StarHub Ltd (SGX: CC3) is one of the three companies in the telecommunication industry, behind Singapore Telecommunications Limited and ahead of M1 Ltd in market cap. StarHub has five business segments, namely, Mobile, Pay TV, Broadband, Fixed Network Services and Handset sales.
In the last 12 months, StarHub’s share price was down by 37%. In this article, let’s try to understand what might have caused the decline.
Reasons for decline
There are many reasons that cause the stock price to move. Generally, stock price movement is driven either by business performance or investor’s sentiment.
The former is related to how a business performs in a given period, looking at metrics like growth, margins, production and others. Here, the ultimate driver is profit.
The latter is driven more by investors’ overall mood, which is described by emotional pairs such as greed and fear, optimistic and pessimistic, bull and bear etc.
In this case of Starhub, I believe the former was the main culprit causing the decline in share price.
Here are some numbers.
For the year ended 31 December 2018, Starhub reported that revenue fell 2.0% year-on-year to S$2.36 billion. Similarly, profit attributable to investors was down 26.2% year-on-year to S$201.5 million. The weaker profitability was due to poor performance in the Mobile and Pay TV segments. Consequently, Starhub’s free cash flow was 21.4% lower at S$173.8 million as compared to S$221.3 million in the same period last year.
Moreover, StarHub would be paying out lesser dividend from 2019. As Starhub is generally categorised as an income stock (mainly due to its strong dividend track record), the reduction in dividend might have prompted income-focused investors to reduce their holding.
In all, the weaker financial performance and the dividend cut might have contributed towards the decline in Starhub’s share price.
Going forward, Starhub expects 2019 to remain challenging. Based on its latest outlook, Starhub forecasts revenue to remain flat to a decline of 2% year-on-year. Moreover, dividend pay-out will fall from the current four cents per share in each quarter to 2.25 cents per quarter (or at least 80% of net profit attributable to shareholders). In other words, Starhub’s investors will need to embrace another challenging year ahead.
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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.