SINGAPORE (May 6): Daiwa Capital Market is upgrading Starhub to “underperform” from “sell”, but cutting its fair price estimate to $2.99 from $3.02 after a disappointing performance by the telco’s pay TV segment.

“With revenue pressure worsening beyond our expectations, we continue to think investors should look towards it rival M1 for better returns,” says Daiwa analyst Ramakrishna Maruvada in a Thursday report.

Starhub’s 1Q16 earnings rose 26% y-o-y to $92.8 million on a 0.4% y-o-y rise in service revenue and accompanied by a 3.8 percentage point increase in the service EBITDA margin to 33.8%.

But Maruvada says the decline in operational metrics in the pay TV segment, with revenue down 1.2% y-o-y due to the loss of 8,000 customers during the quarter, was “perhaps the biggest negative surprise for us in the results”.

Starhub’s service revenue was also hit by weaker-than-expected trends, with mobile service revenue dropping 2.4% y-o-y in 1Q16. While this is partly due to a global trend of declines in roaming revenue, Maruvada notes that Starhub’s performance was weaker than M1’s, which fell 1.9% y-o-y.

Starhub rose 0.3% to trade at $3.31 as at 1pm.