5 Things You Should Know About StarHub’s Latest Earnings

The COVID-19 pandemic has negatively impacted the performance of telecommunication companies (telcos).

StarHub Ltd (SGX: CC3) is no exception.

The telco recently reported its second-quarter 2020 earnings, and it was not a pretty picture.

Here are five things you should know about StarHub’s latest numbers.

Weaker set of financials, lower dividend

StarHub reported a downbeat set of results for the second quarter.

Total revenue was down 18% year on year to S$453.4 million, but operating profit declined by 9.5% year on year due to the presence of other income as a buffer.

Profit attributable to shareholders fell by 5.6% year on year to S$37.3 million.

For the first half of 2020, the fall was steeper, with operating profit falling 14.1% year on year and net profit declining by 17.2% year on year.

The group’s cash balance had S$480.2 million in cash, along with gross debt of S$1.21 billion.

Free cash flow for the half-year remained healthy at around S$275 million.

However, the telco reduced its interim dividend for the first half of 2020 to S$0.025 compared to the previous year’s S$0.045 due to the pandemic and the need to spend on building up its 5G network (more on this later).

Erosion of market share for mobile services

StarHub’s mobile services division saw its revenue for the second quarter tumble by 25.4% year on year to S$143.4 million,

The number of post-paid registered subscribers remained fairly stable, declining by just 1.9% year on year to 1.45 million.

However, pre-paid subscribers plunged by 20% year on year to 634,000.

The average revenue per user (ARPU), a measure of customer spend, continued its downward trend.

Post-paid ARPU fell by 18% year on year to S$30 per month, while pre-paid ARPU declined by 19.8% year on year to S$10 per month.

The irony is that smartphone data usage has been climbing steadily, up around 50% to 10 GB per subscriber.

Yet, the telco is unable to monetise this increased usage, as demonstrated by its falling ARPU.

The average churn rate has stabilised at around 0.8%. However, StarHub continued to lose market share, which fell from 25.8% as of 30 June 2019 to 23.1%.

Pay-TV continues to lose steam

Pay-TV division also reported a lacklustre performance.

For the second quarter, revenue fell by 27.6% year on year to S$46.9 million.

StarHub continued to see customer attrition, with residential pay-TV subscribers declining by 13.2% year on year to 324,000.

ARPU also declined by 16.3% year on year to S$39 per month in a double whammy for the division.

The only silver lining is that the average monthly churn rate has dropped to just 0.4% from the 2.1% recorded a year earlier.

A lower churn rate for broadband

For broadband services, revenue inched down slightly to S$43.2 million, down 4.2% year on year due to a one-time 20% rebate on home broadband monthly fee due to a service disruption in April.

Excluding this, revenue would have been down just 0.9% year on year for the quarter.

Lower ARPU of S$28 per month was recorded due to marketing activities to promote the shift from cable to fibre last year.

Churn rate remained low at 0.3% as of 30 June 2020. As a whole, the broadband division appears relatively stable among StarHub’s three core divisions.

Incoming 5G spending

In late June, StarHub and M1 received draft 5G licences and spectrum rights by the Infocomm Media Development Agency (IMDA).

The task at hand is for the telcos to work together to build and operate a 5G standalone network.

The setting up of this new network will enable new digital services and applications to be delivered to customers.

Capital commitments, excluding the spectrum, 5G and IS transformation spend, is expected to be around 6% to 8% of total revenue.

StarHub estimates that its initial capital investment will be around S$200 million over five years.

The total sum works out to be about S$40 million per year, a manageable sum considering the telco’s history of generating consistent free cash flows.

However, investors need to note that there may be incremental spending on 5G depending on business demand and conditions and that more cash may be required should the need arise.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

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