StarHub shares claw back March losses: where next for the telco?

StarHub's share price fell dramatically in the opening weeks of March, but the telco's stock has displayed resurgent qualities since. Can this be sustained?

The challenging economic conditions of the coronavirus pandemic have destabilised previously high-performing stocks, sending once reliable assets plunging in value.

StarHub has not been one of those high-performing stocks in recent years. The telecommunications company (telco) opened 2018 by trading at S$2.93. Fast forward two years to the start of 2020, before the threat of the pandemic was fully appreciated by markets, and StarHub shares were valued at S$1.45.

A 50.5% decline in share price across a two-year span reflects the struggles that StarHub has encountered, even before the spread of Covid-19.

Looking back further does StarHub no favours, as the telco's share price has suffered a succession of blows following heady days of trading at S$4.62 in May 2013.

This makes the share price recovery in March and April an uncharacteristic show of resilience, although questions remain on how far this bounce can take StarHub's shares.

Market analysts favour telco stocks as a reliable option

StarHub shares opened in March at a value of S$1.51, before plunging by 25% to close 19 March at S$1.13.

By 7 April, StarHub had almost clawed back the entirety of that March fall, ending the day at S$1.47. This rebound vindicates market analysts who anticipated that StarHub shares would display robust qualities.

On 26 March, DBS Research Group affirmed a 'buy' call on StarHub stock, with their market analyst, Sachin Mittal, citing StarHub's joint application with M1 for a licence to deliver nationwide 5G networks, as a cause for optimism.

Establishing a 5G network could consolidate StarHub's ability to honour dividend payments. While the delivery of 5G networks may not be an immediate priority while the pandemic endures, simply securing the licence would strengthen the confidence of StarHub stakeholders and prospective investors.

Many traditionally reliable stocks have proven hazardous for investors during the pandemic, with multiple industries being heavily affected by the changes to global trade markets. For example, social distancing practices, and the shutdown of transport routes, have left retailers and travel companies particularly exposed to the economic consequences of the coronavirus.

Telcos have a comparative position of strength in that regard: consumers still require mobile and internet services during the pandemic, whether for social or work purposes.

Telco suffering from lack of movement

While StarHub can still provide some services without disruption while the coronavirus impinges on standard consumer behaviour, key areas of revenue have indeed been affected. DBS Group's decision to rate StarHub as a 'buy' is caveated by a 9% cut in the telco's earnings forecast for the 2020 fiscal year.

Roaming revenue could decline by 50% in 2020, an area which accounts for around 12% of StarHub's overall mobile revenue. Prepaid mobile revenue, worth approximately 18% of StarHub's mobile services, will also continue to suffer.

These trends will be maintained as long as consumers are encouraged to adopt more sedentary lifestyles, with a virtually non-existent tourism industry at the centre of StarHub's bleak economic outlook.

The World Travel and Tourism Council (WTTC) has indicated that the global tourism industry may require as many as ten months to fully recover once the pandemic has ended. The longer that global and domestic travel is restricted, the bigger the blow to StarHub's economic growth prospects.

Much hinges on StarHub's ability to secure the 5G network licence in partnership with M1. If so, the telco may be able to sustain a dividend of 7.1% and witness upward mobility in its share price.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.