9 Quick Things Investors Should Learn About StarHub Ltd

StarHub Ltd (SGX: CC3) is one of the cool companies in Singapore that shares  webcasts and/or transcripts of their earnings presentations (the link for StarHub is here).

As the second largest amongst the big trio in Singapore’s telecommunications industry – the others being Singapore Telecommunications Limited (SGX: Z74) and M1 Ltd (SGX: B2F) – StarHub organizes its business into a number of different segments. They are namely, Mobile, Pay TV, Broadband, Fixed Network Services and Handset Sales; the first four are collectively known as Service revenue.

You can read more about StarHub in here.

Calling in for earnings

Below are nine useful things I learned from going through the transcript of StarHub’s fiscal third-quarter earnings presentation:

  1. Chief Executive Officer (CEO) Tan Tong Hai made a number of observations for the third quarter:
    • EBITDA (earnings before interest, taxes, depreciation and amortization) margin was 35.7% for the third quarter. This was up from the 30% EBITDA margin that was recorded in the first quarter. For the first nine months of this year, StarHub’s EBITDA margin was 33.7%, which is ahead of its own guidance of 32% for the year.
    • Capital expenditures were 11% of revenue, down from 15% of revenue in the first quarter. For the first nine months of 2015, StarHub’s capex spend was 13% of overall revenue, which is in line with its guidance for the year.
    • Free cash flow (FCF) per diluted share for the quarter stood at $0.08. We should note that for the first nine months of the year, FCF per diluted share was $0.113, down 31% from the $0.164 seen for the same period a year ago. At the moment, StarHub’s FCF per diluted share for the first three-quarters of 2015 is lagging behind its forecasted annual dividend of $0.20 per share.
  2. For the third quarter, Broadband segment revenue increased by 3.8% year on year. Tan was happy with the progress and pointed out that there have been three quarters of sequential growth in broadband revenue.
  3. Elsewhere, Tan also noted that revenue from the Fixed Network Services segment has surpassed the revenue contribution from the Pay TV segment. For the third-quarter, Fixed Network Services contributed to 16.5% of StarHub’s overall revenue, while the Pay TV segment chipped in with a 16.1% share. The Mobile segment still remains StarHub’s bread and butter, contributing to 51.5% of the quarter’s revenue.
  4. Tan also commented that Hubbing households (households with two or more StarHub services) were trending in the right direction with triple service households making up almost a third of its total household count. Tan considers the Hubbing strategy as unique to StarHub and a form of protection against future competition.
  5. Cost of goods sold (COGS) increased to 41% of revenue for the first nine months of the year. This is mainly due to higher cost of equipment that followed the increase in handset sales. But, StarHub offset the COGS increase with better control over its other operating expenses. This was done by lowering its administrative and marketing and promotion costs.
  6. Kevin Lim, StarHub’s Chief Commercial Officer, noted that the firm had 245,000 fiber broadband subscribers at the end of the reporting quarter. For context, the total broadband subscriber base was 477,000 customers at the end of the third-quarter of 2015.
  7. Responding to a question from an analyst, Lim said that StarHub had registered a one-time gain of $15 million during the reporting quarter, based on the deconsolidation of SHINE Systems Assets Pte Ltd. The deconsolidation is part of a collaboration with Singapore Technologies Telemedia Pte Ltd.
  8. The big news of the day might be the commercial discussion which Starhub is having with Netflix Inc. – a popular US-based internet television network with over 69 million members worldwide. StarHub is not able to provide any information on the discussions at the moment. Howie Lau, StarHub’s Chief Marketing Officer, did point out that the firm has its own service, Starhub Go, for subscribers.
  9. One analyst pointed out that StarHub has not grown its topline for the past three years. Tan countered that StarHub has been growing in the right segments and pointed out post-paid mobile as an example. He felt that post-paid mobile was an area where StarHub can build long term loyalty with customers. Tan also felt that the Fixed Network segment was trending well. He added that both Mobile and Fixed Network had the best margins and that could help StarHub’s overall margins improve, moving forward.

Foolish takeaway

To buy and hold a company’s shares for the long-term also means the need to keep up with its developments.

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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 owns shares in Netflix Inc.