Maybank KE sticks with contrarian Buy call on StarHub

StarHub retail store at Singapore’s VivoCity mall; taken September 2018.StarHub retail store at Singapore’s VivoCity mall.

Maybank Kim Eng said it was sticking with a contrarian Buy call on StarHub, saying the shares could re-rate just on signs Singapore’s telco market has stabilized.

“We believe the market has not fully reflected benefits from StarHub’s business and cost restructuring as investors are still awaiting signs of industry stabilisation to be confident of a bottom,” the brokerage said in a note last week.

Last week, StarHub reported first-half net profit fell 25 percent on-year to S$93.5 million, on revenue of S$1.15 billion, down 0.9 percent on-year.

Maybank Kim Eng said that excluding S$12 million of exceptional costs, the results were in line with its expectations.

The brokerage added that by end-September, the last major pay TV content negotiation will take place, which could complete the cost restructuring. That would mean no start-up costs — for the cyber security arm and for the cable-to-fiber migration — and lower migration costs disrupting profit, the brokerage said.

In the earnings conference call last week, StarHub CEO Peter Kaliaropoulos said the company was negotiating one last contract, and wouldn’t comment until the talks were complete; he added that StarHub was working toward a content model of paying per customer, rather than at a fixed cost. Kaliaropoulos said StarHub has offered new content packages to subscribers with lower pricing points.

Maybank Kim Eng said Singapore’s telco market won’t see “repair” anytime soon, with an expected influx of new wireless brands.

“But we believe this is largely anticipated by the market. As such, signs of stabilization alone could drive a sector re-rating and StarHub should outperform having been the most impacted on earnings and sentiment as a pure Singapore play unlike Singtel,” the note said.

The brokerage kept a S$2.00 target price on the stock.

Shares of StarHub ended Thursday flat at S$1.45; Singapore’s stock market was closed Friday and Monday for public holidays.

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