Starhub Ltd’s Latest Earnings: Gushing Cash Again

Starhub Ltd  (SGX: CC3) reported its fiscal second-quarter earnings earlier this evening. The reporting period was for 1 April 2015 to 30 June 2015.

Starhub is Singapore’s second largest telecommunications outfit, sitting in between M1 Ltd  (SGX:B2F) and Singapore Telecommunications Limited  (SGX: Z74). Starhub has five business segments, namely Mobile, Pay TV, Fixed Network, Broadband, and Handset Sales; the first four are collectively known as Service revenue.

You can read about the earnings from Starhub’s previous quarter in here and here.

Financial highlights

The following’s a quick take of Starhub’s latest financial figures:

  1. Quarterly revenue for Starhub was up 2.3% on a year-on-year comparison, coming in at $589.5 million. Revenue growth was mainly driven by the sale of handsets as Service revenue was roughly flat compared to a year ago.
  2. Meanwhile, net profit attributable to shareholders rose by 5% year-on-year to $99.1 million in part due to higher adoption grants.
  3. Consequently, earnings per share (EPS) also rose 5.5% from 5.4 cents in the second-quarter of 2014 to 5.7 cents in the reporting quarter.
  4. For the quarter, cash flow from operations came in at $165.5 million with capital expenditures clocking in at $62.4 million. This gave Starhub positive free cash flow of $103.1 million, up from the $61.9 million seen a year ago (cash flow from operations of $157 million and capital expenditures of $95.1 million).
  5. As of 30 June 2015, the telecommunications outfit had $154.6 million in cash and equivalents and borrowings of $687.5 million. This is a significant deterioration from just three months ago when Starhub had $224.5 million in cash and equivalents and $687.5 million in borrowings.

In all, Starhub’s services revenue was mostly flat with it generating positive free cash flow. This is an improvement over the negative free cash flow that the firm reported in the previous quarter (first-quarter of 2015).

But even though a return to free cash flow is a good thing, investors should still watch the firm’s balance sheet given the increasing net-debt position.

As of 30 June 2015, the telecommunications outfit had outstanding capital expenditure commitments that amount to $402.4 million.

Last but not least, the board of directors proposed an interim dividend of S$0.05 per share for the reporting quarter, unchanged from the year before. Starhub still intends to dish out a total of S$0.20 per share in dividends for the whole of 2015.

Operational highlights

On a year-on-year comparison, growth in Starhub’s top-line was driven by a sizable 42.6% increase in Handset Sales (as alluded to earlier) which was partially offset by a 3.9% drop in Broadband revenue.

As Handset Sales will vary from quarter to quarter, we should keep our eyes on the Service revenue component as it represents a source of recurring income. For the second-quarter, Service revenue as a whole came in at $554.3 million, 0.5% higher than what was achieved in the second-quarter last year.

Moving into the various business segments, revenue from Mobile services was relatively flat for the reporting quarter. The number of mobile subscribers increased on a quarter-on-quarter comparison, with Starhub adding 12,000 and 3,000 customers to its postpaid and prepaid list, respectively. Meanwhile, the churn rate (rate of customers leaving) for mobile remained at a low 0.9%.

Elsewhere, sales from Pay TV declined slightly by 0.6% despite its customer base having stepped up from 535,000 in the second-quarter of 2014 to 545,000 in the reporting quarter. On a more positive note, the churn rate had declined slightly from 0.9% to 0.8%.

Starhub’s Fixed Network services segment had a better showing; quarterly revenue moved up by 5% compared to a year ago. This was driven by higher data and internet services revenue which combined to make up 86% of the Fixed Network segment revenue for the first half of 2015.

Finally, there was a 3.9% year on year revenue decline at the Broadband services space. While the number of broadband customers rose by 19,000 year-on-year to 475,000, the average revenue per user (ARPU) fell from $37 in the second-quarter of 2014 to $33 in the reporting quarter. Churn rate for broadband also declined from1.1% to 0.9%.

Looking forward, Starhub expects its Service revenue to grow in the “low single-digit range” for the whole of 2015 with the EBITDA margin coming in at 32%.

Foolish summary

At its closing price today of $3.75, Starhub traded at 17.8 times its trailing earnings and has a trailing twelve months dividend yield of 5.3%.

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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 contributor Chin Hui Leong doesn’t own shares in any companies mentioned.