StarHub Ltd Has Fallen 19% In The Last 12 Months: Is The Stock Cheap Now?

StarHub Ltd (SGX: CC3) is likely to be a company well-known by many investors in Singapore due to the nature of its business: It is one of the three telcos in the Garden City that are currently operational.

In the last 12 months, the company’s stock price has declined by 19% to S$2.73, largely due to underwhelming business results (its profit fell by 22% in the first quarter of 2017) and fears of heightened competition in the future (in December 2016, Australia’s TPG Telecom won the bid to become Singapore’s fourth telco). This may cause investors to wonder if StarHub is cheap at the moment.

There’s no easy answer since there are many ways to look at a company’s valuation. But, we can still get some insight by comparing StarHub’s current valuations with the market’s.

The three valuation metrics I will focus on are the price-to-earnings (PE) ratio and dividend yield. I will be using the SPDR STI ETF (SGX: ES3) as a proxy for the market; the SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).

Here’s a chart showing the PE ratios of StarHub and the SPDR STI ETF:

Source: S&P Global Market Intelligence and SPDR STI ETF website

It turns out at the StarHub’s PE ratio of 14.4 is only marginally higher than the market’s PE of 13.2. This means that StarHub is more or less valued similarly as the market in terms of the PE ratio.

The next chart shows the dividend yields of StarHub and the SPDR STI ETF:

Source: S&P Global Market Intelligence and SPDR STI ETF website

As we can observe, StarHub’s trailing dividend yield of 7.0%% is materially higher than the SPDR STI ETF’s yield of 2.9%.

To sum things up, StarHub can be said to be priced at a discount to the market given its significantly higher dividend yield and similar PE ratio.

One thing that investors should note here is that StarHub plans to distribute a quarterly dividend of S$0.04 per share in 2017, which is 20% lower than its quarterly dividend of S$0.05 per share in 2016. The company’s trailing dividend yield comprises three quarters’ worth of dividends from 2016 and just one from 2017.

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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.