SINGAPORE (Nov 7): CGS-CIMB Securities has downgraded StarHub to “hold” from “add” with unchanged target price of $2.00 on negative outlook for mobile and pay TV revenue.

Although StarHub’s 14.3x FY19F EV/OpFCF is in line with the Asean telco average, CGS-CIMB expects the telco’s mobile revenue to decline by 7.5% and 7.1% in FY18F and FY19F respectively, due to competition from TPG’s entry into the market.

Broadband revenue is also expected to be flattish in FY18-20F as positive effects from subscribers upgrading to higher-speed plans diminish while StarHub’s pay TV revenue would decline by 8.8% CAGR due to competition from over-the-top video platforms and pirated set-top boxes.

This means StarHub’s fixed network services business may be the only bright spot for growth, says analyst Foong Choong Chen in a Friday report.

Foong is forecasting revenue from this segment to register 7.7% CAGR between FY17-20F, driven by healthy demand for managed services.

“However, we do not expect this to fully offset the negative outlook for mobile and pay TV, and we forecast total service revenue to drop by a three-year CAGR of 3.1% between FY17-20F,” says Foong.

StarHub in Oct announced an operational efficiency programme to realise $210 million in savings across FY19-21F. Since mid-Aug, its share price has risen 20% and Foong believes this has factored in the potential cost savings.

“We forecast core EPS to decline by 23.6%/13.6%/29.5% in FY18/19/20F. Our FY18-20F DPS forecasts of 10 cents p.a. are intact, supported by average FCF/share of 12 cents excluding spectrum payments,” adds the analyst.

Year to date, shares in StarHub are down 31% to $2.00.