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

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.