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StarHub Q2 net profit falls 36.1% on higher costs, weaker earnings

MAINBOARD-LISTED telco StarHub saw earnings fall again by the double-digits in the second quarter on weaker operating profits and higher finance costs, in results released on Tuesday.

Net profit was down by 36.1 per cent on the year before to S$39.5 million for the three months to June 30, as revenue slid by 7.4 per cent to S$552.8 million on lower turnover in all three core service segments of mobile, pay-television and broadband.

Otherwise, the enterprise business posted a 14.6 per cent rise in revenue on contributions from cybersecurity services, which more than made up for a slip in network solutions income.

But cybersecurity - a fledgling business that StarHub's management has previously told shareholders runs up high operating expenses - turned an operating loss of S$900,000 in the period, against a profit of S$4.1 million in the year-ago period.

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Service revenue came in lower by 5.2 per cent for the quarter to S$442.4 million, while equipment sales fell by 15.4 per cent to S$110.4 million.

Meanwhile, average revenues per user (ARPUs) declined across the board, falling by S$5 year-on-year to S$40 for postpaid mobile, by S$9 to S$44 for pay-TV and by S$3 to S$29 for broadband.

Still, the postpaid mobile ARPU ticked up by S$1 from the quarter before, as chief executive Peter Kaliaropoulos pointed to the launch of the new Giga brand that is drawing "new customers with healthy ARPUs" of around S$75.

With StarHub's cable-to-fibre migration still underway until year-end, the group has recorded higher churn in the pay-TV segment, and also saw both pay-TV and broadband ARPUs down, on the back of promotions to keep its cable customers.   

Earnings per share stood at 2.2 Singapore cents, down from 3.5 Singapore cents previously.

For the half-year, net profit was down by 25 per cent to S$93.5 million, on a 0.9 per cent decrease in revenue to S$1.15 billion.

MrKaliaropoulos said that, excluding cybersecurity losses and the one-off costs of S$7 million from cable migration, profit would have been 10.1 per cent lower instead.

"We continue to transform our operations and ensure cost-optimisation initiatives fund the growth of new digital services, including our Giga mobile brand and our cybersecurity initiatives," he added.

Mr Kaliaropoulos, who joined StarHub in July 2018, moved swiftly that year to cut costs in areas such as procurement, leasing, network and systems repair and maintenance, and sales and distribution - although it was the decimation of staff headcount that made for a headline-grabbing coup de grace.

StarHub maintained its full-year guidance of between zero growth and 2 per cent decline for service revenue, which was already down by 3.1 per cent to S$886.7 million in the first six months.

But Mr Kaliaropoulos later told an earnings call that the cybersecurity businesses - 65 per cent-owned subsidiary D'Crypt, as well as Ensign InfoSecurity, a joint venture with state investor Temasek Holdings - are expected to drive growth in the second half.

"We don't expect losses of this magnitude for the rest of the year," he added, after noting that StarHub had faced "a number of one-offs" in its latest quarter.

Net debt came in at S$930.2 million as at end-June, up from S$862.4 million as at Dec 31, 2018, while capital expenditure for the six months was S$46.5 million, not counting payments for 4G spectrum.

The company now faces S$443.8 million in outstanding capex commitments.

StarHub, which had said in February that it would cut dividends to fund its investments, will pay 2.25 Singapore cents a share for the quarter, down from four Singapore cents before.

The counter closed lower by S$0.02 or 1.33 per cent at S$1.48 on Tuesday before the results were released.