The set of results for Starhub looks normal but for me, I am more interested in its operations rather than its financial health, which I know, can’t actually change much.
And true enough it didn’t veer far from last quarter.
So lets get those ratio analysis out of the way.
- Net profit stays almost the same (82 mil vs 85 mil in 2009)
- EBITDA margin feel to 32% from 33%.
- Free Cashflow is 78 mil vs 115 mil. Drastic reduction but it is due to increase capex from 43 mil (2nd qtr) to 73 mil (3rd qtr)
- Dividend for this quarter was 85 mil. This means that this quarter there are increase in borrowings as a result of this. Definitely they are not making enough to cover this 85 mil of div with only 78 mil of cashflow.
Profit recovered to 3rd Quarter 09 level. Essentially the profit have traditionally been strong in the first half of the year. This will further impact overall profit.
Cost of Sales
Cost of sales have finally fallen. the most drastic fall is the cost of equipment and cost of services.
Its great to see that traffic expenses remain consistent as that is directly link to increase in cost as a result of increase data usage.
We finally see the long awaited increase in capital expenditure, likely due to the increase in outlay for Nucleus connect as Starhub is the operator for NBN.
Free Cashflow will tell us whether they can sustain a dividend purely based on operations. Due to the increase in capex from last quarter of 20 mil and the reduce in operation cashflow generated, the free cashflow is drasticaly reduced.
For Starhub to payout 5 cent per quarter, they would have to generate at least 85 mil free cashflow per quarter. As you can see here, this quarter it is under.
This time last year, they are already pretty covered for the 20 cent dividend which is roughly 340 mil. This year they will be able to make it probably, but there is not much room to maneuver.
All in all, I would say they are not making enough cashflow to comfortable pay for the dividends but its not the end of the world.
Lets take a look at some operation details.
Mobile Net Adds
Mobile makes up nearly 47% of total profits, and this quarter you still see a steady addition.
Mobile Acquisition Cost
However, the cost of acquiring new customers continues to increase, and showing no signs of abating.
This is probably why I say telecom is a business that will come to serious cost pressures unless they change their business model.
ARPU though remains normal.
Pay TV Net Adds
We see a net drop in pay tv, who likely quit due to more attractive competitive package from competitors and BPL. It was not as large as 30,000 as anticipated.
Pay TV ARPU
However, revenue continues to fall and ARPU shows a drastic fall.
Broad Band ARPU
In terms of broad band, ARPU shows a steady decline as well. we have not seen any visible contribution from NBN but that is probably too early to say.
All in all, this is pretty much what I expected and not much of a surprise. Readers who want to know more about the telecom industry past and the future can take a look at this previous article.
Continuing intense competition and shifting business economics means that should you invest in Starhub for dividend yield, you will have to look at free cashflow performance as well as shifting business trends.
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