Starhub - Which Way Will It Go?

Starhub has been stubbornly clinging on to its downtrend for more than two months now. Closing three in fact. Twice I blogged about a breakout in the making and twice it didn't materialize. Good news didn't seem to matter to the public who were already set in their negative sentiment (see Starhub: Breakout in the Making?). Even the 100 day moving average support, which I had hope in to hold the fort, so to speak, fell apart (see Starhub: Opportunity to Buy In May Be Near at Hand) resulting in prices crumbling quickly thereafter. 

To make matters worst, candlesticks in the last three days show strong pressure from above determined to push prices down further, with 2 gravestone dojis forming in succession, one longer than the other. However, prices were unable to penetrate $2.53 for the two consecutive days before that perhaps forming a floor beneath. In fact if we look back at the charts, we would see that $2.53 did provide some support in October last year.

Also, prices, at the moment, seem resilient and intent on holding firm. However we didn't see a lot of buyers a day after that long ugly black candle day back in Dec, so I'm not so sure about the reliability of the support despite driving prices back up. 

And since all looks quite ill, now I'm just toying with this idea, but doesn't that formation remind you of a heads and shoulder, albeit lopsided? Or would this just be a manifestation of seeing what wants to see to fit the scenario, in this case negativity?

Well if that's the case, we should worry if prices break the neckline at where the current support lies. If that happens, we could see prices plummet to $2.48 or even to its 200dma. Just something to take note of.

But that said, prices seem to be withstanding the hammer blows from above for now and as such a triangle may form and it could be really soon before prices breakout from its downtrend and head upwards especially since price lows are higher and since the triangle really has not much space to run anymore. This seems the more likely of the two formations. Plus when you have to force a formation into the chart, like I did with the heads and shoulders, it usually is wrong. So my opinion is that things could head this direction rather than the other. But I could be mistaken yet again for the third time and strike out.

With a dividend yield of 7.4% and p/e of 13.65, Starhub could be quite attractive as an income stock. However as mentioned before, maintaining its current dividend is something that has analysts concerned.

Perhaps this is a view shared by many and is the reason why share price seems intent on falling lower - to make up for the coming "falling dividend" yet maintaining the yield? The warning bells are chiming. Or are they? 

Senior Guru blogger Drizzt has done a terrific job at analyzing the telcos. You can read more at his blog, Investment Moats on Starhub's yield maintenance (see here), its debt (see here) as well as on how prices adjust due to people determine to upkeep their yield (see here). I guess his blog was voted the Top Stock Market Blog in 2010 for good reason. =)

On other news, Starhub has teamed up in a venture with Japan's Nippon Telegraph and Telephone Corp to jointly build and operate submarine cables that will connect East Asia's business hubs. (You can read the news here.) Though revenues are expected to rise, we can all expect costs will as well. Will this venture increase their free cash flows that will allow Starhub to maintain its dividends yet still leave ample capital to grow is a question I can't answer. Earnings announcement on the 11th of Feb by the way. Stay tune!

Cheers,

~K

P.S. What started out as a quick post turned out to get dragged as I realized there was more news to consolidate. Apologies and thanks for reading to the end. Vested interest btw.