StarHub share price reached new lows these few days (day low of $1.91 on 31 May 2018) and it has aroused my interest to see if there has been a market over-reaction to the various bad news that are hitting hard not just on StarHub but the other two telcos SingTel and M1.
The few events negatively impacting StarHub share price are probably:
- Q1 2018 results were not great
- Circles.Life just launched $0/month flexi plan
- Several Pay TV channels under the Discovery brand such as Discovery Channel and Animal Planet may be dropped
- TPG on track to launch its services in the second half of 2018
- Funds flowing out of Singapore because of the Italian political crisis and may be US-China trade tensions
I have previously expressed my opinions about investing in StarHub, and I will continue to avoid this counter until I see that the company has stabilized its income amidst all the increased competition. As of now, I still see earnings declining.
We can revisit the key value investing principles:
1. Understand the business
2. Enduring competitive advantage
3. Able and trustworthy managers
4. Margin of safety
StarHub does not have a strong economic moat (enduring competitive advantage), other than the fact that it is protected by having a mobile operator licence which is limited to 4 at the moment.
Operationally, each service provider probably has its own operational advantages, and by that I mean some kind of structural advantage because of its unique position. For example, for a long time, StarHub has leveraged on its hubbing strategy to great advantage by bundling the various product types it offers in the areas of mobile, TV and broadband. This advantage was eroded as SingTel and M1 rolled out their own versions of pay TV.
Each of these lines of businesses are also attacked by more competitors and other disruptors like Netflix and changing consumers’ behaviors.
On the mobile front, not only does StarHub have to contend with TPG but also more and more Mobile Virtual Network Operators (MVNOs) like Circles.Life, MyRepublic, Zero1 and Mobile Zero. Circles.Life rides on M1’s network, MyRepublic rides on StarHub while Zero1 and Mobile Zero are with SingTel.
Is StarHub in a dire situation that sees no light at the end of the tunnel?
StarHub is going to welcome a new CEO Mr Peter Kaliaropoulos who is a telecom veteran and I do believe there will be strategic changes in terms of battle grounds it chooses to compete well in.
While it is facing numerous challenges, let’s not forget its areas of strengths:
- it is still second largest in terms of market presence after SingTel
- it has its existing customer base which it is supposed to know well
- it has great infrastructure in place and the products are comprehensive to play in both consumer and business markets
In other words, it is in a position of strength but attacked by others. However, whatever strategies and tactical plans which got them to where they are today are not going to win the game. They have to drastically change the game plan to succeed.
StarHub’s fixed services and business market seem to be the only bright spot. However, I am concerned they spend too much efforts and resources hoping that this is going to be a viable growth engine to fill the gaps arising from revenue erosion in mobile, TV and broadband. Buying a IT security company gets the company into a very different playing field, what makes it think it will thrive there and there is synergy of such an acquisition with the other business units?
I would actually like to see it retains its customers better and then choosing very carefully niche segments it can do better than others. For example, I am a customer for a long time with all 3 services (mobile, TV and broadband) at home. Why would I feel enticed to stay. My entire family does not consumer TV content in its traditional sense and we have adopted Netflix but given a compelling TV proposition, we would probably retain TV.
Is the hubbing discount proposition enough such that I don’t tear the individual services apart and start shopping in the market?
With the launch of Circles.Life’s $0 flexi plan, I have applied for the service and I must say the whole process is a breeze. The SIM card was delivered by SingPost Speedpost service.
Circles.Life is clever enough to know that people like me may want to try them out first before making the switch and they are certainly making it very easy for me to do so.
Let’s focus back on StarHub. Assuming dividend of $0.16 per year can be sustained, the dividend rate is 8% if the share price is $2. I think that is a huge consideration for me as a retail investor to be convinced the company has the strategic drivers and the operational might to maintain this baseline.
What do you think?
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