SINGAPORE (Aug 7): StarHub’s 2Q19 earnings were hit by price erosion in the corporate renewals market as well as promotional discounts dished out to hasten the migration to fibre TV.
In 2Q19, the telco reported earnings of $39.5 million, down 36.1% from a year ago. This came on the back of total revenue at $552.8 million, down 7.4% from $597.3 million in 2Q18.
StarHub says the decline was primarily due to lower revenue contributions from its Mobile, Pay TV, and Broadband service segments as well as lower revenue from sales of equipment.
Mobile service revenue fell 9.9% to $192.3 million, Pay TV revenue slid 23.6% to $64.7 million due to a lower subscriber base and revenue from sales of equipment dropped 15.4% to $110.4 million due to lower volumes of handsets and smart home equipment sold.
StarHub’s Enterprise Business segment was the only standout, posting a 14.6% rise in revenue to $140.3 million as revenue from cyber security services more than doubled to $36.2 million in 2Q19.
StarHub has declared a 2Q DPs of 2.25 cents, reflecting a payout of 99% on core EPS.
See: Starhub posts 36.1% drop in 2Q earnings to $39.5 mil on lower revenue
According to an Aug 7 report by RHB Research, StarHub’s core 2Q earnings made up 50-51% of the house and consensus’ estimates.
Core earnings fell 27% q-o-q on lower revenue, weaker EBITDA margin, and losses from cyber security services.
Revenue from Mobile services was steady q-o-q after two quarters of contraction, thanks to stronger postpaid net-adds with contributions from mobile virtual network operators (MVNO), and its new digital brand, giga.
RHB also expects StarHub’s Enterprise business to break even by end 2019, largely driven by the cyber security business which more than offset the decline in traditional network solutions revenue.
“We lower our FY19-21 core earnings forecasts by 5-12%, mainly to factor in higher financing charges and weaker pay-TV and cable revenues,” says RHB.
RHB is maintaining StarHub at ‘neutral’ with a target price of $1.52.
Meanwhile, Daiwa Capital Markets says price erosion in the corporate renewals market and promotional discounts to speed up the migration to fibre TV have weighed heavily on StarHub’s 2Q19 profit. Management had launched the promotional discounts and “zero-cost” offers to entice customers to migrate cable TV customers to fibre TV.
“While this weighed on revenues, the company also lost 20,000 pay TV customers in the process,” says lead analyst Ramakrishna Maruvada in an Aug 6 report.
Nevertheless, the post-paid mobile segment saw strong customer additions of 39,000 in 1Q19 compared to 11,000 in 1Q18, suggesting StarHub’s revised price offers are gaining traction in the market. In addition, the cyber-security business is now reaching break-even on an EBITDA level based on Daiwa’s estimates.
“Overall, we believe the results continue to suggest StarHub is finally regaining its lost competitive streak especially in the post-paid market, though it is not completely out of the woods,” says Maruvada.
Daiwa is maintaining StarHub at “hold” with target price of $1.48.
As at 3.32pm, shares in StarHub are trading at $1.46, at 14.2 times FY19F earnings and offering a dividend yield of 6.0% for FY19F based on RHB’s valuations.
