StarHub Shares Have Fallen 64% In 5 Years: Is It A Bargain Now?
StarHub Limited (SGX: CC3), or StarHub for short, is one of Singapore’s three telecommunication companies. The group offers communications, entertainment and digital solutions using its fibre and wireless infrastructure.
Its share price has seen better days – it was trading at S$4.13 almost 5 years ago in May 2014 but has since suffered a 64% decline to a share price of S$1.49 as of 29 May 2019.
Does the business look cheap at this juncture?
To determine this, let us look at two key divisions of the group – mobile services and pay TV, in order to understand the situation better.
Disclaimer: This is not a sponsored post. Opinions expressed in the article by the author should not be taken as investment advice. Please do your own research and due diligence.
Starhub’s Mobile Services Division
|Post-Paid Customers (In '000)||1,438||1,365||5.3%|
|Pre-Paid Customers (In '000)||789||918||-14.1%|
|Total (In '000)||2,227||2,283||-2.5%|
|Average Revenue Per User (with IDD - $$/month)|
|Average Smartphone Data Usage (GB)||6.3||4.9||28.6%|
Source: Starhub 1Q 2019 Earnings
For this division, revenue fell 5.3% year-on-year from S$203 million to S$192.3 million. From the above table, StarHub managed to increase its total number of post-paid customers by 5.3%, while pre-paid customer numbers dropped by 14.1% year-on-year. However, the increase in post-paid customers was offset by lower average revenue per user (ARPU) for post-paid, which fell 9.3% year-on-year to S$39.
The good news is that customers are using much more data now compared to a year ago, with average smartphone data usage up 28.6% year-on-year to 6.3GB. Unless StarHub finds a way to effectively monetise this though, ARPU will continue to fall and impact its largest division. Their market share erosion from 27.2% to 26.4% could be an ominous sign of more pain to come unless the group manages to come up with strategies to retain customer loyalty.
Pay TV Division
|Number of Customers ('000)||394||449||-12.2%|
Source: Starhub 1Q 2019 Earnings
StarHub’s Pay TV division offers cable television channels to subscribers, and the division saw the number of customers continue to shrink, falling by 12.2% year-on-year to 394,000. With the availability of other streaming options in the market, including those by Netflix Inc (NASDAQ: NFLX), StarHub may continue to witness lower customer numbers in future.
In order to attract more customers, StarHub aggressively rolled out discounts and promotions, resulting in ARPU falling by around 6% to S$48. Churn also increased from 0.9% to 1.5%, yet another sign that all is not well.
The Foolish Bottom Line
As can be seen above, with StarHub’s two core divisions are seeing declining numbers, there is lingering uncertainty as to whether the group can turn this trend around. With news that a fourth telecommunications company, TPG Telecom, entering the market this year. Coupled with the offer of free mobile service to customers for a year, it appears that the price wars have only just begun.
On the Pay TV side, with more global competitors muscling in to grab a piece of the pie, StarHub will need to revamp their offering in order to retain subscribers.
Hence, with the challenges facing the company now and with no concrete plan to tackle these difficulties, it appears that the company’s shares may not be quite a bargain just yet.
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