StarHub Ltd’s Year in Review: Is the Enterprise Fixed Business the Future of StarHub?

Two weeks ago, StarHub Ltd (SGX: CC3) reported its full year earnings for 2016.

During the year, StarHub earned $2.2 billion in Service revenue, a figure that was a touch lower than in 2015. Although Service revenue barely changed, it was a different story for the individual business segments. StarHub’s Service revenue has four components: Mobile, Pay TV, Enterprise Fixed, and Broadband.

Let’s take a closer look at the Enterprise Fixed business segment.

A bird’s eye view

2017-02-03 Starhub Segment Revenue
Source: StarHub’s earnings presentation

Unlike the Mobile and Pay TV segments,  StarHub’s Enterprise Fixed business grew its top-line by 3.9% from around $385 million in 2015 to over $400 million in 2016.

Last year was a pivotal year for StarHub’s Enterprise Fixed business as it rose to become the second largest revenue contributor to the company’s Service revenue. The Enterprise Fixed segment contributed over 18% of StarHub’s overall Service revenue, eclipsing the Pay TV segment.

StarHub chief executive Tan Tong Hai believes that growth in the Enterprise Fixed business is important.

The future of StarHub

For the most part, StarHub’s services serve the mass consumer market. However, this could change in the future. In StarHub’s 2015 Annual Report, the telco outlined the importance of the Enterprise Fixed market:

“The consumers are for now, the bigger portion of our business. Going forward, we see a bigger addressable market from the enterprise and SMB [small medium business] markets.”

The key words here are “for now”. The two words suggest that StarHub will be looking for corporate clients to make up a bigger portion of its business in the future.

In StarHub’s 2016 first quarter earnings presentation, Tan explained why the Enterprise Fixed segment is important for StarHub’s future:

“Over the last few years while you may not see the revenue growth and mix have changed, we have actually, if you look at this quarter, the enterprise content is actually our second largest contribution, slightly ahead of the TV.

In terms of margin wise, enterprise fixed gives us a really good margin, almost the same level as mobile.”

In short, Enterprise Fixed could contribute to better margins at the company as it grows to become a larger piece of StarHub’s overall make-up. The graph below show the two sub-segments under the Enterprise Fixed segment:

2017-02-03 Starhub Enterprise Revenue
Source: StarHub’s earnings presentation

The Data & Internet sub-segment is the larger of the two, contributing $347.2 million in revenue for 2016. The sub-segment also showed growth, unlike Voice. As investors, we will have to keep tracking the growth at the Enterprise Fixed segment and see if StarHub is able to deliver on its promise for this segment in the years to come.

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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.