Starhub bottomed out?

30 May 2018, Starhub in a StraitsTimes article mentioned that they will be dropping out 11 TV channels from 30 Jun 2018 onwards.

Starhub's stock drop 4.5%.

Failed negotiation
Starhub's portfolio of educational channels will no longer be available to viewers due to a failed negotiation between Starhub and Discovery because it is not willing to pay a fair value for the programmes.

Types of disruption
Technology and piracy could be a part to play. Internet TV like Netflix and Youtube have disrupted the television business because of the availability of programs. Speed of internet also makes it faster to view the video clips and movies online. Piracy still exist because it markets itself as a cheap alternative to viewing starhub channels. A $45-$60 dollar a month subscription from Starhub could only cost you $8 per month with a pirated TV box, which is able to access most of Starhub's channel.

With multiple disruptions to its TV business, Starhub can no longer command a premium price for its TV subscriptions. Therefore, it is understandable why Starhub is not be willing to pay a premium to keep its educational portfolio.

Moving forward
Starhub can replace these channels with cheaper alternatives or to decide to slowly wind down their TV business and invest in new businesses to be able to sustain shareholders returns.

Source: Maybank Kim Eng - ketrade platform

10 year historical price chart

Starhub trading at close to crisis levels

Source: https://www.businesstimes.com.sg/companies-markets/discoverys-portfolio-of-11-tv-channels-to-be-dropped-from-starhub-after-june-30

Dividend play via Margin financing

Normal dividend play method

Buy stocks under cash account

Example
Initial capital outlay $200,000

Buy xxx stock with a dividend yield of 7%

Total return per annum: $14,000


Margin Financing via Kim Eng

Example
Initial capital outlay $200,000

Buy Grade A stock with a dividend yield of 7%
To find out whether your stock is a grade A stock, click here

With $200,000 stocks as collateral, available financing is $450,000

Utilize $450,000 to buy Grade A stock with 7% yield, interest per annum 2.88%

Total return per annum: $14,000 + $31,500 - $12,960(2.88% interest p.a.)
Total return per annum: $32,540

Risks of margin financing

The risks of margin financing is that if the borrowings used to buy shares fall below a certain ratio level, a cash top up will be needed to maintain a margin ratio of 140%.

With a $200,000 capital outlay of cash/stocks, stocks bought at $450,000

Amount of financing: $250,000

Day 1

Margin ratio = $450,000/($250,000) = 180% (current margin ratio)

Day 2

$450,000 stocks become $340,000

Margin Ratio = $340,000/$250,000 = 136%

A margin ratio of 140% is required to maintain your financing, a failure to top up may cause your shares to be forced sold.

Therefore, in order to maintain the 140% margin ratio, he needs to top up $10,000.