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.