StarHub has no plans for special dividend: CEO

StarHub, Singapore’s second-biggest telecom firm, is unlikely to follow larger rival Singapore Telecommunications (SingTel) with a special dividend this year, its chief executive said on Tuesday.

‘I don’t think we will be doing anything special this year,’ Neil Montefiore told Reuters on the sidelines of a telecom conference in Dublin.

‘We take a three-year view on the free cash flow. At the moment we are paying five (Singapore) cents a quarter. That gives a dividend yield at the moment of around 7-8 per cent depending on the share price.’

He added: ‘If we raise the dividend rate it has to be sustainable.’

Earlier this month, SingTel issued a final ordinary dividend of 9 cents and a special dividend of 10 cents, bringing the annual dividend to a record 25.8 cents a share, or a yield of 8 per cent based on its recent share price.

Mr Montefiore said that StarHub expected single digit growth in full-year revenues and net profits this year. In the first quarter of this year, the group reported a 62 per cent increase in net profit and flat operating revenues.

StarHub estimates that around 20,000 households in Singapore have taken up the next generation broadband network that is currently being rolled out in Singapore.

‘It launched in August of last year and we think somewhere around 20,000 homes have taken the fibre now,’ Mr Montefiore said. ‘We estimate that is the take-up across the whole market.

‘We heard the regulator is going to release the numbers quite soon but we haven’t got them yet.’

The new broadband network, which will be fully deployed by 2012, could provide Singapore users with Internet connection speeds that are up to 10 times faster than the current 100 megabytes per second. – Reuters

Less starry 1Q

• Below; maintain Underperform. 1Q11 annualised results were below consensus and our expectations, by 10% and 16% respectively. The underperformance was due to higher-than-expected marketing and handset costs. As expected, a DPS of 5cts was declared. We cut our FY11-13 estimates by 4-9% on lower EBITDAmargin assumptions. This brings down our DCF-based target price to S$2.41 (WACC 9.7%) from S$2.50. Maintain UNDERPERFORM on concerns over competition from NGNBN in fixed broadband and pay TV which could add to margin pressure and cross-carriage regulations that could further erode its dominance in pay TV in the mid-to-long term. These are expected to de-rate the stock. M1 is our top Singapore telco pick.

• Margins were the key feature. Contrary to expectations, EBITDA margins fell 1.7% pts qoq due to higher marketing expense (despite a seasonally weaker quarter) to drive take-up while handset costs (+10% qoq) rose from strong smartphone take-up. This overshadowed a decline in content, operating lease and maintenance costs. We believe margins will hover at these levels as StarHub shores up its fixed-broadband and pay-TV businesses through more acquisition/retention exercises and as more NGNBN-related costs flow in. Revenue was fairly flat qoq as weak mobile revenue (-2% qoq) was compensated by strong handset sales.

• By division. StarHub lost 5K postpaid subscribers qoq from the delayed effect of churns and substitution of data-only plans for other smart devices or more data/voice bundles. This, coupled with seasonality, caused postpaid revenue to fall 2% qoq. Fixed-broadband ARPU slipped to S$45 from S$46 on lower-ARPU net adds and more discounts. StarHub guided that ARPU should be S$44-45 going forward. In pay TV, it added a surprisingly strong 4K qoq (net) following discounts, free previews, free months, breadth of content as well as an increased focus on the lower-income segment.

Wait for better entry point after recent outperformance

• 1Q11 net profit of S$69m was at the lower end of expectations due to higher iPhone4 sales.

• Surprisingly, subscriber base declined for postpaid mobile and increased for pay TV & broadband segments.

• Declared expected 5 Scts quarterly DPS. Downgrade to HOLD for limited 3% upside potential to our TP.

Net
profit stood at S$69m (+60% YoY, -14 QoQ) versus our estimate of S$72-74m. Key reason was higher costs including (i) equipment costs which rose sequentially by S$8m to S$84m due to higher sale of iPhone 4, indicating slow adoption of Android phones in Singapore (ii) marketing costs rose sequentially by S$5m to S$42.5m due to promotional initiatives to drive take-up of multi-services hubbing packs.

Subscriber base declined across mobile but increased for pay TV & broadband. Post-paid mobile subscriber base declined by 5K sequentially to reach 1031K, due to: (i) some customers switching from data-only plans to bundled voice & data plans, and (ii) churn initiated by StarHub for non-paying customers subsequent to the implementation of business support system in 4Q10. This decline was one-off and management expects to see higher mobile subscriber base going forward. Higher marketing costs, on the other hand, boosted sequential growth in subscriber base for (i) pay TV by 4K to 542K and (ii) broadband by 3K to 325K.

Downgrade to HOLD. StarHub has outperformed STI by ~7% year to date excluding its quarterly dividends. We see limited upside potential of 3% to our DCF-based (WACC 7.6%, terminal growth 0%) TP of S$2.90. However, 7.1% dividend yield continues to be the key attraction of StarHub. We prefer SingTel as a cheap proxy to Bharti’s growth with a cushion of 6% yield.

Wait for better entry point after recent outperformance

• 1Q11 net profit of S$69m was at the lower end of expectations due to higher iPhone4 sales.

• Surprisingly, subscriber base declined for postpaid mobile and increased for pay TV & broadband segments.

• Declared expected 5 Scts quarterly DPS. Downgrade to HOLD for limited 3% upside potential to our TP.

Net
profit stood at S$69m (+60% YoY, -14 QoQ) versus our estimate of S$72-74m. Key reason was higher costs including (i) equipment costs which rose sequentially by S$8m to S$84m due to higher sale of iPhone 4, indicating slow adoption of Android phones in Singapore (ii) marketing costs rose sequentially by S$5m to S$42.5m due to promotional initiatives to drive take-up of multi-services hubbing packs.

Subscriber base declined across mobile but increased for pay TV & broadband. Post-paid mobile subscriber base declined by 5K sequentially to reach 1031K, due to: (i) some customers switching from data-only plans to bundled voice & data plans, and (ii) churn initiated by StarHub for non-paying customers subsequent to the implementation of business support system in 4Q10. This decline was one-off and management expects to see higher mobile subscriber base going forward. Higher marketing costs, on the other hand, boosted sequential growth in subscriber base for (i) pay TV by 4K to 542K and (ii) broadband by 3K to 325K.

Downgrade to HOLD. StarHub has outperformed STI by ~7% year to date excluding its quarterly dividends. We see limited upside potential of 3% to our DCF-based (WACC 7.6%, terminal growth 0%) TP of S$2.90. However, 7.1% dividend yield continues to be the key attraction of StarHub. We prefer SingTel as a cheap proxy to Bharti’s growth with a cushion of 6% yield.

StarHub Q1 net soars 62% to $69m

THE popularity of smartphones has turned from bane to boom for StarHub in one year with the operator’s first-quarter net profit soaring 62.1 per cent to $69.1 million, from $42.7 million a year earlier.

Earnings per share for the three months ended March 31 came in at 4.03 cents, up from 2.49 cents last year. Q1 sales stayed flat at $558.5 million.

Last year, the operator’s bottom line took a heavy blow in Q1 due to the higher subsidies it had to incur for handsets such as the Apple iPhone.

This time around, the company’s operating expenses fell 5.7 per cent year-on-year to $470.8 million.

This is largely due to a 13 per cent reduction in its cost of sales to $216.4 million as smartphone sales have started to wane in light of growing saturation. According to StarHub, 70 per cent of its post-paid mobile customers are already using these newfangled handsets.

With the smartphone drag lifted, the operator’s mobile revenue grew 3.3 per cent to $295.6 million. Its cellular subscriber base remained unchanged at 2.15 million.

However, the cellular units of StarHub and its rivals could be adversely impacted from the current quarter onwards as the Singapore and Malaysian authorities have agreed to slash auto-roaming costs 20 per cent from this month and a further 10 per cent next year.

Malaysia is one of the top roaming destinations for local operators.

Some analysts expect local telcos to be hit harder in comparison to their Malaysian counterparts as a larger proportion of their revenue comes from auto-roaming tariffs.

‘Our revenue will come down but our costs will also come down accordingly. We’re hoping lower prices means they (customers) will be keener to roam. It might have a positive impact overall,’ StarHub CEO Neil Montefiore said in a conference call yesterday.

Besides the mobile segment, two of StarHub’s three remaining business lines also turned in a better Q1 scorecard.

Its broadband revenue edged up 0.6 per cent to $59.9 million. Sales from fixed network services rose 4.6 per cent year-on-year to $83.6 million, helped by the take-up of the so-called Next-Gen NBN (Nationwide Broadband Network) services on Singapore’s new fibre-optic Internet backbone.

Singapore Telecommunications claims it has attracted half of the estimated 16,000 customers who have signed up for Next-Gen NBN packages, while M1 said its market share is around one-third.

StarHub declined to reveal the take-up for fibre-optic services but Mr Montefiore said it has been ‘slower than expected’.

StarHub’s pay-TV sales dipped 10 per cent in the first quarter to $92 million after it halved its sports group pricing following the loss of its Barclays Premier League broadcast rights to SingTel.

After taking a slight dip initially, StarHub’s cable television subscriber base grew by 4,000 users year-on-year to 542,000 in Q1.

‘We were focusing on the lower-income groups. That strategy has worked very well,’ StarHub’s chief operating officer Tan Tong Hai explained.

The operator has proposed an interim dividend of five cents per share for its first-quarter performance, unchanged from last year.

StarHub shares closed four cents lower yesterday at $2.80 before its earnings were released.