1 Reason to be Optimistic About StarHub Ltd  

Shares of StarHub Ltd (SGX: CC3) has declined around 25% since 2016.

StarHub saw is profit decline 8.3% in 2016. In addition, the telco guided to a $0.16 dividend per share for 2017, cutting it by 20% compared to 2016. That comes as StarHub grapples with a declining subscriber base in its pay TV business. The telco’s mobile services business will also be facing new competition in 2018 from the incoming fourth telco, TPG Telecom.

But amid the gloomy clouds lies a silver lining.

The reprise of enterprise

For the first quarter, StarHub Ltd reported revenue declines in its mobile services and pay TV services. The slide below provides a summary:

Source: StarHub’s earnings presentation

StarHub’s enterprise fixed business grew 2.9% to offset the revenue declines in pay TV and mobile services. The telco’s chief executive Tan Tong Hai explained why growth in enterprise is sustainable:

“So these are all recurring business revenues, this is not one-off. Because our main focus is really to have more managed services, as well as direct serving of the customers.”

Tan also provided deeper insight into the makeup of StarHub’s enterprise fixed business:

“Now beneath this enterprise segment we do have a wholesale business, as well as our direct retail and you’ll notice that actually for the wholesale, we wholesale to global carrier partners. This will be the likes of the international carriers who serve their global corporate clients.”

“And that part of the business actually we face the same challenges in the things like the wholesale business, it’s actually having a lot of intense price competition, because there are also other wholesale providers.”

StarHub is channeling its energy into the retail part of the enterprise fixed business. Tan said:

“But the retail part of our business where we are servicing the customer directly is actually growing steadily. So the growth in the retail, direct customer relationship, the business has been offset by in a way the drop in the wholesale business and as a result, you’ll see this higher growth rate.”

“But what I would say is that over time we have actually grown the retail part of the business to be more than our wholesale business and that trend will continue and we hope that over time the wholesale portion will not be a significant part of our business.”

“And that actually will translate to higher growth with our enterprise business.”  

In short, Tan said that the retail business of the enterprise fixed segment has grown to a point where it has exceeded its wholesale business. Tan declined to reveal the exact split between wholesale and retail, but as the retail segment is bigger now, he is optimistic that this portion can drive higher growth in the enterprise fixed business overall.

Given the recurring nature of the revenue, the enterprise fixed business could be a segment worth watching.

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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.