SINGAPORE (May 4): OCBC Investment Research and UOB Kay Hian are maintaining their “sell” and “hold” recommendations on StarHub at a respective target price of $2.40 and $2.98.
This despite 1Q17 earnings coming in line with expectations from both houses.
To recap, StarHub on Wednesday reported $73.1 million in earnings for the 1Q ended March, representing a 21.3% decline from its earnings a year ago in spite of seeing a 0.2% growth in revenue to $592.3 million.
(See also: StarHub posts 21% decline in 1Q earnings to $73 mil on higher expenses, lower other income)
In a Thursday report, OCBC lead analyst Eugene Chua says his fair value estimate on StarHub has been lowered by 10 cents with the update, after factoring in assumptions for $67.6 million and $282 million of spectrum payments to be made in FY17 and FY18 respectively.
In his view, there is also a lack of near-term catalysts for StarHub as its mobile outlook remains weak in the midst of intensive competition, while he also expects the group to see continued pressure from over-the-top (OTT) services as well as piracy on Pay TV.
“Competition in broadband segment is set to increase as we expect TPG to enter this market as well. One bright spot will be the expected steady single-digit growth from its enterprise fixed segment,” he adds.
UOB’s Jonathan Koh also expects StarHub to confront multiple challenges ahead despite marking a sequential rebound over the last quarter, with mobile revenue still contracting and pay TV continuing to face competition from alternative viewing options.
Although StarHub’s management has guided for a dismal outlook in 2017, Koh believes the group’s new dividend policy addresses the threat from the fourth telco TPG’s emergence, while network sharing would further enable it to compete and differentiate itself based on service quality.
He adds that the group’s recent management revamp could sharpen StarHub’s focus on the fixed enterprise business.
“We estimate net debt/EBITDA to deteriorate from the current 0.9x to 1.9x by 2019 due to payments for newly-acquired spectrum. Negotiation with M1 on network sharing is ongoing,” says Koh.
As at 11.24am, shares of StarHub are trading flat at $2.78.
