What Is There For Investors To Like And Dislike About StarHub Ltd Now?

StarHub Ltd (SGX: CC3) is one of the three telecommunications companies in Singapore’s market. It has five main business segments, namely, Mobile, Pay TV, Broadband, Fixed Network Services, and Sale of Equipment (think sales of mobile phones).

Every company will have its investing pros and cons. In here, I’d like to explore two things to like about StarHub and one thing to dislike. Let’s get started.

First thing to like one: Juicy dividends

Given the nature of the telecommunications business, which tends to help generate stable revenue for companies within, StarHub has consistently generated a profit over the last 10 years. The profit has provided the fuel for the company’s dividend, which has been maintained at S$0.20 per share for the past six years.

StarHub's EPS and DPS table
Source: S&P Global Market Intelligence

At StarHub’s current share price of S$3.30, the company’s offering a dividend yield of 6.1% thanks to its 2015 dividend of S$0.20 per share.

Second thing to like: A business that generates high returns

In a recent article, I had looked at StarHub’s return on invested capital, or ROIC for short. The metric can be used as a gauge for the quality of a business. A general rule of thumb is that a business with a ROIC of over 15% can be considered as a good business.

In my article, I wrote that StarHub had scored highly with a ROIC of 151.8%.

Thing to dislike: Competition in mobile and pay TV business

StarHub’s mobile business may be facing new competitive forces soon with the potential entry of a fourth player in Singapore’s telecommunications scene. The picture’s still foggy now, but more will be clear when the government’s spectrum auction for bandwidth takes place later this year.

Competition from a new player will almost certainly have an impact on all three incumbents, which include StarHub. In fact, a pricing competition has already started among the trio.

In addition, with the aggressive expansion of internet video streaming service providers such as Netflix into Singapore, Starhub’s Singapore-focused Pay TV segment might also face the risk of customer shrinkage. Though it is still unclear how Netflix’s entrance will impact StarHub over the long-term, the risk is real.

Foolish takeaway

I still think that StarHub is an above-average business despite the challenges ahead, given its aforementioned track record and the high returns it can generate from its business.

Meanwhile, none of the above should be taken as a call to action on StarHub’s stock. Further research should be done – on issues such as the valuation and more – before any investing decision can be made.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.