an SGX filing after the market close on Thursday. Pre-paid customers rose by 20,000, while the post-paid customer base fell by 27,000 on-year, StarHub said.
Pay TV revenue fell 10 percent on-year to S$80.7 million as the customer base fell by 38,000 to 449,000 households, it said; ARPU was S$1 lower at S$51, StarHub said.
Daiwa was cautious over the results.
“It appears to us that StarHub has lost ground in the post-paid segment while M1’s first-mover status in the mobile virtual network operator (MVNO) market appears to have paid off over the past year,” Daiwa said. “With StarHub announcing its own MVNO [Thursday] (with unlisted MyRepublic), it is possible that it could close this performance gap over the coming years.”
It has a Sell call, pointing to expectations that StarHub would struggle to continue its dividend policy. Daiwa forecast the dividend would be cut to S$0.14 in 2019, from S$0.16 this year. StarHub declared an interim quarterly dividend of 4.0 Singapore cents a share, unchanged from the year-earlier quarter.
Nomura was more cautious on the outlook for StarHub’s MVNO foray.
“The cannibalization of its existing broadband/mobile base needs to be monitored, we note; however, there may be terms to prevent churn
from StarHub,” Nomura said in a note on Friday.
Nomura also pointed to concerns over Starhub’s guidance, saying it implied further cost pressure ahead.
The telco guided for 2018 service revenue to be 1-3 percent lower on-year, with the service EBITDA margin expected at 27-29 percent after the adoption of new accounting rules. EBITDA stands for earnings before interest, taxes, depreciation and amortization.
Nomura cut its 2018-20 earnings estimates by 4-5 percent and lowered its target price to S$2.00 from S$2.50. It kept a Reduce call.