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Mobile service decline eats into StarHub's Q2 net profit, with earnings down by 22.8%

Starhub has posted a half-year dip in service revenue in line with its full-year guidance, according to unaudited results out on Tuesday.

STARHUB has posted a half-year dip in service revenue in line with its full-year guidance, according to unaudited results out on Tuesday.

Second-quarter net profit was down to S$61.7 million for the three months to June 30, sliding by 22.8 per cent on the previous year, even as turnover grew by 5.4 per cent to S$597.3 million on a jump in equipment sales as more premium handsets and smart home apparatus were moved.

Still, service revenue – which does not count the sale of equipment – inched up by just 0.7 per cent, to S$466.8 million, no thanks to the fall in turnover from the linchpin mobile service business.

Declines in mobile and pay-television revenue and flat broadband revenue were offset by the growth in the enterprise fixed segment, which was also boosted by contributions from the consolidation of cyber security acquisitions Accel Systems & Technologies and D'Crypt.

Yet the increase in turnover failed to lift the bottom line. StarHub noted in its financial statements: "Although the decline in mobile revenue was offset by higher revenues from managed services and the sales of equipment, the margins from these businesses were lower compared to the margin from the mobile business."

Second-quarter earnings per share slipped to 3.5 Singapore cents, from 4.6 Singapore cents a year ago, while net asset value was 33.6 Singapore cents a share, against 34.8 Singapore cents as at Dec 31, 2017.

Net profit tumbled by 19.9 per cent for the half-year, to S$124.7 million, as revenue edged up by 0.1 per cent to S$1.16 billion.

"For H1 2018, the group's service revenue was lower by 0.6 per cent year on year," StarHub noted, with six-month service turnover coming in at S$915.3 million. "This was within our guidance of full-year service revenue to be 1 per cent to 3 per cent lower year on year." It affirmed this guidance in the latest results announcement.

Peter Kaliaropoulos, StarHub's new chief executive, said in a statement: "Revenue growth from the enterprise segment was driven by customer acquisitions, growth in data usage and fixed services, and higher demand for managed services and cyber security solutions.

"The increasingly competitive environment for consumer services and combination of (over-the-top) services, continue to impact revenue from services such as mobile and pay TV."

Post-paid mobile average revenue per user (ARPU) was S$45 in the second quarter, up from S$43 in the three months prior, but still lower than the S$49 in the same period the year before. StarHub said that the decrease was mainly due to lower excess data usage revenue, as well as a higher mix of SIM-only plans and bigger share of revenue allocated to equipment turnover and recognised in earlier periods.

The company said in its outlook statement that subscription and mobile data will continue to be revenue drivers for the mobile segment, while voice and international direct dialing are expected to continue to decline.

"We anticipate competition to further intensify as customers have more options of MNOs and MVNOs to choose from," said StarHub, referring to mobile network operators like itself, as well as mobile virtual network operators that lease network capacity. "With larger data plans available in the market, excess data monetisation opportunities will be lower."

Meanwhile, pay-TV ARPU was up to S$53 from S$51 in both the previous quarter and the year-ago period, which StarHub attributed to World Cup subscriptions. There were 438,000 households subscribed, on a quarterly churn of 11,000 households.

Asked over an earnings call about the impact of StarHub and cable content provider Discovery parting ways during the quarter, Mr Kaliaropoulos said that contract non-renewals "contributed most of the churn". "Apparently, we had very few specific cancellations from customers who said they were really upset," he noted, referring to the cessation of 11 Discovery channels.

StarHub also noted: "For the pay-TV business, the focus remains on offering quality content, acquired based on the data analytics of customers’ viewership preferences. The challenges from piracy and alternative viewing options will continue.

"For our broadband business, we expect sustained competition due to the high broadband penetration in the market."

It added that its enterprise fixed strategy "is focused on growing the customer base through a concerted approach of competitive telco solutions, complemented by strong and deep capabilities in cyber security, analytics and (artificial intelligence), smart Internet of Things, digital platforms, managed services, cloud and data centre services and applications", with continued growth in segments such as hospitality, government, healthcare and retail.

On the half-year ahead, Mr Kaliaropoulos told the call not to expect a "V-shaped recovery" in mobile revenue. With Australia's TPG Telecom set to enter the market in Singapore, he also noted: "We don't expect the fourth MNO to be fully operational by year-end." The impact of new competition is likely to be felt from 2019 onwards, he said.

Similarly, "we don't expect that we will see any significant movement" until at least the third quarter of MyRepublic's mobile service, after the broadband company was signed as an MVNO partner in May 2018.

Mr Kaliaropoulos said in his media statement: "Winning our fair share of the market for connectivity services, improving and delivering consistent customer experience across all customer segments, leveraging our data analytics capabilities, and delivering innovative solutions predominantly in managed services such as cyber security and robotics are important to our growth."

He added that work on a pilot 5G network "is under way to explore new enterprise solutions".

When asked to elaborate, chief technology officer Chong Siew Loong said on the earnings call that the company will be "testing on specific enterprise use cases", while Mr Kaliaropoulos warned of "tremendous marketing hype" around 5G technology and added that StarHub would be "selective" in its investments and trials.

The board recommended an interim dividend of S$0.04 a share, unchanged from the year before, to be paid out on Aug 31.

StarHub closed flat at S$1.69, before the results.

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