Is there any future for Starhub?
Starhub is known for paying hefty dividends over the years and at 18 cents dividend per share, the yield is at 9%. Considering its bottom during the crisis was $1.76, $2 seems to be rather attractive buy for a yield and recovery play.
To put things in perspective, cable TV accounts for about 20% of Starhub’s revenue. It has about 550,000 pay TV subscribers and it is not known how many families actually subscribed cable TV purely for soccer.
Reports over the weekend showed that many subscribers and soccer fans will be hanging onto Starhub even though EPL can only be watched on Mio TV. Of course, the reports can be biased as we do not have the actual numbers or expected churn rate.
Personally I feel that losing EPL is a prelude to more losses of TV subscribers to Mio TV. As much as I do not like Singtel, I cannot help but to admit that Singtel has the full financial muscle to boot Starhub out of the cable TV market altogether.
Now that Singtel has committed a large sum of money for the EPL, it is only a matter of time before it competes with Starhub on Discovery, HBO, Animal Planet and other premium content. (Not to mention the 2010 World Cup will be another bidding war highly anticipated by market watchers.)
If the worst case scenario materialised, Starhub will be at the deep end of the water.
Starhub might be its victim of its success of bundling the 3 services into discounted packages. Now that Singtel can do the same, Starhub will need to spend more on marketing, retention and content to remain a market player.
The question is, can it afford it at all?
Starhub nearly pays out all of its operating profit as dividends and I have once questioned its ability to sustain its dividend policy here.
Based on its 2H 09(distressed) balance sheet, Starhub’s current assets stands at 500M versus its current liabilities of 695M. It has a long term loan of 842M, but has only cash balances of 237M. Starhub is easily the highest leveraged Straits Times Index component stock and telco in
Given its distressed balance sheet, Singtel has chosen an apt time to enlarge its cable TV market share well. Singtel obviously know that Starhub will be mindful not to engage in a price war as it might not be able to get funding after all. With strong ammunition to target Starhub’s wobbly defence, how long can Starhub sustain the cut throat competition?
I estimate pay TV accounts about 80M of Starhub annual profits (given its 400M revenue). This translates to about 4.7 cents per share earnings. It is not a clear cut of losing 30% subscribers to Singtel translates to 4.7cents less 30% as Starhub might lose other subscribers of mobile and broadband to Singtel as well (double edge sword of bundling strategy). Hence, the repercussion effects are high and difficult to predict.
The only way for Starhub is to lower its pay TV rate, acquire customers on longer contract periods and treat loyal customers like me well. It has to look beyond its current marketing model and rethink its strategy to keep its subscribers base. Once Starhub loses its subscribers base below a critical level, it will be burning cash for its cable TV business. Then, it will need to give up everything to Singtel and compete on level grounds with M1.
That said, for the next few quarters, up till 2011 Dec, Starhub will not lose out much of it subscribers as it has strong followers for its Education, Entertainment and Infotainment package. HBO, Star Movies, VV Drama are staple TV for many, especially foreign families. I do not think that family subscribers consist only of soccer fans. For existing subscribers of cable TV, the content is largely part and parcel of life and EPL is only the dessert for one or two soccer fans in the family.
However, I still think the future is still bleak for Starhub unless it changes its pricing and marketing strategy. There are so many things it can do to turn the situation around given its large retail presence. I do hope it can fend off Singtel’s cash burning strategies.