StarHub Ltd’s Latest Earnings: What Investors Should Know

StarHub Ltd  (SGX: CC3) reported its fiscal first-quarter earnings yesterday evening. The reporting period was for 1 January 2016 to 31 March 2016.

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

You can read about the results from StarHub’s previous quarter  here.

Financial highlights

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

  1. Quarterly revenue for the telco was down 4.4% year-on-year to $591 million. Revenue growth was dragged down by lower revenue from Mobile and Handset Sales.
  2. Services revenue inched up by 0.4% compared to the same quarter a year ago, coming in at $542 million.
  3. Despite the lower revenue, net profit attributable to shareholders jumped by 26% year-on-year to $92.8 million. StarHub had benefitted from lower volume of subsidized handset sales.
  4. Consequently, StarHub’s earnings per share (EPS) rose 23.2% from 4.3 cents in the first-quarter of 2015 to 5.3 cents in the reporting quarter.
  5. Cash flow from operations came in at $131.7 million with capital expenditure clocking in at $41.8 million. This gave StarHub positive free cash flow of nearly $90 million in the reporting quarter, a reversal from the negative free cash flow of $46.3 million recorded a year ago ($50.1 million in cash flow from operations and $96.4 million in capex).
  6. As of 31 March 2016, the telecommunications outfit had $270.7 million in cash and equivalents and borrowings of $687.5 million. This is an improvement from a year ago when it had $224.5 million in cash and equivalents and borrowings of $687.5 million.

In all, StarHub’s service revenue remained fairly flat but its profit rose sharply. The telecommunications outfit also recorded strong free cash flow and an improved balance sheet. That is good to see.

The board of directors proposed an interim dividend of five cents per share for the quarter, unchanged from the year before. The management team also reiterated its intention to maintain the annual dividend payout of 20 cents per share for the whole of 2016.

Operational highlights

StarHub’s top-line fell mainly due to lower handset sales which was down over 37% year-on-year. As handset sales will vary from quarter to quarter, investors might want to keep an eye on the Services revenue portion instead, which is the source of recurring revenue.

StarHub’s Services revenue was flat for the reporting quarter, but there were different tales for the different segments.

Mobile services revenue was down 2.4% year-on-year, ending at $305.4 million. The number of mobile subscribers increased on a quarter-on-quarter comparison. StarHub picked up 19,000 postpaid customers but lost 7,000 prepaid customers for the reporting quarter. Churn rate (rate of customers leaving) for post-paid customers also reduced to 0.9% from 1.2% in the previous sequential quarter.

Elsewhere, the Pay TV segment revenue was about $95 million for the reporting quarter, 1.2% lower than a year ago. StarHub’s Pay TV customer base shrank by 17,000 compared to the same quarter a year ago. Churn rate for Pay TV remained at 0.8% for the reporting quarter.

For the reporting quarter, the Enterprise Fixed segment’s revenue rose by 5.4% year-on-year to end with $95.8 million. Finally, Broadband services revenue saw an 11.3% increase for the reporting quarter compared to the same period a year ago. The number of broadband customers fell by 3,000 quarter-on-quarter to 473,000 customers. Average revenue per user (ARPU) rose from $32 in the first-quarter last year to $36 in the reporting quarter. Churn rate for broadband remained at 1.1%.

Tan Tong Hai, StarHub’s chief executive, had some commentary on the current quarter’s results:

“StarHub’s continual focus on our customers’ needs have paid off, not only in our business results but also in the latest third-party CSISG findings which measured customer satisfaction across sectors in Singapore. We are pleased to see our steadfastness in customer service, translated into StarHub being consistently ranked higher than the industry average across all lines of business. We even clinched top honours for Pay TV and Broadband, and came in a close second in the Mobile category

In the quarter, our attractive Hubbing packages helped maintain low churn rates across all our lines of business. We are especially pleased to see continued growth in our Broadband revenue for the fifth sequential quarter. We also witnessed a steady increase in the Enterprise Fixed revenue, and are on track to grow this business to be the second largest contributor to our growth story.”

At StarHub’s closing price yesterday of $3.30, the company traded at 14.7 times trailing earnings with a trailing 12 months dividend yield of 6.1%.

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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.