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StarHub Q3 net profit slumps by 12.8% to S$57 million on higher operating costs

STARHUB, which has kicked off a group restructuring accompanied by layoffs, reported a drop in third-quarter earnings on the back of higher expenses such as cost of sales.

Net profit was S$57 million for the three months to Sept 30, down by 12.8 per cent on the previous year, according to unaudited financial results released on Friday evening.

Revenue rose by 3 per cent to S$582.2 million, lifted by premium handset and smart home equipment sales. But stable broadband revenue and growth in enterprise fixed services could not make up for service revenue declines in the mobile and pay-television segments.

StarHub noted in its outlook statement that its plan for a strategic rehaul, announced in October, will incur a one-off cost of some S$25 million - including funding for the retrenchment of 300 full-time employees - but that cost is not expected to have any impact on its guidance for FY2018.

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The hit to the bottom line came as a rise in operating costs outpaced the increase in turnover, no thanks to a jump in the cost of equipment sold, higher cost of services, and traffic expenses from roaming.

Average revenue per user (ARPU) slipped for post-paid mobile customers, down to S$44 from S$48 the previous year, on lower revenue from excess data use, more Sim-only plan subscribers, and a bigger share of revenue recognised previously and allocated to equipment revenue. StarHub had about 1.39 million post-paid mobile users, or 1.7 per cent more than the year before.

Pre-paid mobile ARPU was flattish at S$14, with lower voice and international direct dialling use. The customer base also shrank by 6.5 per cent to 836,000, with fewer tourists and foreign workers.

Meanwhile, the pay-TV segment saw revenue fall by 14.1 per cent altogether, with ARPU dropping to S$47 a month, from S$51 previously. Some 423,000 households were subscribed, down by 9.4 per cent.

StarHub attributed the pay-TV ARPU decline to customer rebates after it stopped carrying certain channels this year; it had made headlines for the loss of Discovery content, with a disagreement between the two parties on carriage fees.

Enterprise fixed service revenue was up by 13 per cent year on year, to S$124.6 million, with the increase coming entirely on the back of the managed services segment amid higher demand for cyber security, cloud, cryptographic and digital security solutions and the consolidation of Ensign InfoSecurity (Systems) and D'Crypt.

Ensign InfoSecurity is a joint venture with national investment firm Temasek Holdings' Quann cyber security business and StarHub's Accel Systems & Technologies, acquired in July 2017.

Earnings per share fell to 3.2 Singapore cents, from 3.6 Singapore cents previously, while net asset value was 32.7 Singapore cents a share, against 34.8 Singapore cents as at Dec 31, 2017.

The board has recommended an interim dividend of S$0.04 a share for the quarter, the same as in the previous year.

Chief executive Peter Kaliaropoulos, who joined in July, said in a media statement that the results were in line with StarHub's market guidance and in spite of "ever-increasing competitive pressures".

"Whilst our enterprise business continues to deliver growth in service revenues and customers, we continue to face the challenge of lower mobile revenues from wider customer choice in terms of Sim-only plans. Pay-TV business continues to experience loss of customers to alternative content and packages.

"We are addressing these challenges, including the management of operating expenses," he said.

The group stuck to an earlier guidance for a 1-3 per cent year-on-year drop in service revenue for FY2018, and a 27-29 per cent slide in service earnings before interest, tax, depreciation and amortisation (Ebitda).

Net profit for the nine months was down by 17.8 per cent, to S$181.7 million, while revenue inched up by 1.1 per cent to S$1.74 billion.

StarHub closed lower by S$0.01, or 0.51 per cent, to S$1.94, before the results were released.