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StarHub Q1 net profit falls 14.2% on cybersecurity investment losses

LOSSES in the fledgling cybersecurity business sent earnings tumbling at mainboard-listed telco StarHub in the first quarter, according to unaudited results released on Friday evening.

Net profit was down by 14.2 per cent year-on-year to S$54 million for the three months to March 31, while revenue rose by 6 per cent to S$596.8 million on contributions from the enterprise business, which includes cybersecurity.

But operating expenses swelled by 9.4 per cent to S$524.7 million, as the cost of running cybersecurity services nearly tripled from S$13.5 million to S$37.8 million.

Although enterprise data and Internet revenue slipped, StarHub charted double-digit growth in managed services revenue, which it said "was largely contributed by higher demand for cloud, cryptographic and digital security solutions".

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Cybersecurity, though making up a relatively small share of turnover, posted a 41.4 per cent increase to S$26.4 million, helped by revenues from the D'Crypt unit and joint venture Ensign InfoSecurity. But the segment also posted losses of S$11.4 million against a profit of S$5.1 million previously.

Otherwise, overall operating profits - which were down by 13.9 per cent to S$72.1 million - would have grown on the higher revenue from the enterprise business and lower staff costs, StarHub disclosed.

Ensign was formed in October 2018 as a tie-up between StarHub's Accel Systems & Technologies and the cybersecurity assets of state investment firm Temasek Holdings, which owns StarHub's controlling shareholder, Singapore Technologies Telemedia.

Meanwhile, post-paid mobile average revenue per user (ARPU) continued to decline, coming in at S$39 a month, compared with S$43 the previous year, on lower voice and data revenue.

The pay-TV subscriber base shrank again quarter-on-quarter to 394,000 customers, down from 449,000 in the year-ago period. The falling customer numbers pushed pay-TV service revenue down by 12.4 per cent to S$70.7 million for the three months.

In the broadband segment, where StarHub has been working to switch customers to fibre services, revenue dipped by 0.3 per cent to S$47.1 million, while ARPU ticked down by S$2 year-on-year to S$31 on promotional offers and the migration of cable users.

Earnings per share slipped to three Singapore cents from 3.5 Singapore cents before.

Chief executive Peter Kaliaropoulos noted that service earnings before interest, tax, depreciation and amortisation (Ebitda) margins stood at 33.7 per cent, an improvement over 31.7 per cent the year prior.

"However, as cybersecurity operations require considerable resources to deliver growth, the higher operational expenditure from Ensign, coupled with decline in revenues for mobile and pay-TV services and higher depreciation, resulted in net profit after tax (NPAT) at S$49 million, a 23 per cent decline year-on-year," said Mr Kaliaropoulos.

He was referring to the profits attributable to both shareholders and non-controlling interests.

"Excluding the impact of cybersecurity services, NPAT would be S$61 million," he added.

StarHub said in its outlook statement that its enterprise business, which also includes network solutions and cybersecurity services, "continues its growth with renewals for data centre, cloud and telco solutions for connectivity across key industry sectors".

Managed services and information communications technology services such as the Internet of Things and analytics "continue to see an increased take-up by customers", it said.

"We will continue to invest in upgrading our cybersecurity solution capabilities to address the growing local and global demands for such services."

StarHub added that service revenue is expected to range from a stable performance to a year-on-year decline of 2 per cent for the year.

The board has recommended a dividend of 2.25 Singapore cents for the quarter, against four Singapore cents in the same period the year before.

Mr Kaliaropoulos had previously announced at the latest full-year results that StarHub would switch from a fixed to a variable dividend policy because it needs to invest the cash.

StarHub plans to pay out at least 2.25 Singapore cents each quarter, for nine Singapore cents in the full year, with any extra to come in the last quarter.

The counter closed up S$0.02 or 1.28 per cent to S$1.58 before the results were announced.