Friday, May 7, 2010

StarHub 2010 First Quarter Results

StarHub Reports 2010 First Quarter Results

* Operating Revenue Increased 5% To S$557 Million
* FCF Per Diluted Share Increased 4% To 6.97 Cents
* Interim Quarterly Dividend Of 5.0 Cents Per Share

Singapore, 6 May 2010 – StarHub Ltd today announced its results for the quarter ended 31 March 2010. Total operating revenue increased 5% to S$557 million from S$531 million. The quarter saw a high post-paid mobile net add of 27,000 customers. The higher investment cost for acquisition and retention for smartphone customers resulted in the Group’s EBITDA contracting to S$118 million. Consequently, profit before taxation was at S$53 million year-on-year (YoY) and net profit after tax decreased to S$43 million. Free cash flow at S$120 million was 4% higher compared to last year’s S$115 million. Capital expenditure was 4% lower at S$49 million compared to the same period last year.

Another 5 cts dividends for me.

A quick summary:
The good news:
1) Increased free cash flow
2) Increased revenue
3) Dividends easily maintained.

The bad news:
1) Net profit dropped ==> EPS dropped
2) Broadband revenue dropped

Is it worrying that the profits has dropped? According to Starhub, net profits dropped because of their expenditure in selling iphones at a loss. The advent of iphones has caused Singaporeans to be more attuned to the smart phones. While teaching tuition, I have noticed that a number of students have gradually switched to using smart phones.

Iphone plans generally costs about $10 to $20 more per month than the normal plans because of the extra mobile internet plan they carry. 200k customers would bring an extra $2 mil in revenue per month, or $6 mil a quarter. This would be quite an achievement as I would perceived Starhub as a company that is stable in earnings, without much changes.

What's interesting is how Starhub go all out to woo new smartphone customers.

“Even though the higher investment cost for acquisition and retention for smartphone customers have affected profitability during this quarter, we expect higher benefits to accrue in subsequent periods,” said Mr Neil Montefiore, CEO of StarHub. “Our investments in networks and content continue to strengthen our Hubbing strategy resulting in a 9% increase in triple-service households.”
One of the extras that distinguished Starhub iphone plans is it's addition of certain Cable TV channels into the iphone plans, where an iphone plan mobile subscriber can watch National Geographic and other channels free. This is making me consider the switch to Starhub after my current plan ends.

So while net profits might have dropped, we have to take note that these monies were "invested" into securing new customers (who will usually be locked in a 2 year plan). They will eventually "return" with interests.

While short term price actions may drop as kan cheong spiders sell their holdings in view of the weak market and the drop in net profit, it does not change my belief that this would be a safe investment that would generate nice dividends over the long run. It would not be my style to panic over a short term dip in net profit, especially when it was used to lock in more smartphone customers for the next 8 quarters.

This is afterall a defensive company in a defensive sector with defensive cash flows.

Lastly, we have to take into account that net profits include depreciation costs of assets. However, in accounting,after a fixed period meant for depreciation, it won't be taken into account in the future even if the asset continues to generate a revenue. The main advantage would be tax savings from reporting lower profits due to higher depreciation costs.

But... these are infrastructure assets!

In addition, bank loans in the previous quarter is $290.4mil + $605.4mil =  $895.8 mil
Bank loan in the current quarter is $113.6 mil + $751.8 mil = $865.4 mil, a decrease of $30.4 mil. This is good news as
(i) net bank loans has been reduced
(ii) they have successfully refinanced some of their current debts.

The only worry, which I guess most people will be looking at, is the pay TV revenue from Q3 onwards, where Starhub no longer has the right to broadcast EPL matches. I wouldn't worry too much about that because Starhub is obviously still able to sign up more customers. Shall comment more on this on the release of 2010Q3 results, which should be out in October 2010.


  1. this stock will be fucking killed tomorrow.

  2. Hi Drizzt,

    I'm ready. This company has a strong economic moat handed by the government.

  3. My friend told me he fears that the moat may have been breached by Singetl taking over the English Premier League.

  4. not exactly strong. its basically game theory.

    the competition will cut them to make minimal margins i feel.

  5. Hi ssgtrader,

    my meaning of moat is that no new competitors can come in to compete. Basically, it's the same old dog fight among the same 3 telcos. There will not be any newcomer coming in to take the market share.

  6. Hi Drizzt,

    the competition will definitely cut them... they are afterall the competition!

    But we have to bear in mind the other way can happen too! Starhub is also competition to them, and will strive to cut them to make minimal margins for Singtel and M1 as well.

    It's not that I support Starhub; I support the telcos in general, and I will gladly like to have all of them in my portfolio one day.


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