Shit becomes Gold? - Starhub on its way to recovery

Starhub (CC3. SI) released its 4Q 2019 and FY2019 financial results today. Overall, the results are not impressive, a far cry from its glory days in the past but it is evident things have improved and stabilized under the new CEO.

Positive Highlights:
1. Q4 2019 Net Profit doubles from $15.4m to $33.3m
2. Revenue from Enterprise, Managed Services & Cybersecurity grew
3. CAPEX was 7.5% of Revenue instead of 8 to 9%
4. Free Cash Flow for FY2019 increased 50% from $145m (8.4cents/share) to $218m (12.6cents/share)
5. Dividend per share maintained at 9.0 cents for FY2020

Expected declines in FY2018
1. Total Revenue dips 1.3%
2. Net Profit continues to drop 10.9%
3. Revenue from Mobile business declined 7.2%
4. Revenue from PayTV decreased 20%
5. Revenue from Broadband decreased 5% despite increase in subscriber base

As shared during my portfolio unveil post, Starhub is one of my initial investments when I started to build a long term income portfolio in 2016. Having suffered heavy paper losses, it is too painful to cut loss so I can only continue hold my handful of Starhub shares and start believing that Starhub has started on its recovery from rock bottom.

The increase in free cash flow to $218m gives confidence that the dividends of 9 cents are sustainable. In FY2018 the free cash flow of $145m was not even able to cover the $155.7m of dividends paid to 1.73b of outstanding shares. This is a good sign.

Profit margins from their traditional businesses no longer bode well. With the influx of Netflix and android TV boxes, PayTV will become obsolete sooner than later. While broadband and mobile plans get cheaper with more competition from virtual mobile operators and incoming TPG, margins get squeezed from existing telcos.

Starhub and Keppel owned M1 have jointly bid for 5G license. Hopefully it is the beginning of 5G era in Singapore. The sunk in CAPEX should be recovered in the long term. The prospects of enterprise and cybersecurity business seems rosy too though they do not contribute much to the overall cashflow.

The recovery of Starhub will be a long and rugged journey. It could be 5 to 10 years. I can only continue collect dividends, wait patiently and secretly hope that a sugar daddy appear to acquire Starhub just like how Keppel did to M1.

Thanks for reading!

With Love & Peace,
Qiongster