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Starhub Ltd’s Latest Earnings: More Of The Same

Starhub Ltd  (SGX: CC3) released its fiscal fourth quarter results for the year ended 31 December 2014 yesterday.

Within the mature local telecommunications industry, Starhub sits in between Singapore Telecommunications Limited  (SGX: Z74) (the largest) and M1 Limited (SGX: B2F).

With these as a backdrop, let’s dig into Starhub’s latest earnings release.

Financials for the quarter

The big-picture takeaway was that Starhub’s top- and bottom-lines for 2014 were both almost unchanged from a year ago. Here’s a quick rundown of the figures:

  1. Total revenue for the quarter was up 5.1% year-on-year to S$647.4 million. 2014’s revenue was S$2.39 billion, just a smidge higher than 2013’s revenue of S$2.37 billion.
  2. Starhub’s profit for the quarter came in at S$94.2 million, up 10.1% from a year ago. For the full year, the telco’s bottom-line was S$370.5 million, down slightly by 2.4% from S$379.5 million in 2013.
  3. Earnings per share (EPS) for the quarter grew 10% to 5.5 Singapore cents. Starhub’s annual EPS for 2014 was 21.5 cents, a 2.7% decrease from the figure of 22.1 cents a year ago.
  4. For the whole of 2014, Starhub’s operating cash flow was at S$654.9 million. With capital expenditures of S$321.6 million in the year, Starhub’s free cash flow clocked in at S$333.3 million. This is an increase over 2013’s S$291.9 million in free cash flow.
  5. On the balance sheet front, Starhub ended 2014 with S$264.2 million in cash and S$687.5 million in borrowings. This is almost unchanged from end-2013 when the company had S$266.9 million in cash and S$687.5 million in borrowings.

So, pulling everything together, it was pretty much more of the same with Starhub on the revenue and earnings side of the things. Although its balance sheet had weakened very slightly, investors might be happy to note that the firm’s operating and free cash flows have both improved.

Starhub had proposed a final dividend of S$0.05 per share for the quarter, bringing the total dividend for 2014 to S$0.20 per share. Both 2014’s quarterly and annual dividend figures are unchanged from a year ago.

Operational highlights

Starhub has five main business segments, namely, Mobile, Pay TV, Broadband, Fixed Network (the first four are collectively known as Service Revenue), and Sale of Equipment.

The telco’s marginal increase in revenue was due to broad-based growth across most segments with the exception of Broadband. Let’s run through all the segments in finer details.

Mobile revenue for the year – the largest for Starhub, accounting for 52.3% of total revenue – inched up by 0.3% year-on-year to S$1.25 billion despite lower ARPUs (average revenue per user) for both pre- and post-paid customers and a shrinking customer base.

Pre-paid ARPU dipped from S$18 per month in 2013 to S$17 while post-paid ARPU inched down from S$70 per month in 2013 to S$69. The customer count had dropped from 2.351 million at end-2013 to 2.147 million at end-2014.

Meanwhile, Pay TV’s annual revenue went up 1.0% to S$389.7 million primarily on the back of a larger customer base and flat ARPU (residential Pay TV’s ARPU for 2014 was at S$52 per month, unchanged from a year ago); the number of customers had grown from 533,000 at end-2013 to 542,000 at end-2014;

As for Broadband, revenue from the segment fell 16.5% to S$201.9 million “due to fierce price competition which lowered the subscription revenue from re-contracts and new customers” despite a healthy increase in customer numbers. For the year, residential broadband ARPU had declined from S$44 per month in 2013 to S$36; customer numbers grew by 4.7% from 448,000 at end-2013 to 469,000 at end-2014.

We’re down to Fixed Network Services for the Service Revenue portion; the segment saw a 2.7% growth in revenue to S$378.3 million, propelled by higher take-up of enterprise solutions and fixed data & internet services.

As for Starhub’s last segment, Sale of Equipment, revenue for 2014 spiked by 30.4% to S$169.7 million on the back of higher handset sales due to the iPhone’s launch in September 2014.

Prospects and valuation

Going forward, Starhub expects Service Revenue growth in the “low single-digit range.” The firm also expects its EBITDA (earnings before interest, taxes, depreciation & amortisation) margin on Service Revenue to be about 32% – this is lower than the 33.7% EBITDA margin in 2014.

Investors might want to watch how the firm’s bottom-line would do given the opposite dynamics of higher revenue and a smaller EBITDA margin.

Starhub has been distributing dividends of S$0.20 per share since 2010. It seems like 2015 would be no exception as the company has communicated its intention to maintain those payouts at S$0.20 per share for the year.

At StarHub’s closing price of S$4.41 yesterday, its shares are valued at a trailing price/earnings (PE) ratio of 20.5 and carry a trailing dividend yield of 4.5%.

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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 James Yeo doesn’t own shares in any companies mentioned.