Starhub released their Q4 and full year 2010 financial results, shortly after Singtel does (Singtel Analysis here)
As it turns out, the Edge magazine reports that Starhub is currently the highest yielding Singapore STI company at 7.6% with the next 2 closes being CapitaMall Trust and Singtel ( Full Tracking here at Dividend Stock Tracker)
Now a lot of people were very skeptical whether Starhub can pay a total of 20 cents dividends when it was trading at $2.15. That’s roughly 9.3% yield. Share price have since appreciate to $2.60 and yield fallen to 7.6%.
Questions ask were:
- Shrinking NAV, Enormous Debts and Paying more than Net Profit
- Competitive industry and losing EPL rights
- Ability to monetize mobile data communication
We will try to address these today after 1 year.
Free Cashflow, Dividend and Debt Analysis
Viewing the Q1 and Q2 reports made me skeptical that they could still pay out 20 cents of dividends without dipping into their cash holding. Q1 and Q2 was when we see the highest margin cuts due to greater subsidy for smartphones.
in Q3 and Q4 we have seen a greater recovery.
Starhub 2004 to 2010 7 year data (Click to enlarge picture)
Starhub Cashflow Graphs
Free Cash Flow (FCF)
Free Cash Flow for 2010 comes up to $397 million vs $461 million
The grey line on the top graph shows the free cash flow (FCF). It is very healthy. No doubt it is less than 2009 but still at a great level.
This is the important characteristic that you should search out for in good dividend companies. If FCF is increasing every year, it’s a great investment, which normally likely to bring share price appreciation as well.
Dividend Payout (DIV)
Dividend Payout for 2010 comes up to $343 million vs $316 million
Dividend payout is denoted by the orange line. Note the that it is below FCF. This means that Starhub is paying dividend sensibly out of what they have earned minus capital expenditure.
But also note that the dividend payout trend have been increasing. Will we see 22 cents dividend payout?
Quite possibly. A 2 cent increase is a 10% dividend payout increment. Starhub would need $377 million in FCF to sensibly pay out that. At $397 million they certainly can but note that FCF is falling due to lower margins and higher capex.
It might be unwise to do so unless they have more catalyst for growth. For now 20 cents dividend is safe all else being equal
The red line line shows FCF-DIV, which is the amount of cash added or taken out from cash holdings to pay dividends. What we are glad is that it is positive, which means even after
- Paying Off Debts
Cash is being added to the company.
Debt Issue and Repaid
We talked about the enormous debt situation. Well it is not enormous.
Total Debt (Long Term + Short Term) for 2010 is $805 mil vs $895 mil in 2009.
Debt is going down.
How significant is $805 mil?
Consider cash holding to be $237 mil. Net Debt then is $562 mil.
Consider their Operating Cashflow to be $669 mil and Free Cash Flow to be $397 mil, if they choose not to pay dividends they can reduce debts in probably less than 2 years.
I do not see this operating cash flow profile to change so its good.
What is significant is that ARPU for post paid is growing which is assuring. What is not reflected in any diagrams here is
- A fall in number of minutes of voice communication
- A rise in data usage
The churn rate have been maintained, but what is disappointing is the ARPU. without EPL the pricing power have been reduced.
No mentioned of Mobile Data Monetization Plan
What I am disappointed is that in no way have they mention what they intend to do to compete in growing into a business more than “a green pipe”.
Singtel and M1 have shown a willingness to do that.
This has its good and bad points:
- Mobile data monetization and cloud computing is not easily carried out successfully. For all we know Singtel and M1 will fail because Singaporeans is the most stingy kind of consumers. Not moving first enable them to see what works and what doesn’t before diving into compete to mitigate competitors from growing.
- Singtel and M1 just might get how to get this done. It became so successfully that the churn rate drastically increases or that Starhub cannot put together a business offering fast enough. I view this case to be unlikely in a Singapore context.
Nevertheless I would hope to see Starhub do more in this area.
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