StarHub Q4 gain up, but top line continues shift towards lower-margin enterprise business

Singapore

STARHUB'S full-year service revenue was worse than forecast in 2019, though management is holding on to hopes of a better year ahead - Covid-19 outbreak notwithstanding.

That's as a cost-cutting drive helped to push net profit for the three months to Dec 31, 2019 to S$34.9 million, up from S$19.8 million in the year before, while turnover dipped by 1.8 per cent to S$608.4 million.

With the company sticking to its trimmed annual dividend pledge of S$0.09 a share for the second year, chief executive Peter Kaliaropoulos said in a statement: "We are now in a stronger position to invest in growth and diversify our business, including a 5G network in Singapore and pursuing new (merger and acquisition) opportunities for inorganic growth."

The latest quarterly showing was achieved as operating expenses were pared by enough to cover the year-on-year slip in the top line, with an added lift in other income that was attributed to "income grant received".

StarHub also said it had achieved close to two-thirds of the planned S$210 million in cost savings from its ongoing strategic transformation.

For the 12 months, net profit fell by 7.5 per cent to S$186.3 million, on a 1.3 per cent drop in revenue, to S$2.33 billion. Full-year service revenue, which excludes equipment sales, was down by 3.7 per cent to miss a guidance for a decrease of between 2 per cent and 3 per cent.

Yet, higher revenues from StarHub's growing cyber security segment have been tipped to make up for the lower contributions in the traditional mobile and pay-television businesses.

Service revenue is expected to improve by between 1 per cent and 3 per cent in 2020, despite the Covid-19 hit to retail activity, roaming and international direct dialling.

The bad news: margins are expected to slip, from 31.7 per cent in 2019 to between 27 per cent and 29 per cent this year, as Mr Kaliaropoulos noted a structural change in the revenue mix towards lower-margin cyber security and managed services.

Indeed, full-year operating profit, which was down by 6.4 per cent to S$255.9 million, would have improved to S$278 million without cyber security losses, as StarHub's cyber security business - largely held through Ensign InfoSecurity, a joint venture with Temasek Holdings - continued to weigh on the bottom line.

While Mr Kaliaropoulos called cyber security "a fast-growing part of our strategy", he told an earnings call that it would offer "minimal contribution in terms of bottom line" in 2020.

Meanwhile, the year's projections do not include a prospective 5G operating licence. StarHub tied up with Keppel's M1 to make a bid this week, and Mr Kaliaropoulos described the joint effort as "a more efficient use of capital, because it will provide coverage and capacity across the Singapore landscape by one investment".

Excluding spectrum and 5G costs, capital expenditure is tipped to be 6 per cent to 7 per cent of all revenue.

The board recommended a final dividend of 2.25 Singapore cents per share, with books closure and payout dates not yet announced.

The counter lost S$0.01, or 0.66 per cent, to S$1.50, before the results were announced.