Tuesday, 13 October 2015

Why Starhub Ltd is a BUY

I recently finished an equity report with my group mates and the target company is Starhub Ltd.

The current price of Starhub Ltd as of the time the report was done was $3.61, Our target price is $3.90 which equates to an upside of about 8.3%

Below is a snippet from our equity report, feel free to take a look at the whole report that can be downloaded here.

P.S. "Cerebral" is just our group's name and not an actual company or firm.


Investment Summary 

 Emerging 4th Telco likely to meet operational challenge 

 The push for a 4th mobile network operator (MNO) in the local market has managed to attract two bidders, MyRepublic and OMGTel. Upon announcement of the news, Starhub’s share price declined to reflect this information. However, under IDA’s requirements, the successful bidder will have to fully develop the mobile network infrastructure by September 2018. We believe this poses a challenge for the current bidders, since neither of them has direct expertise in building a full network. While the two bidders have promised low prices to gain market share, this notion is likely to be discouraged by the high initial investment outlay to rollout the network nationwide, at least in the early periods. Therefore, we see that there will be little or no threat to Starhub’s revenue at least in the 4th telecom’s early stages.

 Starhub is Mispriced Due to China’s Devaluation 

On August 10, 2015, China devalued their currency that caused a large selloff in the equity markets including the Straits Times Index. Starhub’s share plummeted 13% following the announcement of the devaluation as investors sentiments shifted. However, the fundamentals of Starhub has not changed which leads to the conclusion that the stock is currently undervalued and should correct itself in the short-term.

 Hubbing Strategy Shifts Focus to Enterprises 

 Starhub’s hubbing strategy focuses largely on home consumers in the past. The recent shift to concentrate more on leveraging its growing enterprise customers to gain consumer sales indicates a lower acquisition cost and higher retention rate. We foresee that this strategy of integrating their various revenue streams will positively impact the company’s performance because there will now be lower volatility when it comes to profit.

View the full report here.

As always, happy trading.

Cheers.

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