StarHub Dividend Review: How Does this Major Telco Perform on SGX Today?

StarHub dividend payments have been volatile and on the decline over the past few years. This has resulted from the increased competition that has forced the telco company to reduce data prices in a bid to maintain the market share. In addition, this has affected the net profit and contributed to the gradual decline of the stock price.

Although the company’s revenue was significantly affected by the COVID-19 pandemic, the StarHub management pledged to pay an annual dividend of at least 5.0 cents per share or 80% of net profit, whichever is higher. They also rolled out their 5G standalone (S.A) network in 2021, which might open up new revenue streams and boost the StarHub dividend. 

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Profile

Founded in 1998, this integrated info-communications company is listed on the Singapore Exchange mainboard. Asia Mobile Holding Company Pte. Ltd. is among the top shareholders and holds 55.78% of the company. Starhub is Singapore’s second largest telco after Singtel.

They provide a range of services including, world-class communication, entertainment, and digital solutions for individuals and companies. The company develops and delivers solutions by incorporating artificial intelligence, data analytics, cybersecurity, the Internet of Things, and robotics.

StarHub also has a subsidiary, Ensign, which commands a 16% market share of the cybersecurity industry. Last year, Starhub acquired an 88% share in Strateq, a Malaysia-based communications technology company.

5-Year Dividend History

From FY16 to FY20, the dividend payout has been on a gradual decline. Despite this, the percentage yield has remained relatively stable over the same period. A drop in the margins and profits is a top contributor to the falling of this Starhub Dividend. The organization has, however, maintained the number of shares traded.

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FY2020 Performance

Revenue

An analysis of the FY2020 earnings indicates that the revenue declined by 13% from S$2.33 billion in FY2019 to S$2.03 billion in FY2020 which has greatly affected the recent dividend yield.

Based on the company data, the decline was because of low earnings from mobile, pay TV, and equipment sales business sections. However, the financial reports and data also show that the enterprise segment had some growth. The mobile business segment alone had a 24.3% decline caused by the COVID-19 global travel restrictions, which affected roaming, IDD, and prepaid revenue.

Net Income

The StarHub dividend in 2020 was also affected by the net income. Based on the information presented by the company management at the AGM to the shareholders, the net income was also reduced to S$160.1 million in FY2020 compared to FY2019 data at S$178.6 million.

However, this was mitigated by reduced overall operating costs.

StarHub management was able to save some costs through StarHub’s D.A.R.E. Transformation programme. Launched in 2019, this program identified cost optimization techniques that StarHub Ltd can use to save more than S$210 million over a three-year period. Based on the company data, they have already executed about 82%.

Strategies

As an integrated info-communication company, StarHub Ltd has been expanding and growing its brand portfolio. In a bid to boost its earnings, the company became the first in Singapore to provide consumers access to a 5G non-standalone (NSA) network. 5G is the future, and the company has incorporated this service as part of its growth plans with the launch of  5G Mobile+ and Biz+ plans.

The management has also adopted a growth strategy by ensuring that StarHub Ltd is shareholders. To increase the share price and the StarHub dividend, the business acquired a cybersecurity brand, Ensign. This industry is a crucial growth area for StarHub, with projections estimates of US$418.3 billion by 2028. They also acquired an 88% stake in Strateq, a data-driven solutions ICT company based in Malaysia that focuses primarily on healthcare information systems, cloud services, data analytics, data center services, and IT infrastructure projects.

Share Price, DPU, and Dividend Yield

The StarHub share price on the stock market has been less volatile than most of the Singapore Exchange stocks over the past three months. In a week, it typically moves +/- 2%. The recent decline has been a result of reduced income and overall earnings.

On the other hand, the dividend yield at 4% is slightly higher than the bottom 25% of dividend payers in the market. This can be a starting point for an investor, especially since the firm is expanding its portfolio.

Debt Balance

The StarHub dividends and earnings are also affected by the company’s financial health. A high debt-to-equity ratio indicates that a company is using more debt to finance its operations. In this case, StarHub’s debt to equity ratio is very high at 208.2%. However, compared to 5 years ago, this is growth. The ratio has reduced from 444.3%. The operating cash flow also covers the debt.

Valuation

When determining the future StarHub dividend value, you need to do an analysis on whether it’s undervalued compared to its fair value and the price relative to the market. The fair value estimates the current stock price in relation to the cash flow an organization will generate in the future. StarHub is undervalued and trading below the fair value by over 20%,

While the current price is S$1.25, the fair value is S$2.10. An analysis check indicates that this is a 40.6% difference. In addition, if you compare the price to earnings ratio and price to earnings growth ratio, it’s poorly valued. In contrast, the price to book ratio is overvalued compared to others in the industry.

Our Verdict

Starhub provides a wide array of telecommunication services. However, with recent increased competition and the effects of the pandemic, the firm’s earnings have been on a decline. As one of the most prominent telcos in Singapore, the organization has found ways to expand and grow its portfolio by acquiring other data and communication firms.

Since the firm is listed in the stock market, investor relations are very crucial. The expansion strategies contribute to increased income which in turn boosts the StarHub dividend and earnings. Looking at the future, StarHub investors need to do a detailed analysis before putting their money into this brand.

Key Takeaways

• StarHub’s annual earnings are significantly affected by the changes in the market. Elements such as competition and economic changes could affect the overall returns, stock price, and final dividends. 
• However, the management has pledged a dividend of 5.0 cents or 80% of the net profit to the shareholders. 
• As their portfolio grows, the returns might stabilize.

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