SINGAPORE (Aug 3): RHB, CIMB and DBS are reiterating their “neutral”, “reduce” and “fully valued” calls on StarHub, respectively, after the telco on Wednesday reported 2Q17 earnings of $85.7 million, 21% down from that of the previous year and largely in line with the expectations of all three research houses.

<hr/><a href="https://www.theedgesingapore.com/starhub-posts-21-drop-2q-earnings-857-mil">See: StarHub posts 21% drop in 2Q earnings to $85.7 mil</a><hr/>

In a Thursday report, RHB maintains its price target estimate at $2.70 on a lack of catalysts amid broader industry concerns over competition and uncertainties brought about by TPG Telecom, which is slated to roll out its service as Singapore’s fourth mobile entrant in 2018.

Its research team notes that while StarHub’s enterprise segment continues to be the bright spot within the group given its role as the second largest revenue contributor after the mobile segment at 17.1%, this is still not sufficient to offset the declines cross the group’s mobile, broadband and pay-TV segments.

Moving forward, the team expects industry handset subsidies to remain high as the telcos pre-empt TPG’s entry as well as the launch of a few iconic handsets in the second half of 2017.

Meanwhile, CIMB has raised its price target on the stock to $2.50 from $2.45 previously after rolling its estimates forward to FY18F. This is because the research house has raised its FY17-19F core earnings per share (EPS) estimates by 4-5.8% due to lower amortisation, as a result of some bookkeeping adjustments after the release the group’s annual report.

In a separate report on Thursday, CIMB analyst Foong Choong Chen says he continues to see weaker earnings for the group in 2H17 due to higher handset subsidies, and has identified $2.20 as a good entry point in a bear case scenario, as well as a bull-case exit point of $2.80.

Post the revision, Foong is forecasting core EPS to decline by 15.2%, 3.7% and 15.1% in FY17F, FY18F and FY19F respectively, with a big drop in FY19 due to more intense mobile competition upon TPG’s market entry.

Similarly, DBS analyst Sachin Mittal notes that there are “few positives” for StarHub ahead due to a tough competitive climate, which is likely to continue pressuring the group’s margins.

The analyst has kept a target price of $2.33 on the stock, and notes how the group’s Pay TV subscriber base has declined by about 12% since 2Q15, due to rising piracy and competition from over-the-top (OTT) players such as Netflix.

“Though the company has looked to curb the subscriber losses by offering more attractive packages, we believe the drop will continue. This is likely to continue putting pressure on margins as households with three or more services continue to contract,” says Mittal.

As at 11:53am, shares of StarHub are trading 4 cents lower at $2.66.

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