Earnings Preview: 2 Things to Look Out for in StarHub Ltd and M1 Ltd

Shares of M1 Ltd (SGX: B2F) and StarHub Ltd (SGX: CC3) took a beating in 2016. There have been challenges for the two Singapore-focused telecommunications companies.

For the first nine months of 2016, StarHub’s services revenue slipped by 1% due to weakness in its Mobile and Pay TV segments. Its net profit was also down by 1%.

Similarly, M1 also experienced a decline in its mobile services revenue. It recorded S$482 million in mobile services revenue in the first nine months of 2016, a decline from the S$499 million seen in the same period in 2015.

The next quarterly earnings report from StarHub and M1 will wrap up 2016  for them. Here’re two things investors might want to look out for.

Cash, cash, cash

Telcos are often prized by investors for their business models that can generate recurring free cash flow. And from free cash flows, come dividends.

StarHub registered a 17% increase in free cash flow in the first nine months of 2016. Its free cash flow per share was 13.2 cents for the period.

The company is aiming to pay out 20 cents per share in dividends for the whole of 2016. Investors may want to see if StarHub is able to generate sufficient free cash flow in the fourth quarter to cover its dividends.

Meanwhile, M1 registered S$121 million in free cash flow for the same period. This is a 4.3% increase from the year before and works out to 13.0 cents per share.

M1 did cut its dividend from 18.9 cents per share in 2014 to 15.3 cents in 2015, but its interim dividend for 2016 was kept unchanged. Management has said that the company will continue to pay out at least 80% of its net profit after tax as a dividend.

In a similar manner to StarHub, investors may want to observe how M1’s free cash flow measures up against its dividend payout.

The fourth telco cometh

A fourth telco is coming to Singapore’s market and its name is TPG Telecom.

The Australian-based telco operator has mapped out some ambitious goals, including taking 5% to 6% of the mobile market share in Singapore. TPG Telecom believes it can achieve its goals because it will be offering excellent value.

With Singapore’s mobile penetration rate already at 150% and the mobile market offering limited growth for the industry’s operators, this could mean that TPG Telecom’s gains will come at the expense of the incumbents.

Investors may want to see how StarHub and M1’s management teams are responding to this threat.

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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.