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The Three Numbers That Make StarHub Twinkle

210px-Starhub.svgTo take on Singapore Telecommunications (SGX: Z74) in its own back yard is not an easy task. But StarHub (SGX: CC3) has done it.

From a standing start in 2000, StarHub is today Singapore’s second-largest telecom operator. It has around 2m mobile customers, which accounts for about a one-third share of market.

StarHub boasts one of the highest Returns on Equity (RoE) amongst Singapore’s blue chips. While the median RoE for the 30 companies that make up the Straits Times Index (SGX: ^STI) is a respectable 8%, StarHub’s return is 455%. That’s right. It generates S$455 of profit for every dollar of shareholder dollar invested in the business.

The reason for StarHub’s extraordinary efficiency stems from its high Leverage Ratio of 22.3. The company has total shareholder equity of S$95m. But this dwarfed by debts of S$687m. It does have cash of S$268 in the bank. However, this still leaves it with a net debt of S$419m.

StarHub is quite profitable. It generates S$15.70 of Net Income for every S$100 of revenue. That almost puts it on a par with SingTel, which generates around S$19 of income for every $100 of sales. Meanwhile, M1 (SGX: B2F) generates around S$15 of profit for every $100 of sales.

Interestingly, StarHub is more efficient than either SingTel or M1. Its Asset Turnover of 1.3 suggests that it generates S$1.30 of revenue for every dollar of asset employed in the business. The median for Singapore’s blue chips is about S$0.47 for every dollar of asset.

By dismantling StarHub’s numbers, it is easy to see what makes it twinkle. Its astonishing RoE of 455% is the product of an astounding Leverage Ratio of 22.3; a decent Net Income Margin of 15.7% and an efficient Asset Turnover of 1.3.

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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 Director David Kuo doesn’t own shares in any companies mentioned.