StarHub Ltd’s Latest Earnings: Services Revenue Goes Down 2.2%

StarHub Ltd  (SGX: CC3) reported its 2016 third-quarter earnings yesterday. The reporting period was for 1 July 2016 to 30 September 2016.

As a quick background, StarHub is Singapore’s second largest telecommunications outfit, sitting in between M1 Ltd  (SGX: B2F) and 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.

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

Financial highlights

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

  1. Quarterly revenue for StarHub was down 3% year-on-year to $585.3 million. All segments experienced lower revenue except for Broadband.
  2. Service revenue was down 2.2% compared to the same quarter a year ago, coming in at $546.1 million.
  3. Net profit attributable to shareholders was sliced 27.6% year-on-year to $86 million. But it’s worth noting that the third-quarter of 2015 had $15 million in non-operating income that came from one-off gains.
  4. StarHub’s diluted earnings per share (EPS) was also down 27%, falling from 6.8 cents in the third-quarter of 2015 to 4.9 cents in the reporting quarter.
  5. Cash flow from operations came in at $152.5 million with capital expenditure clocking in at $150.1 million. This gave StarHub positive free cash flow of around $2.4 million, down significantly compared to the $139.3 million that it generated in the same quarter a year ago.
  6. As of 30 September 2016, the telecommunications outfit has $432.6 million in cash and equivalents and $987.5 million in total debt. This is a decline compared to the end of last year when StarHub had $232.4 million in cash and equivalents and borrowings of just $687.5 million.

To sum up the reporting quarter, StarHub’s revenue was down across the board, with the exception of its Broadband segment. Service revenue was down 2.2% year-on-year and the bottom-line suffered a big haircut. The telecommunication outfit also did not manage to generate much free cash flow.

It is worth noting that StarHub had generated $229.4 million in free cash flow for the first nine months of 2016 and yet paid out $259.7 million in dividend over the same period. As a comparison, StarHub generated $196.1 million in free cash flow for the first nine months of 2015. The improvement is good to see, but it still falls a little short of what the company needs to cover its dividend.

StarHub’s board of directors has proposed an interim dividend of $0.05 per share for the quarter, unchanged from the year before. Management also reiterated its intention to maintain StarHub’s annual dividend payout for 2016 at $0.20 per share.

Operational highlights and a future outlook

During the quarter, Sale of Equipment (essentially the sale of mobile phones) was down almost 13% year-on-year. Sale of Equipment will vary from quarter to quarter, so investors may want to keep their eyes on Service revenue, which is recurring in nature.

As mentioned earlier, StarHub’s Service revenue was down for the reporting quarter.

Mobile services revenue slipped by 3.6% year-on-year, ending at $299.4 million. StarHub picked up 9,000 post-paid customers and 30,000 pre-paid customers compared to the previous sequential quarter. When compared to a year ago, StarHub had gained 53,000 post-paid customers and 45,000 pre-paid customers.

The churn rate (rate of customers leaving) for post-paid customers was 0.8%, down from the 0.9% seen in the previous sequential quarter and 1.0% a year ago.

StarHub ended its reporting quarter with 902,000 pre-paid customers and 1.373 million post-paid customers.

Meanwhile, Pay TV segment revenue was $93.6 million for the reporting quarter, 3.7% lower than a year ago. StarHub’s Pay TV customer base shrank by 11,000 compared to the prior quarter. The company currently has 507,000 Pay TV customers. Notably, StarHub’s Pay TV business has lost 35,000 customers in total in the last four quarters. This is a development worth watching.

Pay TV churn rate was 1.0% for the reporting quarter, unchanged from the previous quarter and up from the 0.7% a year ago.

For the third-quarter of 2016, the Enterprise Fixed segment revenue fell by 1% year-on-year to $98.4 million.

Elsewhere, Broadband revenue grew 7% to S$54.7 million in the reporting quarter when compared to a year ago. The number of broadband customers rose 2,000 quarter–on-quarter to 475,000 customers. Average revenue per user (ARPU) rose from $34 in the third-quarter last year to $37 in the reporting quarter. Churn rate for broadband was 1.0%, a 0.2 percentage point decline from the previous sequential quarter.

Tan Tong Hai, StarHub’s Chief Executive Officer, added commentary on the reporting quarter’s results:

“For the nine months, profits from operations increased 2% with continued revenue growth in our residential Broadband and Enterprise Fixed services.

We have seen the Broadband revenue curve moved upwards for the seventh consecutive quarter and our Enterprise Fixed revenue, the second largest revenue contributor, remains robust. We will continue to invest in our Enterprise business to drive our future growth.”

The company’s outlook for the rest of 2016 was unchanged from the one given in the second-quarter of the year:

“Based on the current outlook, we maintained the Group’s 2016 service revenue to be at about 2015’s level and Group EBITDA margin at about 32% of service revenue. We expect our CAPEX payments to be about 13% of our total revenue, excluding the S$80 million spectrum payment made this quarter and any payment in respect of new spectrum which is expected to take place in 4Q2016.

For 2016, we intend to maintain our annual cash dividend of 20 cents per ordinary share.”

At the market close today, StarHub’s shares have a price of S$3.27. The company has a trailing price-to-earnings (PE) ratio with a trailing dividend yield of 5.9%.

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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.