Macquarie has downgraded Singapore telecom and cable operator StarHub (STAR.SI) to neutral from outperform and lowered its target price to $2.72 from $2.97.
Macquarie said it expects StarHub to maintain the dividend policy of S$0.20 per annum, which is paid out quarterly, but its forecast for free cash flow in 2011 is below this estimated dividend payment.
StarHub may try to lower its gearing before increasing its dividend payments further, Macquarie said.
The brokerage added that it prefers StarHub’s rival M1 (MONE.SI) because of the firm’s cheaper valuation and stronger balance sheet.
Macquarie said upside for StarHub is likely to come from potentially lower mobile acquisition costs and stronger growth in the firm’s corporate data business as Singapore’s Next Generation Nationwide Broadband Network is rolled out.
At 10:59 GMT, StarHub shares were flat at $2.68 on a volume of 356,000 shares.
