3 highlights from StarHub’s Q1 2020 earnings

Here are three key takeaways for traders and shareholders from Singapore telco StarHub’s latest financial update.

Last Wednesday 06 May 2020, StarHub revealed that quarterly revenue and net profit for the period ending 31 March 2020 fell 15.2% and 25.7% respectively year-on-year.

Singapore’s second largest telecommunications provider by market capitalisation posted a total group revenue of S$506.2 million in the first quarter of 2020 – down from S$596.8 million in Q1 of 2019, and a net profit attributable to shareholders of S$40.2 million – down from S$49.3 million in Q1 of 2019.

Here are three key things we took away from StarHub’s latest financial update.

1. Analysts raised their StarHub share price targets post-earnings

Following the earnings report, StarHub’s share price rose over 2.0% to S$1.51 a share.

Meanwhile, DBS analyst Sachin Mittal also raised his 12-month price target for StarHub shares to S$1.75 per share, up from S$1.40 per share previously – alongside an unchanged ‘buy’ rating.

He cited ‘Cybersecurity’s surprise operating profit of S$5 million’, which exceeded DBS’ expectations for a S$5-6 million loss, as a factor for him raising his price rating. Cybersecurity Service’s revenue rose sharply by 137% year-on-year to S$62.4 million, generating an operating profit of around S$5 million (versus a S$10.5 million loss in Q4 of 2019).

Mittal also noted that with new entrant Australian telco TPG Telecom beginning to charge its free customers now, existing players including StarHub might benefit – another factor in favour of the stock.

Furthermore, while the second quarter of 2020 will be impacted more by Covid-10, Mittal predicts that this will be mostly offset by government support.

‘While March was the worst-hit quarter in 1Q20, 2Q20F will be impacted by weaker mobile revenue in April and May 2020. However, with co-funding of salaries by the government, StarHub stands to gain S$10m-12m in one-off benefits in 2Q20F in our estimation,’ he wrote in a note posted on 08 May 2020.

He believes that the StarHub stock is primed for more growth, as it is trading at a 12-month forward dividend yield of 6.0%, below its average of 6.3%.

Finally, he projects that StarHub would be able to maintain a dividend rate of S$0.09 per share this year, as the company should be able to save on capital expenditure from its joint investment with M1 on a 5G network, for which it recently won the bid.

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2. StarHub says ‘priority is to maintain adequate liquidity’

In the Q1 FY2020 press release, StarHub said that the Covid-19 crisis is expected to have a material impact on the Group’s revenue and profitability for the year, with expectations for revenue declines for most business segments at varying degrees.

The company added that the various budgetary measures provided for by the Singapore government have supported the maintenance of jobs, cash flow and the ability to mitigate some revenue impact.

For now, StarHub says that its priority is to maintain adequate financial liquidity as well as safeguard the health and welfare of its employees, customers and business partners; and has rolled out initiatives to enable customers to tide over these challenging times.

Going more in-depth on its liquidity, the company revealed that it has successfully negotiated the refinancing of bank loans due for repayment this year, after which there will be no refinancing required until 2022.

The group also noted that it has adequate credit facilities to manage its working capital and other funding requirements, with expectations to sustain positive operating cash flow generation this year.

Finally, StarHub said it will provide more information on the net impact of all the aforesaid measures in the year’s second half update when there is greater clarity on both the relevant government measures and the economic situation.

In view of the uncertainty, the group has withdrawn all guidance for 2020 and will update shareholders once there is greater visibility to the aggregate nature of the COVID-19 impact.

3. Service revenue down, enterprise revenue up in Q1 of 2020

Service Revenue declined 8.9% year-on-year to S$404.9 million for Q1 2020, as a result of lower revenues from Mobile, Broadband and Pay TV.

On the flipside, the Enterprise business recorded a 13.9% increase in revenue to S$152.8 million, led mainly by the aforementioned rise in Cybersecurity Services’ revenue, but partially offset by lower revenues from voice services, internet services and domestic leased circuits as well as managed services.

Revenue from sales of equipment decreased year-on-year by 33.6% in Q1 of 2020, mainly due to lower volume of premium handsets sold as a result of Covid-19 and disruption to handset supply chains, resulting in a stock-out situation for certain handset models.

Against the corresponding period last year, Mobile service revenues this quarter was lower year-on-year by 15.0% due to lower post-paid and pre-paid Mobile revenues.

Pay TV service revenue in Q1 was 33.8% lower from the same period last year, mainly due to a lower subscriber base – which fell 2000 to a current base of 327,000, and lower ARPUs due to promotional activities for the cable to fibre migration from the previous year.

Broadband service revenue decreased by 11.4% year-on-year, although subscriber base increased to 502,000 in Q1 2020 from 495,000 in Q1 2019.

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