AnalysisSGX

7 things I learned from the 2021 StarHub AGM

StarHub is the second-largest telecommunications (telco) operator in Singapore after Singtel. StarHub offers a ‘quad-play’ package that includes mobile, pay-TV, fixed broadband, and business solutions.

An ongoing price war is being fought among telco players as a result of increased competition, with each telco offering more data at ever lower prices in an attempt to gain — or at least maintain — market share. As a result, StarHub’s profit has decreased in recent years, together with a gradual decline in its stock price.

Thus, I attended StarHub’s 2021 AGM to understand how the company would tide through the pandemic and continue to compete with peers in its industry. Here are seven things I learned from StarHub’s 2021 AGM:

1. StarHub’s revenue fell 13% year-on-year to S$2.03 billion in FY2020 from S$2.33 billion in FY2019. The revenue decline was primarily due to poorer contributions from Mobile, Pay TV, and Equipment Sales, which was partially offset by higher revenues from the Enterprise segment.

In 2020, Mobile revenue was 24.3% lower year-on-year. This was mainly caused by the pandemic which resulted in lower roaming, IDD, and prepaid revenue due to COVID-19 global travel restrictions.

Source: StarHub


2. StarHub’s net income fell 10.4% year-over-year to S$160.1 million in FY2020 from S$178.6 million in FY2019.
This was mainly due to lower revenue from Mobile, Pay TV, and Network Solutions, and Sales of Equipment. This was partially mitigated by a 11.8% reduction in overall operating expenses in FY2020.

These cost savings are in line with StarHub’s D.A.R.E. Transformation programme which was launched in FY2019. The programme has identified cost optimisation initiatives that aim to save over S$210 million over a three-year period, of which 82% has already been executed by StarHub.

Source: StarHub

3. In September 2020, StarHub was the first in Singapore to offer consumers and businesses access to a 5G non-standalone (NSA) network with the launch of its 5G Mobile+ and Biz+ plans. In 2021, StarHub commenced the roll-out of its 5G standalone (SA) network and is looking to capture early market opportunities through its launch.

5G networks can run on NSA or SA architecture. The difference is that NSA allows operators to leverage their existing 4G networks at the start instead of deploying a new core for 5G. SA, on the other hand, allows completely independent operation of a 5G service without any interaction with an existing 4G core, and provides end-to-end support for 5G speeds and services. Eventually, NSA and SA will converge as telcos move to a full 5G architecture.

4. Ensign, a cybersecurity subsidiary of StarHub, delivered 51.4% revenue growth in FY2020. Ensign also turned an operating profit of S$7.1 million in FY2020 from a loss in FY2019. Cybersecurity remains a major growth area for StarHub as the global cybersecurity market is projected to grow 12.5% annually to reach US$418.3 billion by 2028. In Singapore, Ensign commands a 16% market share of the cybersecurity industry.

5. In July 2020, Starhub completed the acquisition of an 88% stake in Strateq, a data-driven solutions information and communications technology company based in Malaysia, for S$82.1 million. Established in 1988, Strateq focuses primarily on healthcare information systems, retail fuel IT managed services and payment solutions, cloud services, data analytics, data centre services and IT infrastructure projects.

The acquisition is part of StarHub’s strategy to expand its suite of digital services for enterprise clients. StarHub’s management has said that they are looking to acquire more business like Strateg as the company seeks more enterprise growth.

6. The management gave little information about any potential mergers with rival telcos. The management similarly dismissed talks of a merger with M1 at the 2020 AGM and prefer to focus on its enterprise business for growth. However, a wave of telco consolidation is sweeping around the world as competition continues to intensify in the industry. For example, Digi and Celcom are finalising merger talks to create the largest telecommunication service provider in Malaysia.

7. StarHub declared a total dividend of 5.0 cents per share for FY2020. Moving forward, the management has pledged to pay an annual dividend at least 5.0 cents per share or 80% of net profit, whichever is higher. Based on StarHub’s share price of S$1.24 (as of 14 June 2021), its dividend yield works out to 4.0%.

The fifth perspective

Singapore’s telco industry is facing many headwinds as competition and the ensuing price wars eat away at StarHub’s margins. While the introduction of 5G plans may increase prices, StarHub will continue to operate in a challenging environment for the mid to long term.

Although StarHub’s yield remains relatively decent at 4.0%, income investors may need to be cautious about falling margins and profit which may affect future dividends.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Lim Zheng Jie

Zheng Jie has a keen interest in the growing intersection of finance and programming. He was placed on the Director's List at Nanyang Polytechnic and graduated with a Diploma with Merit in Financial Informatics. An SAS Institute scholar, Zheng Jie was also a PolyFintech 100 Hackathon Finalist for his blockchain project. He will be pursuing computer science as an undergraduate.

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