5 Must-Read Quotes from StarHub Ltd’s Management

StarHub Ltd (SGX: CC3) reported its second-quarter earnings recently.

As a quick background, StarHub is Singapore’s second largest telecommunications outfit, sitting in between 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 Sale of equipment; the first four are collectively known as Service revenue.

Here’re five quotes you might not want to miss from StarHub’s earnings presentation.

On StarHub’s flat Service revenue

Chief Executive Officer Tan Tong Hai acknowledged that StarHub’s service revenue was flat compared to the same quarter a year ago. But there were different stories to tell for the underlying business segments:

“You’ll notice that the reason why our service revenue is [flat] because we have growth in broadband, growth in enterprise but offset by drop in mobile as well as pay TV.”

For the first half of 2016, revenue from the Mobile and Pay TV segments retreated by 2.1% and 1.8%, respectively. This was offset by a strong showing from the broadband segment which had 11.1% year-on-year growth. Enterprise revenue was also up 3.6% year-on-year.

On the changing revenue mix

Enterprise Fixed’s revenue growth, coupled with Pay TV’s decline, has led to the former making up a bigger piece of the overall pie. Tan pointed out that Enterprise Fixed’s revenue has surpassed Pay TV revenue in the reporting quarter:

“Notice that mobile is still the highest revenue contributor at 52.1%, on a first half basis of 51.3%. The next largest contributor is actually our enterprise fixed. Second quarter is 16.8%, on the first half basis 16.5%, followed by pay TV and broadband.

So the revenue mix is along the line of what I have guided before, that the growth in the enterprise will surpass pay TV in terms of revenue contribution to our overall business.”

For the first half of 2016, the Enterprise Fixed segment accounted for 16.5% of total revenue. Meanwhile, Pay TV accounted for 16.2% of sales. To be sure, the Mobile segment still rules the roost with a 51.3% contribution for the first half of the year.

On StarHub’s focus on margin

Tan explained why growth at the Enterprise segment is good for StarHub’s margins:

“Well yes, I would say that the focus – the way we run our business – is very much on the margin. So clearly I’m focusing on continuing to grow mobile, grow the enterprise – because in terms of margin it is better.”

In fact, Tan said that the margins are better at the Enterprise and Mobile segments. Pay TV margins rank last out of the four Service revenue segments:

“Then in terms of the enterprise fixed, they gave us a very good margin. So from a growth perspective, if you continue to grow more enterprise revenue then in terms of margin contribution it is good. In fact, it’s only second to mobile. The third margin contributor is actually our broadband and in terms of hierarchy, pay TV would be the least.”

On falling Mobile revenue

So, Mobile margins are the best. But, as I mentioned earlier, StarHub’s Mobile segment revenue was down 2.1% year-on-year in the first-half of 2016. So, is this bad for StarHub’s margins? Tan explains:

“… mobile is [down] mainly due to roaming. But you note that the roaming revenue in terms of margin contribution is not really a high margin contributor because we basically pay out to – especially for our outbound – I mean we pay to the external operators. So when you see that revenue drop because of roaming, it doesn’t really affect our margin a lot.”

We can learn much more about StarHub through its earnings briefing. For instance, the management team also delved into the subscriber losses at the Pay TV segment. The five quotes above give investors a sense on how the company’s management team is thinking about its business.

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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.