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StarHub Ltd’s Latest Earnings

StarHub Ltd  (SGX: CC3) reported its fiscal fourth-quarter earnings yesterday evening. The reporting period was for 1 October 2015 to 31 December 2015.

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

You can find out more about StarHub’s previous quarter in here and here.

Financial highlights

The following’s a quick take on StarHub’s latest financial figures:

  1. Quarterly revenue for StarHub was down 2.1% on a year-on-year comparison, coming in at $634 million. Revenue growth was dragged down by lower handset sales and lower Mobile revenue. Service Revenue for the quarter was also down 1.1% compared to the same quarter a year ago. For 2015, StarHub’s total revenue was up 2.4% to $2.44 billion but Service Revenue dipped by 0.1% to $2.22 billion.
  2. For the fourth-quarter, net profit attributable to shareholders fell by 14.3% year–on-year to $80.8 million. For the full year, net profit came in 0.5% higher at $372.3 million.
  3. Consequently, StarHub’s earnings per share (EPS) for the quarter fell by 14.8% from 5.4 cents a year ago to 4.6 cents. For the full year, StarHub logged in 21.4 cents in diluted EPS, unchanged from 2014.
  4. Cash flow from operations in the reporting quarter came in at $122.6 million with capital expenditure clocking in at $103 million. This gave StarHub positive free cash flow of just under $20 million, a decline from the $48.7 million in free cash flow ($134.8 million in cash flow from operations and $86.1 million in capex) seen a year ago. For 2015, StarHub’s free cash flow fell from $333 million in 2014 to $216 million.
  5. As of 31 December 2015, the telecommunications outfit had $173.4 million in cash and equivalents with borrowings of $687.5 million. This is down from a year ago when StarHub had $264.2 million in cash and equivalents and total debt of $687.5 million.

In all, StarHub finished 2015 at pretty much where it was a year ago in terms of revenue and net profit.

StarHub’s board of directors had proposed a final dividend of $0.05 per share for the quarter, unchanged from the year before. This brings StarHub’s total dividend for 2015 to $0.20 per share, the same level as in 2014.

In the earnings release, StarHub’s management team stated their intention to maintain the annual dividend payout at $0.20 in 2016 as well.

For 2015, StarHub’s free cash flow for the year was $216 million, a figure that has fallen below the $346 million that it paid out in dividends in that calendar year. As such, the telecommunications firm has had to dip into its balance sheet’s cash position to maintain its dividends in 2015.

Operational highlights and a future outlook

The Sale of Equipment segment (mainly composed of sales of mobile phones) fell by 9.6% year-on-year for the quarter as a result of lower sales volume of new phone models. As mobile phone sales will vary from quarter to quarter, we should keep our eyes on the Service Revenue component as it represents the source of recurring revenue.

Mobile’s revenue for the quarter was down by 2.3% from a year ago, ending at $313 million; for the year, the segment’s revenue had dipped by 0.6% to $1.24 billion. The number of mobile subscribers had increased when compared to the previous quarter as well as a year ago as you can see below. But, the churn rate (rate of customers leaving) for post-paid customers had ticked up to 1.2% from 1.0% in the previous quarter.

StarHub mobile customer base
Source: StarHub’s earnings release

Elsewhere, the Pay TV segment revenue was $100 million for the reporting quarter, basically unchanged from a year ago. For the full year, Pay TV clocked in $391 million in revenue, up a slight 0.3% from 2014. StarHub’s Pay TV customer base had shrank by 6,000 compared to the prior quarter. The churn rate for Pay TV was a low 0.8% for the reporting quarter.

For the fourth-quarter, Fixed Network Services revenue fell 2.9% year-on-year to $52.1 million. For 2015, the segment’s revenue was $384.9 million, a 1.7% improvement from the year before.

Finally, Broadband revenue had climbed by 9% in the quarter to $52.1 million as compared to a year ago. For the full year, Broadband revenue was down 0.8% to $200 million. The number of broadband customers had slipped by 1,000 from the previous quarter to end at 476,000. The churn rate for Broadband also inched up to 1.1% from1.0% in the previous quarter; it should be noted that the churn rate has been steadily climbing from 0.8% in the fourth-quarter of 2014. The good thing is that the average revenue per user (ARPU) for the segment rose from $33 in the fourth-quarter of 2014 to $35.

Tan Tong Hai, StarHub’s chief executive, had added some commentary in the earnings release on the reporting quarter’s results:

“We are happy that our customer-centric focus has continued to serve us well as reflected by the low churn rates across our businesses. Our Broadband revenue gained momentum as it registered growth in four sequential quarters.

Post-paid Mobile continued to do well for us and our TV business showed resiliency despite competition. We also witnessed steady growth in our Enterprise business.

The economic outlook in 2016 looks uncertain but we will continue to focus on delivering better value for our customers and driving shareholders’ return such as maintaining our annual cash dividend.”

Looking ahead, StarHub expects its Service Revenue to grow in the “low single digit” range. The EBITDA margin on Service Revenue is forecast to be in the 31% range in 2016, which is a drop from the 32.2% seen in 2015. Meanwhile, capital expenditure as a percentage of revenue in 2016 is expected to be 13%; for perspective, the self-same figure was 13.5% in 2015.

Foolish summary

At its closing price yesterday of $3.80, StarHub traded at 17.8 times trailing earnings and has a trailing dividend yield of 5.2%.

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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.