MAYBANK Securities has downgraded its call on StarHub from “buy” to “hold” and cut its target price to S$1.30 from S$1.44, as it expects stiffer competition in the telco space to weigh on the company’s growth.
On Tuesday (Oct 29), the research house said that its new target comes as it trims StarHub’s net profit after tax estimates for financial years 2025 to 2026 by 4 to 5 per cent.
This comes amid rising market share competition in the mobile and fixed broadband (FBB) segment between Simba and the incumbents such as StarHub and Singtel, said analyst Hussaini Saifee.
Saifee pointed out that Simba’s improving fundamentals and balance sheet, as well as wide average revenue per user gap, compared with the incumbents, suggest that it is “favourably placed to continue to take market share”.
He highlighted that Simba – with only 4.8 per cent revenue market share – has achieved a 42 per cent earnings before interest, tax, depreciation and amortisation margin, and is free-cash-flow positive.
“This came as a positive surprise as telcos in regional markets are not able to achieve this feat even at 15 to 20 per cent revenue market share,” said Saifee.
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Given that Simba’s mobile plans are priced 50 per cent below the incumbents, the analyst believes the telco is likely to capture a portion of the lower-end consumer segment.
Additionally, Saifee also believes that Simba “has room to invest in the network” and potentially establish a foothold in the higher-end market. The telco had recently ventured into the FBB space, in which the analyst projects Simba could take 5 to 6 per cent of the market share.
Therefore, with 41 per cent of StarHub’s revenue tied to the mobile and FBB segment, Saifee anticipates greater growth challenges stemming from Simba’s rising dominance.
“A sustained aggressive Simba may continue to weigh on (StarHub’s) growth even if the industry undergoes consolidation,” cautioned the analyst.
As for Singtel, Saifee retained his “buy” call on the counter because less than 10 per cent of the telco’s sum of the parts is driven by Singapore consumers, hence it “remains relatively shielded”.
Shares of StarHub were trading up 0.8 per cent or S$0.01 at S$1.22, while Singtel shares were down 0.9 per cent or S$0.03 at S$3.17 as at 10.59 am on Tuesday.
