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StarHub Ltd’s 2018 Earnings: Another Disappointing Year

Yesterday, StarHub Ltd (SGX: CC3) announced its earnings results for the full year ended 31 December 2018. StarHub is Singapore’s second largest telecommunications company with five business segments – Mobile, Pay TV, Broadband, Enterprise Fixed and Sales of Equipment.

Here are the quick takeaways from StarHub’s 2018 financial results:

1. Total revenue for 2018 fell 2% year-on-year to S$2.36 billion. All businesses fared poorly, except for Enterprise Fixed, whose revenue grew 16% to S$510.8 million.

2. Mobile revenue came in at S$824.5 million, down 8.1%. This was due to lower IDD (international direct dialling), voice and excess data usage revenues, and a higher mix of SIM-only plans.

3. Pay TV revenue tumbled 11.9% to S$311.3 million on the back of lower subscriber numbers. On average, 4,000 customers per month terminated their long-term pay TV contracts in 2018 for “alternative sources of content and entertainment”.

4. Broadband service revenue was S$185.8 million, inching down by 0.5%, while revenue from sales of equipment also fell 0.5% to S$529.6 million.

5. Moving on, 2018’s net profit crashed 26.2% to S$201.5 million mainly due to the lower revenue and higher operating expenses.

6. Consequently, diluted earnings per share in 2018 was S$0.112, a fall from S$0.155 one year ago.

7. StarHub’s balance sheet weakened for the year. As of 31 December 2018, the telco’s cash and bank balances stood at S$166 million while it had S$1.03 billion in total debt. This translates to a net debt position of S$862.4 million, compared to S$632.3 million in net debt at the end of 2017. The net-debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation) ratio was 1.52 for 2018, up from 0.98 in 2017.

8. Free cash flow for 2018 fell 21.4% to S$173.8 million. On a diluted per share basis, free cash flow was at S$0.10, down from around S$0.127 in 2017.

9. StarHub’s board is proposing a final dividend of S$0.04 for the fourth quarter, bringing the total dividend to S$0.16 for 2018, unchanged from 2017.

10. From 2019, StarHub is changing its dividend policy; it intends to pay out at least 80% of net profit (adjusted for one-off items) as dividend. For 2019, StarHub plans to pay a total dividend of at least S$0.09 per share, divided into S$0.0225 each quarter. Any payment above S$0.09 per share corresponding to the new dividend policy would be paid out in the fourth quarter.

It was another disappointing year for StarHub, whose earnings have been falling in recent history. The company is continuing to face challenging business conditions, especially in the areas of mobile and pay TV. Competition in the telco industry is poised to increase with the entry of the fourth telco, TPG Telecom, and StarHub must find creative ways to turnaround its business.

It was also about time that StarHub reviewed its dividend policy as the previous policy of paying out S$0.16 per share was unsustainable, putting further drag on its business. StarHub’s share price closed at S$1.90 on Thursday. At that price, the telco had a price-to-earnings ratio of 17 and an adjusted dividend yield of 4.7%, based on the new dividend policy.

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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 Sudhan P doesn’t own shares in any companies mentioned.