Daiwa upgraded StarHub to Hold from Sell saying the near-term risks were priced into the stock, but it added that the telco needed a “more coherent strategy.”
The stock has tumbled more than 40 percent so far this year, making it the worst-performing STI component year-to-date.
That was amid news it was excluded from the MSCI Singapore index in May and as it lost the Discovery Network channels on its pay TV offerings, Daiwa said.
But it added that those were “emblematic” of StarHub’s broader structural issues, including regulatory changes on exclusive content and broadband access as well as disruptive technology affecting its pay TV and mobile business.
“While we are confident in our belief that the share price has found a bottom, we are less sure about prospects for upward rerating,” Daiwa said in a note on Monday.
It said it was waiting for more clarity on its strategy ahead, particularly the future of its “hubbing,” or bundling strategy. It added it was also waiting for evidence of operational effectiveness and better disclosure of costs.
“StarHub’s bundling strategy – termed ‘hubbing’ – was used to great effect during the early 2000s but has lost its effectiveness (or relevance) over the past several years,” Daiwa said. “For example, StarHub failed to extend the reach of its services (proportion of households that use any of its services fell by 10 percentage points over the past decade) and the number of ‘tripleplay’ customers began to decline from 2015.”
StarHub’s strategy involved bundling pay TV, broadband and mobile services.
Daiwa cut its 2018-20 earnings per share foreasts by 13-15 percent on accounting changes and to factor in competition in the low-end mobile segment as well as the loss of the Discovery channels.
That cut its target price to S$1.72 from S$1.95. It said it believed StarHub could sustain a 10 Singapore cent dividend per share, compared with S$0.16 in 2018.
But it noted that the share would have a 2019 dividend yield of 6 percent, which should support the stock.
The stock was up 3.07 percent at S$1.68 at 1:23 P.M. SGT.