Starhub cutting dividends - will it shine again?

(Source: Starhub)

Starhub has announced its FY2018 results on 14th February 2019. Besides a decline in its business, it has also announced a change in its dividends policy. Where it had given out 20c per share from FY2010 to FY2016, and then 16c per share in FY2017 and FY2018, it will be revising the dividend policy to at least 80% net profit. This is estimated to be 9c per share assuming Free Cash Flow stays constant.

Investors who have done their due diligence will have flagged out the unsustainable nature of its dividend (it was consistently above their free cash flow (FCF) - they were essentially funding part of the dividend from debt.)

With the change in its dividend policy, they will finally be giving out less dividends than their FCF. In my opinion, this is a step in the right direction and it piqued my attention. Will it shine again?

• Starhub's borrowing currently sits at $1028.5m, and perpetual capital securities at $199.9m. As a result, they need to pay out about $38m (combination of interest and payout to perpetual capital securities holders) yearly. This unfortunately means they need to further improve free cash flow such that it equals 20% of net profit or it will still remain unsustainable.
• Keeping in mind the current state of increasing interest in financing, it would be wise to de-leverage.
• For one to add position of Starhub, the company need to show at minimum, proven signs of recovery - stabilised Free Cash Flow and Revenue. The right time to enter will be if it is oversold relative to its fundamentals. Value play so to speak.

Will be monitoring Starhub closely for this year.

Note: The above should not be used as a decision to solicit buy/sell activity. Use all information at your own discretion and DYODD.