StarHub share price to face $282million baptism of fire

It’s that “uh-oh” feeling for investors as StarHub share price faces another torrid run following the release of a terrible 1QFY2019 results that saw net profit plummeted by 23% on a year-by-year basis. Investors must be having that sinking feeling again and wondering when will StarHub share price ever see daylight again.

The problem for StarHub share price is that it tends to shoot itself in the foot. In February 2019, StarHub share price corrected from $1.94 to $1.610 following the release of a dismal FY2018 results and the cut in dividends for FY2019. Since then, StarHub share price had struggled to maintain its form. With the latest results, surely the counter will go into yet another tailspin.

Given the latest financial performance, it takes an ardent fan of StarHub to have conviction in StarHub share price. Revenue for mobile, Pay TV and Broadband segments all declined. Cyber security services recorded an impressive 41.4% in revenue but suffered a whopping $11.4million losses in 1QFY2019. Sales from equipment was the only bright spot as revenue surged by 33.3% but the profit margin from this segment is razor thin, thus it cannot be the game-changer for StarHub.

Apart from the disappointing results, investors must be wondering if StarHub would fall into the abyss like Hyflux. This is because like Hyflux, StarHub had raised capital through a $200million subordinated perpetual bonds back in 2017. That exercise was meant to raise fund for the coming $282million 700 MHz spectrum which StarHub won in 2017. Let’s examine whether StarHub investors should run for their lives or buy on the dip.

StarHub share price and perpetual bonds

In my view, it is unlikely that StarHub share price will suffer a similar fate like Hyflux. With Temasek Holdings’ 56% stake in StarHub, I don’t expect the telco to self-implode because of the strong credit worthiness of Temasek Holdings. With such super backer, the chances of StarHub suffering from crisis of confidence among its creditors is pretty low.

Furthermore, the distribution rate of StarHub perpetual bonds is 3.95%, much lower than the 6% offered by Hyflux perpetual bonds. The lower distributions rate and the smaller tranche bond size make it more palatable for StarHub to manage. But I reckon the most important point is [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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