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Investing in Starhub at the right price?

Tuesday, June 19, 2018

My investment in Starhub has turned out to be a bad one.

However, I am not losing sleep over this.

Why? Is it because I am on anti-depressants?

Hey, don't be so like that lah.

I stop taking those pills a long time ago.

I am quite ZEN about the paper loss really because my investment in Starhub is very small especially in comparison to my investment in SingTel which has been, of course, my preferred local Telco to invest in for quite a while now.

To give you a rough idea, the market value of my investment in Starhub is less than 2% the market value of my investment in SingTel.

Although I have been adding to my investment in SingTel as its share price declined in recent months, I have not added to my investment in Starhub even as its share price plunged.

Why is this so?

SingTel has a stronger balance sheet, stronger free cash flow and it pays out a fraction of its earnings as dividends to shareholders.

Starhub, on the other hand, has seen its free cash flow declining in recent years and it pays out much more than its free cash flow as dividends to shareholders.

Although Starhub has cut DPS from 20c to 16c, I think, if the management is financially prudent or unless business improves dramatically however unlikely, DPS should be cut again.

I did the numbers some time back and again more recently. I now feel that a more sustainable DPS could be 10c, assuming things do not get much worse.

So, if we choose to invest in Starhub today for income, we should ask ourselves if a DPS of 10c would make us happy?

I received quite a few messages from readers regarding Starhub recently. Examples:

Assuming that Starhub pays all of its cash flow to shareholders as dividends, I feel that it behaves very much like S-REITs.

Hanging on to that idea, if we can get a dividend yield of 7% or more from Starhub which is probably comparable to what we can get from industrial S-REITs, it is not too bad a deal.

Assuming a lower 10c DPS, even at $1.70 a share, we are looking at a dividend yield of 5.88% which doesn't quite cut it for me even with this new perspective.

Investing in Starhub for income?

Closer to $1.40 a share could be a more reasonable price to pay, I feel.

At $1.40 a share and assuming a more sustainable DPS of 10c, dividend yield would be 7.14%.

What if $1.40 does not happen?

No problem because I would rather invest in SingTel at the current price than to invest in Starhub at the current price, everything taken into consideration.

Looking at the chart, the RSI shows that Starhub is very oversold but like the MACD, the momentum oscillator does not show any sign of a trend reversal.

Although Starhub's share price plunged 5% (- 9c) today to $1.67, we could see it going lower if Mr. Market shares my sentiments.

Things could get worse before they get better.

So, why have I not been adding to my investment in Starhub?

Alamak. I anyhow talk to myself only lah.

You blur? I also blur.


Verseun said...

Agree AK ,

Fundamentally nothing has changed. Yet stock prices of the Telcos which have would have priced in the 4th Telco last year continue to fall. It could be due to the overall sentiment, but believe there is not yet blood on the streets yet, make some chaos, but a good idea to pick the best and start loading.

AK71 said...

Hi Verseun,

I can only hope that I am right more often than I am wrong. :)

AK71 said...

Singtel (ST SP): BUY
Last Traded Price: $3.19; Price Target: $3.70 (Upside 16%)

Favourable risk-reward, -7% risk vs +21% reward
• Earnings rebound likely in FY20F with the potential recovery of Bharti; Singtel opens to exit opportunities from digital businesses in 2-3 years
• Potential risk of -7% under our bear-case scenario versus +21% reward under our base-case scenario
• BUY with lower TP of S$3.70 as we adjust our core EBITDA and market cap of associates

JH said...

Hi AK,

do you have a cap or percentage for each stock?
e.g. singtel price keep dropping, do you keep buying whenever it hits an intended price? or do you cap it to diversify the risks?

How do you determine the allocation of your investment?


AK71 said...

Hi Charles,

You might want to read this blog:

To me, SingTel is primarily an investment for income and together with all my other investments for income would make up the majority of my portfolio.

Unless I have reason to believe that SingTel is no longer a sound investment for income, I would continue buying (until I have utilised all my remaining funds meant for income investing) as long as Mr. Market is willing to offer me lower prices.

tong said...

based on your 2% holding of starhub - meaning if you ONLY nimbled so far 2000 shares of starhub average price ard $2.80 mkt value at $5600 then you should have 93000 shares of singtel shares average price bot ard $3 mkt value $280000. logical?

Rellangis said...

SH price is getting quite close to M1 now. Considering a few years ago SH price had overtook ST price when it was around $4+. I think it would hover around $1.6+ unless there's more bad news to come. Also there's a new CEO in July so definitely there's gonna be some shakeup in the company. We can observe how it perform again around Dec. I would say the coy had performed quite badly under the previous CEO.

JH said...

The picture shows the base of cash greater than the income. So your war chest cash is bigger than your income investing portion?

Currently for singtel, I tend to stop at the cap... else the proportion will grow too big in my portfolio. But the price now really looks good!

Unknown said...

Hi AK,

I am just starting out on investing (am 20 years old) and am aware that i will make many mistakes at this point. My first purchase was 1 lot of capitaland at 3.50 because its PB ratio was below 1, PE ratio quite low and revenues and profits from 2017 annual report looked strong. Property prices in singapore seem to be picking up too. 1 week later its now 3.25.

I cant seem to find any analysis of capitaland on your blog, could you please kindly share your take on why the price action for capitaland is as such, or point me to a good resource? Thank you very much.

AK71 said...

Hi tong,

You mustn't ask me difficult questions.

I very stupid one. -.-"

AK71 said...

Hi Rellangis,

Crossing fingers here.

Good luck! :D

AK71 said...

Hi Charles,

Without cash, we cannot take advantage of market weakness. However, when Mr. Market goes into a depression like during the GFC, my cash position went to almost zero! ;p

AK71 said...

Hi Unknown,

There isn't much to say, really.

Compared to some other developers, I feel that people pay a premium to invest in Capitaland and I don't think it is cheap.

Jon Zhuo said...

hi Ak,

my target for singtel is 2.90. how do i get my number? same question how do you know 319 a few days ago is good. now is 311. every few days, it hit 5 yr low.. where is the science! to determine what is fair now..? if there is no target then we risk ending up not buying anything. so 290..for now

Unknown said...

how did you solve ur sleeping problem

AK71 said...

Hi Jon,

I don't remember saying $3.19 was good but I do remember saying $3.11 was a support.

For sure, whether the support would break or not no one knows.

I do know for sure that as SingTel's share price goes lower, it becomes better and better value for money.

So, what to do? ;p

AK71 said...

Hi lazypig,

Insomnia is often a mental issue.

So, I saw a psychiatrist and had to take some medicine.

redponza said...

Hi AK,
Holy smoke! Singtel's price is now $3.1x instead of the $3.5x that I last saw it!
What happened?

You know I only follow REIT

AK71 said...

Hi redponza,

What happened? The share price fell. That's what happened.

Since you only follow REITs, you can ignore this.

AK71 said...

Ah John says...
Are you looking at Starhub? Although Singtel maybe better bet right now.
I queue at 1.50 to buy Starhub, if DPU 0.1, the yield will still be 7%.

AK says...
See this:

"I like people admitting they were complete stupid horses’ asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn."
- Charlie Munger

Good Old Days said...

AK, Starhub is near to $1.4, will you still buy?

Good Old Days said...

Are you in for StarHub AK?

AK71 said...

Hi Good Old Days,

I made some assumptions in this blog about Starhub and what would make it attractive as an investment for income again.

The question to ask is whether their income generating ability today is the same as when I published this blog.

There are other investments which I find more interesting now and I just blogged about them earlier:

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