• Limited scope for series of rate hikes
• 4th telco concerns likely overdone
• Yield now back to 5.6%

Stock down 18% since mid-May

Despite reporting an improved set of 2Q15 results in Aug, StarHub Ltd has seen its share price tumble by more than 18% since mid-May. We suspect that the recent sell-down was due to several factors including concerns over rising interest rates and the emergence of a fourth telco in Singapore.

Rate hike possible but sustained hikes unlikely

On the first concern, the US Federal Reserve looks intent on raising rates. However, the question is not when, but also whether if it is going to be a sustained spate of hikes. Earlier, the market was calling for a possible hike in Sep; but the mixed jobs report for Aug seems to have turned that call on its head – the market is now divided if it would be delayed until Dec.

Meanwhile, some market watchers now believe that there may be little need for the Fed to continue raising rates, especially in the wake of the slowing economy in China, the recent yuan devaluation, as well as still benign inflation in the US. Back to Singapore, the current yield curve does not seem to be pricing a sharp jump in local interest rates either.

Emergence of a fourth telco

The IDA is said to be considering the proposals for a fourth telco, with many expecting MyRepublic (MR) to be a key contender. In fact, MR has recently launched a call for volunteers to test its Jurong East Mobility Trial (due to start this Oct 2015).

However, we think that it will still be a pretty arduous road ahead for any new entrant, given the pretty strict roll-out requirements. Hence, any near-term impact is going to be pretty limited; and at best, it may garner about 5% of market share in the postpaid segment in the medium term.

And given the current stickiness offered by StarHub’s “Hubbing Strategy”, we believe it is probably less at risk of losing market share than peer M1 Ltd.

Maintain BUY and S$3.96 fair value

Lastly, we note that StarHub’s dividend yield has also risen to a pretty attractive 5.6%. Maintain BUY.

Source: OCBC Research - 8 Sep 2015