Yahoo Finance StarHub’s Turnaround Remains Elusive: 5 Highlights from the Telco’s FY2022 Earnings
It’s been two months since StarHub Limited (SGX: CC3) provided updates on the progress of its DARE+ initiatives during its Investor Day 2022.
Arguably, not much time has elapsed for StarHub’s ambitious plans to take root.
Despite this, its share price has been trending upward steadily, posting a healthy 6.7% gain year to date.
StarHub’s most recent fiscal full-year 2022 (FY2022) results announcement was a mixed bag of positives and negatives.
Here are five noteworthy points that investors should pay attention to.
Revenue is climbing strongly
For FY2022, StarHub registered total revenue of S$2.3 billion and service revenue of S$1.9 billion.
In terms of year on year growth, these equate to 13.9% and 17.2% for total and service revenues, respectively.
The telco’s top line exceeded its guidance of 12 to 15% which was last updated in November 2022.
Much of this increase can be attributed to the consolidation of StarHub’s acquisitions, namely JOS Singapore and Malaysia, as well as MyRepublic Broadband.
Even if we strip out these contributions, total revenue and service revenue still grew by 5.5% and 6.6% year on year, respectively.
This encouraging performance was possible because each of StarHub’s four segments held their own.
The Broadband and Enterprise divisions recorded impressive year on year revenue gains of 25.1% and 22.6%, while the Mobile and Entertainment divisions reported more muted year on year top line growth of 7.5% and 16.0%, respectively.
Lower profits led to reduced dividends
The telco’s higher revenues, however, did not translate into higher profits.
FY2022’s earnings before interest, tax, depreciation and amortisation (EBITDA) fell from S$480.8 million to S$379.4 million, translating to an EBITDA margin of 20.1% as compared to 29.8% in FY2021.
The reason for this weaker performance can be traced to higher operating expenses (Opex) related to its DARE+ initiatives.
Nonetheless, margins were still within management’s guidance of at least 20%.
On the net profit front, results were even more disappointing.
Net profit plunged 58.3% year on year to S$62.2 million, down from S$149.3 million last year.
In terms of its capital expenditure (capex) plans, StarHub has exceeded its guidance.
Capex was 7.3% of total revenue in FY2022 which sat comfortably lower than the 9% to 12% range that the group previously guided.
However, StarHub’s free cash flow fell by more than half of FY2021’s figure to S$222.3 million.
As a result, the final dividend also dipped correspondingly to S$0.025, taking the full year dividend to S$0.05.
It is nevertheless comforting to note that the telco managed to achieve what it set out to do regarding its dividend.
StarHub’s dividend policy is to distribute the higher of S$0.05 per year or at least 80% of its net profit after adjusting for one-off, non-recurring items.
Operational figures saw an uptick
Let’s now dig deeper into StarHub’s operational metrics, namely the average revenue per user (ARPU) and subscriber count.
In the Mobile division, although prepaid ARPU fell slightly year on year to S$8, postpaid ARPU rose by S$3 year on year to S$32.
Subscriber numbers increased across both prepaid and postpaid due to expanding giga! subscriber base, as well as a climb in tourists and foreign workers because of border reopenings.
With lower prices being commonplace for the telecommunication industry, StarHub’s ARPU growth across the Broadband and Entertainment segment was like a breath of fresh air.
For the Broadband segment, ARPU inched slightly upwards to S$34 in the fourth quarter of 2022 (4Q2022).
Entertainment ARPU also went up by 12.5% year on year to S$36, primarily driven by the World Cup and Premier League.
Higher ARPU was achieved in tandem with higher subscriber numbers.
Broadband subscribers increased from 484,000 a year ago to 578,000, a surge of nearly 100,000 subscribers.
The subscriber pool for the Entertainment division grew as well, rising by 34,000 year on year to clock in at 478,000 for FY2022.
DARE+ growth to create shareholder value
StarHub’s management remains confident in its aggressive DARE+ transformation despite mounting expenses that have dampened profit margins.
The group’s focus on connectivity, cloud, and cybersecurity (3C’s) delivered growth in network solutions, cybersecurity, and regional ICT services.
These have materialised into new contract wins.
In StarHub’s Investor Day 2022 update, its order book stood at slightly above S$4 million.
Since then, StarHub has won contracts amounting to more than S$8 million in end user computing and services, as well as over S$6 million for virtual desktop infrastructure used by healthcare organisations.
Management guidance in line with FY2022 results
StarHub provided its FY2023 outlook as early as a year ago.
Apart from maintaining the telco’s dividend policy which stipulates a total annual dividend of at least S$0.05 per share, there are minor adjustments to other metrics.
Service revenue guidance has been revised upwards from the previous year on year growth projection of 5% to 10%, to a tighter range of 8% to 10%.
Service EBITDA margin is expected to hold steady at approximately 20%, down from the previous guidance of 23%.
This reduction reflects the telco’s conservative take on the higher Opex expected in the upcoming fiscal year.
Capex commitment remains stable between 13% to 15% of FY2023’s revenue.
Get Smart: Short-term pain for long-term gain
FY2022 results may seem disappointing for investors.
On a brighter note, the group has made headway toward becoming a leaner, smarter cloud-enabled and digitally-centric platform in the longer term, with clearly outlined goals for 2026.
Considering the wheels of the DARE+ strategy have been turning for slightly over a year, the telco still has time to prove that it can achieve its objectives.
Time will tell whether StarHub’s turnaround initiatives will work out.
If they do indeed bear fruit, then patient investors will be duly rewarded.
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Disclosure: Tan Ke Xuan does not own shares in any of the companies mentioned.
The post <strong>StarHub’s Turnaround Remains Elusive: 5 Highlights from the Telco’s FY2022 Earnings</strong> appeared first on The Smart Investor.
