StarHub posts 74% fall in Q4 net profit, as expenses jump on one-off provisions

EARNINGS dropped sharply at telco StarHub for the fourth quarter, with heftier expenses devouring an uptick in turnover, the company said on Wednesday evening.

Net profit attributable to shareholders plunged to S$14.1 million for the three months to Dec 31, 2017 - a fall of 74 per cent on the previous year.

Earnings before interest, taxes, depreciation, and amortisation (Ebitda) was lower by 28.6 per cent to S$96.8 million.

This was even as revenue inched up by 2.2 per cent to S$649 million, on turnover from enterprise fixed services and equipment sales.

Of this growth, service revenue was marginally higher on the previous year, with a 0.8 per cent increase.

This was fuelled by the growth in the enterprise fixed service revenue, driven by managed services and the consolidation of newly acquired subsidiary Accel Systems & Technologies.

StarHub picked up Accel in mid-2017, followed by cryptographic and cyber security firm D'Crypt in December 2017.

Outgoing chief executive officer Tan Tong Hai, who leaves on May 1, said in a statement: "Our enterprise fixed business plays a key role and it has registered a strong finish to the year with a second consecutive quarter of double-digit revenue growth.

"The strategy we have executed for our growth, such as our acquisitions of Accel and D'Crypt, is yielding results for us."

Still, service revenue dipped by 0.6 per cent for the full year and StarHub said that it expects service revenue for 2018 to be lower by between 1 per cent and 3 per cent year on year, based on the current outlook, in the face of "near-term challenges" from market competition that are putting the squeeze on margins in the telco's traditional businesses.

Chief financial officer Dennis Chia told an evening earnings briefing that the latest acquisition of D'Crypt is expected to help with the coming year's top line.

"We would effectively have 11 months of consolidation impact on D'Crypt. Without the D'Crypt impact, you would be looking at 2 per cent to 4 per cent decline in service revenue," he said.

Enterprise business group chief Chong Yoke Sin noted that the D'Crypt deal "fits exactly with our road map where we can actually now play more majorly in the transportation and the government sector".

"I am not actually at liberty to reveal the government sector projects but it does have a recurrent stream of income," she said.

Dr Chong added that the company will work with D'Crypt on Internet of Things and security projects to enhance its suite of offerings.

But, enterprise fixed services aside, mobile service revenue slipped by 3.5 per cent year on year for the quarter and pay-TV service revenue decreased by 7.4 per cent, while broadband service revenue held steady.

On tie-ups with mobile virtual network operators (MVNOs), the StarHub CEO, Mr Tan, said at the briefing: "Margin-wise, it will be lower, but if they can grow it and target a particular segment of customers better, then I think it makes sense to have an MVNO strategy as part of an overall mobile strategy."

The fourth quarter's turnover gains were more than wiped out by a 9.3 per cent rise in expenses, such as cost of sales.

Staff costs also rose by 15 per cent on the back of one-off provisions for staff benefits, which StarHub said was "to rationalise and retain talent in recognition of the business challenges and operating conditions".

And the company had to make a provision for a leasing contract involving its cable network, as it plans to shift cable customers to fibre broadband and Internet Protocol television services.

The contractual cost, coupled with the reversal of prior-year accruals, bumped up StarHub's spending on operating leases by S$11.4 million, or 39.9 per cent.

Asked whether the company is mulling over more enterprise-related cyber security acquisitions, Dr Chong said that its Accel and D'Crypt deals already give StarHub "end-to-end service" in this sphere.

"Whether we actually engage in inorganic acquisition would very much depend on the value of the exercise and whether it is accretive to us," she said.

Earnings per share for the quarter sank to 0.7 Singapore cent, from 3.1 Singapore cents the year prior.

For the full year of 2017, net profit dropped by 27.1 per cent to S$249 million, on a revenue that was flat at S$2.4 billion.

StarHub has proposed a final dividend of S$0.04 a share, down from S$0.05 a share the year before.

The company added that it intends to pay out a quarterly cash dividend of S$0.04 a share for 2018, or S$0.16 a share in all.

The counter closed higher by S$0.12, or 4.38 per cent, to S$2.86, before the announcement.

Mr Tan also told the briefing that the hunt for his replacement "is still ongoing".

"I would say it's progressing well, but at this moment we're not ready to share more," he said, adding lightly that "I think things are going on full steam" in the meantime.