Starhub: Turnaround in Sight

Starhub reported a good 1H set of Financial results which demonstrated a turnaround.

Summary

• 4% increase in revenue due to increase in mobile plans, broadband and TV
• 22% increase in net profits
• No change in Dividends of 0.025 cents, which means full year forecast of 0.05 cents dividends

Revenue Growth

Starhub experienced growth in its mobile plans (+12%), broadband (+7.6%) and TV (+18.2%), see page 4. This was driven by higher average revenue per user, a reversal from the continuos declines Starhub had been experiencing for years. This suggests the trend of consumers moving to SIM only plans.

Secondly, the acquisition of Myrepublic's broadband side seems to have reduced the competition and is benefitting Starhub.

One thing to note is that the sale of equipments such as mobile phones have declined. This again shows how consumers are now moving to SIM only plans from telecos while purchasing their phones.

However, the stability in a few segments shows that the worse is over and the effects in the trend of consumers moving away from bundled plans have ceased. Hence it can be expected for Starhub's profits to stabilise and remain at full year EPS of 8-9 cents for a few years.

Strong Margins

Through a series of operational optimisation, Starhub has been able to grow its net profits faster than revenue growth.

However the expenses in its cybersecurity division seems to be a drag as the costs (+12.5%) is outgrowing revenue growth (+7%), see Page 2 and 4 of the PDF. Starhub's acquisition in the cybersecurity segment is still questionable.

Share Buyback

A positive is that Strahub has been continuing its share buybacks ath this prices which suggests management do feel there is some value to pick up. A reducing share base will help in dividends.

Stable and Sustainable Dividends

With the new CEO on board, the sustainability of its dividends were one of their key concerns which resulted in the continuous slashing of dividends. Dividend investors had been spooked out with share prices falling 65% since then. 

Starhub now has a dividend policy of a 80% payout ratio or a 5 cents dividend each year. Given how Starhub is now regrowing and optimising itself, an annual 6 cents dividends can be expected soon.

All in all, Starhub has right the boat and rode off the storm of the past 7 years. Its acquisition of MyRepublic broadband has paid dividends but its purchase in the cybersecurity segment is still questionable.

What is important now is for the company to slowly repay off its debt. The repayment of its debt will help reduce finance expenses. 

At $1.02 and expectations of a 6 cents dividends, Starhub does seem fairly valued.