Maybank KimEng upgraded StarHub to Buy from Hold, saying “much is priced in” and that the beleaguered telco has become a value play.
“We believe the share price is now discounting an overly drastic drop of both wireless and/or pay TV revenues in the long-term and as such is now offering value to long-term investors,” it said in a note dated Friday.
It estimated the stock is trading at 13.2 times 2018 price-to-earnings, compared with its five-year mean of 17.7 times and the 10-year mean of 16.4 times.
Those levels are implying “extreme scenarios” such as pay TV revenue going to zero or wireless service revenue dropping another 15 percent, the brokerage said.
“With the impact of TPG still to be felt we acknowledge short-term risk but believe the stock has more than priced in long-term profit erosion,” it said. TPG is expected to enter Singapore’s market as a fourth telco player by the end of the year.
Maybank KimEng cut its 2018-19 core profit forecasts by 4-5 percent, and lowered its target price to S$1.96 from S$2.27.
That was in part due to StarHub ending its Discovery Network contract, which it expected would have a negative impact on bundled revenue and its pay TV business, the note said. It added that StarHub’s recent MVNO contract with MyRepublic would pressure revenue from the second half of this year.
Shares of StarHub ended Monday up 2.96 percent at S$1.74.