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Calling In On Starhub’s Third Quarter Results

210px-Starhub.svg

Telecommunications operator Starhub (SGX: CC3) reported its third quarter earnings yesterday evening and saw slight dips in both its top and bottom line.

The company would likely be familiar for most folks who live in Singapore given the ubiquity of mobile phones in modern society and the fact that it’s the second largest mobile phone service provider behind industry peer SingTel (SGX: Z74) in terms of customer numbers.

That’s not all that it does though, as it also offers pay TV, internet broadband, and fixed networks services.

Some basic numbers

For the quarter ended 30 Sep 2013, Starhub’s revenue came in at S$579m, representing a 1.2% year-on-year decline. Meanwhile, profits slipped 1% to S$95.3m.

More details of the company’s revenue breakdown is given in the table below:

Revenue Category Amount Year-on-Year Change
Mobile revenue S$308m 1.6%
Pay TV revenue S$96m -3.7%
Broadband revenue S$60m -5%
Fixed Network Services revenue S$93m 3.1%
Sale of equipment S$23m -26.3%
Total S$579m -1.2%

As seen from above, equipment sales had declined the most (due to fewer handset sales) and were a big reason for Starhub’s lower revenues.

The company has recommended a dividend of S$0.05 per share for the quarter, unchanged from the corresponding period last year.

Operational highlights and the balance sheet

Let’s see how some of the company’s operational numbers for the quarter compare with those from a year ago.

Under the Mobile category, the company now has 2.28m customers, an increase of 100,000. For post-paid customers (think of the customers who receives monthly phone bills), the average revenue per user (ARPU) had inched up slightly from S$69 to S$70 per month. ARPU from pre-paid customers (customers who purchase pre-paid plans), however, had dipped from S$19 to S$18 per month.

Starhub’s pay TV services saw a decrease in the number of customers from 541,000 to 531,000, while ARPU also slipped from S$52 to S$51 per month.

With the broadband segment, the company saw customers increase from 443,000 to 445,000 but ARPU for residential customers had fallen from S$46 to S$44 per month.

Turning to the company’s balance sheet, we see that it has improved considerably compared to a year ago as the total debt to equity ratio has dropped from 2276% to 828% despite its net debt (total debt minus cash) increasing from S$311m to S$356m.

What’s next for Starhub

The company gave some guidance for how the rest of 2013 would shape up and investors should expect full-year revenues that are lower than 2012’s S$2.42b (revenue for the first nine months of 2013 came in at S$1.76b). In addition, capital expenditures are expected to be around 13% of its full-year revenue.

Starhub also stated its intention to pay out a dividend of 20 cents per share for the whole of 2013, unchanged from last year.

The company’s shares have doubled over the past five years ended 7 Nov 2013 and is ahead of the Straits Times Index’s (SGX: ^STI) 80% return in the same period. Starhub’s market beating performance could perhaps be traced to its steady dividends, which has remained unchanged at S$0.20 per share since 2010.

Can those dividends be maintained or even increased in the years ahead though? For that, investors would have to keep an eye on customer numbers and the ARPU figures of the various revenue-categories.

In addition, investors should also note Starhub’s cash flow situation. Dividends are ultimately paid out through cash, and if the company’s cash flow dwindles going forward, those dividends would likely have to be stopped at some point in time.

Currently, the company’s free cash flow – cash which the company can use to pay for dividends, buyback shares, or strengthen the balance sheet – for the last 12 months stands at S$295m, a 30% decline from S$422m in the corresponding period a year ago.

Valuation

Starhub closed at S$4.36 yesterday. At that price, the company’s shares are selling for 20 times trailing earnings and carry a dividend yield of 4.6% based on its expectations to pay out a total of S$0.20 per share in dividends for 2013.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.