Saturday, 12 February 2022

Starhub FY2021- Not Great and a Stagnating Company

Starhub has released its FY 2021 results, revenue drop with slight dip in profit. Dividends totaled 6.4 cents for the year


Mobile ARPU is still declining (from $31 per user to $28 per user)

Broadband ARPU has grown from $29 to $32 and with that the segment's revenue has increased.

Borrowings has grown further by $200 million due to issuance of new bonds.


With the re-opening of borders, it is likely Starhub's mobile revenue will buck its downward trend as tourism and more foreign workers will mean an increase in prepaid users. However, in the postpaid market, the existence of Myrepublic and Circles life will continue to pressure its postpaid ARPU.

All in all, I expect Starhub to grow its overall revenue slightly, however it will be negated by the growing interest expense from its ballooning debts. So dividends are likely to maintain at 6.4-6.8 cents region. My worry I also have is the declining population base of Singapore, mobile penetration is already high and unless Singapore imports more foreigners, the number of postpaid users in this country will decrease and this will affect Starhub's mobile revenue.

The 2021 10 year bond Starhub (2.48%) issued was of a low rate and the proceeds are likely kept to redeem bonds maturing from 2022. With the interest rate hike environment, it is unlikely Starhub will turn to bond raising. This means dividends will be capped and those holding perpetual shares, the redemption looks very slim. This is because at a step up rate of 4.95%, it is more attractive for Starhub not to use the cash to redeem perpetuals but to pay off bond notes (which mature all the way to 2031). 

Given how the economy is weaker since my last writing in Feb 2020, instead of expecting Starhub to be a dividend yielder of 5%, one can expect it to be a 4.5% yielder instead. The world has to drain off the liquidity it had created during COVID and this will take about 5-6 years to clear. At a 6.4 cents dividend and expected yield of 4.5%, owning Starhub shares in the region of $1.40 is acceptable. 

But 5-6 years down the road, Starhub has to grow its dividends as the global economy would be better and QE tightening will be the theme, at my expectation of a 5% yielder the company is slightly overvalued

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