StarHub Ltd (SGX: CC3) is one of the cool companies in Singapore that shares webcasts and/or transcripts of their quarterly earnings presentations (the link for StarHub’s transcript is here). Earlier this week, StarHub had released its earnings for the quarter and year ended 31 December 2015 and hosted a conference call for analysts. I had picked up nine useful pieces of information from reading the transcript of the call. But before I share them, here’s a quick background on StarHub for some context. The company’s the second largest player in Singapore’s three-party telecommunications market, sitting behind Singapore Telecommunications Limited (SGX: Z74) and in…
Earlier this week, StarHub had released its earnings for the quarter and year ended 31 December 2015 and hosted a conference call for analysts. I had picked up nine useful pieces of information from reading the transcript of the call.
But before I share them, here’s a quick background on StarHub for some context. The company’s the second largest player in Singapore’s three-party telecommunications market, sitting behind Singapore Telecommunications Limited (SGX: Z74) and in front of M1 Ltd (SGX: B2F). StarHub organizes its business around five business segments, namely, Mobile, Pay TV, Broadband, Fixed Network Services, and Sale of Equipment; the first four are collectively known as Service Revenue. You can read more about StarHub here.
With that, let’s get going with the conference call insights:
- Chief Executive Officer Tan Tong Hai highlighted a few financial figures for the year:
- For 2015, EBITDA (earnings before interest, taxes, depreciation and amortization) margin was 32.2%. This is in-line with StarHub’s guidance of 32% for the year. EBITDA was down 18% year-on-year in the fourth-quarter due to reversal of accruals; for the whole of 2015, EBITDA had declined by 5%.
- Capital expenditure for the full year was 13.5% of revenue, a touch higher than its 13% guidance for the year.
- StarHub’s free cash flow had declined in 2015 (I had pointed out previously that free cash flow fell from S$333 million in 2014 to S$216 million). Tan said that this was due to higher working capital for handset purchases. (Do note too that StarHub’s free cash flow per diluted share in 2015 stood at S$0.124, which is lower than its annual dividend of S$0.20 per share.)
- The business segments were next. Fourth-quarter mobile revenue was lower by $7.5 million from a year ago due to a drop in pre-paid revenue. Tan also noted that the Pay TV business revenue was resilient despite competition. Elsewhere, Tan pointed out that there has been four quarters of sequential growth in Broadband revenue. He felt that the Broadband segment is now “back on the growth path”.
- Tan also talked about Hubbing households – that is, households with two or more StarHub services. The overall households with StarHub services remained unchanged at 774,000, but the triple service households had increased from 242,000 in 2014 to 245,000 in 2015. In the previous briefing, Tan considered the Hubbing strategy as unique to Starhub and a form of protection against future competition.
- Kevin Lim, Chief Commercial Officer, added his comments on the business segments. He noted that post-paid mobile revenue was still strong, but prepaid revenue came under pressure. Lim said that there was growth in data roaming, but this was insufficient to offset the fall in domestic and roaming voice usage. The increase in customer churn (rate of customers leaving) was due to the end of the promotional period for family share plans.
- For Pay TV, Lim said that the lower subscriber base was due to lower acquisitions of TV Lite customers. He also noted that StarHub ended the quarter with 270,000 fiber broadband subscribers. For context, the total broadband subscriber base was 476,000 customers at the end of the fourth-quarter. Meanwhile, lower voice revenue also affected revenue for the Fixed Network segment. Lim said that voice revenue continues to be under pressure from the change in usage patterns.
- Tan also gave the outlook for 2016. StarHub is expecting growth in the low single digit range. EBITDA margins are expected to be at 31% while capital expenditure is slated to be around 13% of total revenue. Responding to an analyst, Tan said that top-line growth will likely come from the Broadband and Fixed Network segment. Tan felt that the Prepaid revenue in the Mobile segment may stabilise, while Postpaid revenue could continue its growth, leading to low single digit growth overall for StarHub.
- Analysts also asked for clarity on StarHub’s working capital requirements for 2016. Dennis Chia, Chief Financial Officer for StarHub, said that he expects working capital to be lower in 2016 due to lower handset sales. This is based on forecasts from handset manufacturers.
- Tan also sounded an optimistic note for the Pay TV segment, in response to an analyst question on the declining subscriber base. He said that the nationwide free-to-air analog transmission will end by 2017. He is hopeful that StarHub will benefit from the adoption of HDTV and subsequently, the HD Packs that StarHub offers. Additionally, StarHub stands to earn a referral fee from its partnership with internet video streaming service provider Netflix Inc.
- Interestingly, Tan was not entirely happy about the percentage of customers exceeding their data plan. He felt that StarHub has to be mindful to advise customers to get the right plans.
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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.