Starhub Ltd’s Latest Earnings: What Investors Should Know

Starhub Ltd (SGX: CC3) reported in its third-quarter earnings last Friday. The reporting period was for 1 July 2015 to 30 September 2015.

Starhub is Singapore’s second-largest telecommunications outfit, sitting 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 previous quarter’s earnings here and here .

Financial highlights

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

  1. Quarterly revenue for Starhub was up 1.9% on a year-on-year comparison, coming in at $589.5 million. Revenue growth was mainly driven by sale of handsets. Its services revenue was up 1% compared to the same quarter a year ago.
  2. Net profit attributable to shareholders rose strongly, spiking up 21.5% year on year to $118.7 million. Net profit benefited from a gain from a deconsolidation of a subsidiary.
  3. Starhub’s earnings per share (EPS) rose 21.4% from 5.6 cents per share in the third quarter of 2014 to 6.8 cents per share in the reporting quarter.
  4. Cashflow from operations came in at $206.3 million with capital expenditure clocking in at $67 million. This gave Starhub positive free cash flow of $139.3 million, a solid improvement from the first two quarters of the year.
  5. As of 30 September 2015, the telecommunications outfit had $232.4 million in cash and equivalents, while borrowings remained at $687.5 million.

Starhub’s service revenue inched up for the quarter. The goods news is that free cash flow turned in solid figures for the reporting quarter. This performance comes after Starhub reported negative free cash flow in the first quarter. Its cash position improved as a result, moving up to $232.4 million compared to the $154.6 million recorded in the previous quarter.

Last but not least, the board of directors proposed an interim dividend of 5 cents per share for the quarter, unchanged from the year before. The board of directors also reiterated its commitment to maintain an annual cash dividend of 20 cents per share for the fiscal year.

Operational highlights

Growth in Starhub’s topline was driven by a 14.4% increase in Handset sales. As Handset sales will vary from quarter to quarter, we should keep our eyes on the Services revenue component, as it represents the source of recurring revenue.

For the third quarter, the services revenue as a whole came in at $558.2 million, which was 1% higher than the revenue achieved in the third quarter last year.

Mobile services’ revenue was relatively flat for the reporting quarter. the number of mobile subscribers increased on a quarter on quarter comparison. Starhub picked up 7,000 new postpaid customers and 8,000 new prepaid customers for the reporting quarter. Churn rate (rate of customers leaving), though, ticked up to 1.0% from 0.9% level in the previous two quarters.

Elsewhere, sales from the Pay TV segment dipped by 0.2%, as its customer base shrank compared to the previous quarter. Churn rate for Pay TV was 0.7% for the reporting quarter.

The Fixed Network services segment did better. Quarterly revenue for the segment moved up by 4.3% compared to last year’s third quarter. This was driven by higher subscription to internet services revenue and managed services for enterprises.   

Finally, Broadband services revenue saw a 3.8% year on year increase. Number of broadband customers rose by 2,000, quarter on quarter to 477,000 customers. Broadband services’ average revenue per user fell from $35 in the third quarter last year to $34 in the reporting quarter. Churn rate for broadband also inched up to 1.0%.   

Tan Tong Hai, Chief Executive Officer at Starhub, added commentary on the current quarter’s results:

We are pleased with our overall performance this quarter. Net profits from operations increased by 6.5%, with continued revenue growth in our post-paid Mobile, residential Broadband and Fixed Network services.

This is the third consecutive quarter that we have seen growth in our residential Broadband revenue.

Our investment in upgrading our 4G network to serve our customers better has reaped rewards as a recent study done by independent wireless coverage checker OpenSignal rated us as having the world’s fastest 4G network.

Foolish summary

At its closing price on Friday of $3.67, Starhub traded at 16.5 times trailing earnings with a trailing twelve months dividend yield of 5.4%.

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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.