StarHub downgraded to reduce by HSBC on expectations of dividend cut

StarHub billStarHub bill

HSBC downgraded StarHub to Reduce from Hold as it estimated the Singapore telco would cut its dividend by 37.5 percent.

“We think a dividend reset is inevitable in 2019, as EBITDA margins and free cash flow continue to decline due to headwinds in the Mobile and Pay TV segment, and a higher revenue contribution from the low margin ‘enterprise fixed’ segment,” HSBC said in a note on Tuesday. EBITDA stands for earnings before interest, taxes, depreciation and amortization.

“We expect Peter Kaliaropoulos (who joins StarHub as CEO from 9 July 2018) to take some tough decisions and reset dividend to a sustainable level,” it said.

It estimated the dividend payout would fall by 37.5 percent to 10 Singapore cents a share in 2019 from 16 Singapore cents in 2018. It also forecast that EBITDA would fall at an annual rate of 4 percent over 2017-20, primarily on a decline in mobile service revenue, which is one of StarHub’s higher margin businesses.

The mobile revenue decline was due to competitive intensity on the impending launch of a fourth operator in Singapore and on the launch of MVNO services in the city-state.

HSBC cut its net profit estimates by 8-15 percent for 2018-20, spurring a target price cut to S$1.65 from S$2.70.

It noted that its target price implies a 2019 price-to-earnings ratio of 14.9 times and a dividend yield of 6.1 percent, compared with the stock currently trading at a 2019 price-to-earnings ratio of 17.7 times and a dividend yield of 5.1 percent.

The stock was down 1.06 percent at S$1.87 at 11:31 A.M. SGT on Thursday, underperforming the STI, which was up 0.31 percent at 11:17 A.M. SGT.


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