Can StarHub Ltd (SGX:CC3) Sustain Its High ROE Amid Substantial Debt?

StarHub Ltd (SGX:CC3) has long been a standout in Singapore’s telecommunications sector, boasting a Return on Equity (ROE) of 18% as of June 2025—well above the Wireless Telecom industry average of 13% [1]. Even more striking is its December 2024 ROE of 22%, a figure that dwarfs the sector’s 12% benchmark [5]. However, this impressive profitability comes at a cost: a debt-to-equity ratio of 1.80, significantly higher than the industry’s 0.95 [4]. This raises a critical question: Can StarHub maintain its high ROE while managing the risks of its leveraged capital structure?

The Double-Edged Sword of Leverage

StarHub’s financial strategy hinges on using debt to amplify returns. By borrowing aggressively, the company has boosted its ROE, a metric that measures how effectively shareholders’ equity generates profits. For context, the Wireless Telecom industry’s average ROE in Q2 2025 was 15.35% [4], yet StarHub’s 18.61% ROE in Q3 2025 [2] underscores its ability to outperform peers. However, this success is predicated on maintaining low borrowing costs and stable cash flows.

The risks of over-leveraging are evident. A debt-to-equity ratio of 180% [3] means StarHub’s liabilities exceed its equity, increasing vulnerability to interest rate hikes or economic downturns. For comparison, Rogers Communications—a Canadian telecom giant with an ROE of 8.5% [3]—has a moderate debt burden but still struggles to match StarHub’s returns. If StarHub’s debt costs rise or its operating margins shrink, its ROE could plummet, eroding investor confidence.

Shareholder Returns: Dividends vs. Buybacks

StarHub’s financial strategy also prioritizes shareholder returns. Its dividend yield of 5.54% [2]—nearly four times the sector average [2]—attracts income-focused investors. The company’s recent S$0.03-per-share payout [5] aligns with its historical pattern of maintaining a consistent dividend, even as yields have fluctuated between 4.46% and 6.43% over the past decade [1]. This stability suggests management is committed to rewarding shareholders, even amid debt servicing costs.

However, the absence of recent share buybacks complicates the picture. StarHub’s 6-Month Share Buyback Ratio of -0.25% [1] indicates no repurchase activity in the June 2025 quarter, despite a 10% buyback program announced in 2022 [5]. This lack of action may signal either a focus on debt reduction or a reluctance to use cash for buybacks in a high-interest-rate environment. For investors, this raises concerns about whether StarHub’s capital allocation strategy is optimized for long-term value creation.

Industry Context and Long-Term Viability

The broader industry context is mixed. While StarHub’s ROE outpaces peers, the Wireless Telecom sector’s Q2 2025 ROE of 15.35% [4] reflects a decline from earlier quarters, driven by falling net income. This trend suggests that even high-performing companies may face headwinds from pricing pressures or regulatory changes. For StarHub, sustaining its ROE will require innovation in services (e.g., 5G expansion) and cost discipline to offset rising debt costs.

Critically, StarHub’s leverage strategy is only viable if its operating cash flows remain robust. With a debt-to-equity ratio of 1.80 [1], the company must generate consistent profits to service its liabilities. If economic conditions deteriorate—say, through a recession or a spike in interest rates—StarHub’s financial flexibility could be severely constrained.

Conclusion: A High-Risk, High-Reward Proposition

StarHub’s high ROE is a testament to its operational efficiency and strategic use of debt. However, the company’s financial health is a tightrope walk. While its dividend yield and industry-leading ROE make it an attractive income stock, the risks of over-leveraging cannot be ignored. Investors must weigh StarHub’s current profitability against the potential for financial stress in a volatile macroeconomic environment. For now, the company’s ability to sustain its ROE will depend on its capacity to innovate, manage debt costs, and maintain disciplined capital allocation.

Source:
[1] Can StarHub Ltd (SGX:CC3) Maintain Its Strong Returns? [https://finance.yahoo.com/news/starhub-ltd-sgx-cc3-maintain-004153135.html]
[2] StarHub (SGX:CC3) Financial Ratios and Metrics [https://stockanalysis.com/quote/sgx/CC3/financials/ratios/]
[3] Should Rogers Communications Be Worried About Its ROE [https://www.ainvest.com/news/rogers-communications-worried-roe-8-5-2508/]
[4] Debt to equity ratio by industry [https://fullratio.com/debt-to-equity-by-industry]
[5] StarHub Ltd (CC3) Stock Dividend Date & History [https://www.tipranks.com/stocks/sg:cc3/dividends]