SINGAPORE (March 31): Maybank Kim Eng Research continues to rate StarHub at “sell” at an unchanged price target of $2.49, foreseeing turbulent times ahead for the local telco despite it announcing a game plan to manage recent changes in the industry.
In a report on Thursday, analyst Gregory Yap recalls how StarHub’s management expects the group’s EBITDA margin to fall to 26-28% this year from over 30%, as NBN adoption grants will fade and handset subsidies will grow due to two big handset launches this year as well as subscriber-ring-fencing ahead of TPG Telecom’s entry.
Additionally, forex losses from USD-denominated Pay TV content and heavy investments in customer service will further exacerbate the situation, which Yap underscores is “not just a 2017 phenomenon, but a three-year one”.
Although a key focus for StarHub will be building up its healthcare vertical and mobile roaming, the analyst believes Starhub’s Pay TV revenue will continue to fall as over-the-top (OTT) viewing options grow.
“It will not sacrifice margins to maintain Pay TV revenue, [which was] still a sizeable 16% of total revenue in FY16,” he opines.
Lastly, Yap emphasises that StarHub’s management has no intention of acquiring or merging with M1 although the decision is up to its shareholder Singapore Technologies (ST) Telemedia.
“Management believes it can achieve the same goals through collaboration. It also cautioned that the regulator will not permit spectrum hoarding even if it allows another telco to buy M1,” adds Yap.
“On balance, StarHub has a game plan to manage the changes [which it previously announced after we hosted StarHub at Invest ASEAN Singapore], but it will still be turbulent times ahead.”
Shares of StarHub closed 1 cent lower at $2.88 on Friday.
