StarHub CC3 has reported earnings of $72.9 million for its 2HFY2023 ended Dec 31, 2023, a $71.7 million increase over its earnings of $1.3 million for the same period last year. Along with the improved earnings, the company is declaring higher dividends than expected and guiding for a further increase for the coming FY2024.
For the full-year FY2023, the company reported a 140.4% y-o-y increase in earnings to $149.6 million.
Profit from operations in 2HFY2023 increased 102.2% y-o-y to $119.3 million as mobile revenue increased 3.4% y-o-y to $306.3 million. This was despite a drop in operating profit from cybersecurity services decreasing $2.8 million y-o-y to $10.4 million, mainly due to higher operating expenses and lower income grant, and partially mitigated by higher revenue.
In addition, non-operating expenses decreased 72.3% y-o-y to $16.6 million in 2HFY2023 and FY2023, mainly due to the recognition of $16.6 million in impairment losses on the D’Crypt divestment announced in 4QFY2023.
The absence of $21.6 million from the discontinuation of one of its unit Strateq’s business lines as well as $38.5 million impairment of network assets related to the shutdown of StarHub
Total operating expenses for 2HFY2023 were $65.5 million or 5.4% lower y-o-y, mainly in the absence of $30.8 million in non-recurring DARE+ related provisions recognised in the corresponding period last year.
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Excluding the non-recurring related to DARE+ in FY2022 and the $1.2 million reversal in FY2023, StarHub’s net profit after tax (NPAT) would have increased 76.5% y-o-y.
“We had a milestone year in 2023. We registered real growth across all metrics and business segments, where we enhanced our market-leading positions," says CEO Nikhil Eapen.
"We achieved our DARE+ milestone of $150 million of NPAT in FY2023 that we set when we launched DARE+ in end-FY2021, whilst continuing to make significant investments amidst the intensively competitive market conditions and unanticipated adverse geopolitical, macroeconomic and inflationary concerns,” he adds.
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“In addition, 2024 marks the tail-end of our investment phase and we will shift focus to ‘harvesting’ thereafter, although we will never stop building and innovating,” says Eapen.
Total FY2023 revenue increased $45.8 million to $2.37 billion, representing a 2.0% y-o-y growth, while service revenue increased $103.0 million or 5.5% y-o-y.
For FY2024, StarHub expects service revenue to grow between 1% and 3% y-o-y with stable contributions from its consumer and enterprise segments, coupled with higher contributions from regional ICT services and cybersecurity services.
Meanwhile, service ebitda margin is expected to remain steady at approximately 22% with the expected realisation of some DARE+ benefits and continued cost optimisation efforts in FY2024. Including investments, StarHub’s capex commitment is expected to be 11% to 13% of total revenue.
“Over 2024, we will continue our Infinity Play journey, harnessing the power of data and artificial intelligence to curate new levels of experiences for our customers with a continuously expanding range of digital products,” says Eapen.
“Also over FY2024, we will progressively launch Cloud Infinity platforms, bringing our government and enterprise customers first-of-its-kind platforms that converge connectivity, cloud and cybersecurity.”
Raising dividend guidance
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StarHub is declaring a final dividend of 4.2 cents per share for 2HFY2023. Combined with the interim dividend of 2.5 cents per share, the total dividend to be distributed for FY2023 is 6.7 cents per share, exceeding its guided amount of “at least 5 cents”.
For the current FY2024, StarHub is guiding for a dividend payout of at least 6 cents.
The higher dividend guidance is premised on better earnings seen for FY2024, as the group's DARE+ transformation enters into its second phase of "harvesting" after expecting to complete its first phase of "investment and build", where the group has largely been spending its capex on, explains Eapen.
StarHub expects DARE+ spending to tail off at the end of 2024. As at end-2023, StarHub has spent 60% of its DARE+ budget of $270 million (revised down from $310 million previously). In 2024, the group expects to spend a large portion of the remaining 40%, which could see DARE+ spending in 2024 be north of $80 million.
Meanwhile, the company has a positive free cash flow of $185.9 million and net debt ebitda of 1.36 times as at Dec 31, 2023. Along with lower leverage, Eapen sees a "good war chest" as the group's arsenal for organic and inorganic expansion ahead.
Consolidation?
At the briefing, Eapen hinted at further consolidation in the telco space, with the group already consolidating its broadband business with MyRepublic Singapore previously.
Market observers have at varying times speculated that StarHub will either merge with Keppel's unit M1 or with Simba, the fourth operator, held under Australia-listed entity Tuas.
"The truth with consolidation is it never happens when you think it will or want it to, but it will inevitably happen. So all we can say is that it is a natural course of things and all we can do is be ready," he says.
"We are constantly on the alert, ready and able to do domestic consolidation should the opportunity arise," adds Eapen.
Over the longer term, StarHub sees itself as a regional player, with a strong presence in other Asian markets beyond Singapore and Malaysia, such as via its cybersecurity unit Ensign.
"We would like to have the appropriate juncture to expand our regional enterprise platform beyond Singapore and Malaysia," says Eapen.
"Our priority would be good companies with good people that are higher on the value chain. We don't want resellers or systems integrators. We want to acquire companies that are more cloud-native in the way that they do things and are in a scale market, but in the region. We don't want to be managing far-flung operations, he adds.
Shares in StarHub closed unchanged at $1.07 on Feb 8.
