Should you be worried about Starhub's Q1 result?

Starhub released its Q1 results today and here's a snapshot:

Service Revenue: down 0.6%

Total Revenue: up 8.1%

Operating profit: down 15.0%

FCF: from positive $104.6m to negative $46.3m

Service revenue dipped 0.6%

Service revenue dipped 0.6% mainly due to the continued price competition in the Broadband. ARPU decreased from $39 to $33. However, we see that the dip seemed to have stabilised and moving forward we shouldn't see much decrease in the ARPU.

Total revenue up by 8.1%

Total revenue ticked up by 8.1% mainly helped by increased sale of handsets (iPhone + Samsung I guess) which contributed to an additional $49.9m of sales. This, however, is cyclical and dependant on the handsets dished out by the makers. 

Operating profit dropped 15.0%

Operating profit decreased by 15% largely due to the lower margins on the sale of handsets (change of mix of products). Correspondingly, EBITDA margin decreased from 32.6% to 30.0%.

What's encouraging is that their other operating expenses have been kept controlled and decreased by 2% (including staff costs).

Negative FCF

I'm actually taken aback by their negative FCF this quarter. A quick look at it and the large difference came from the drop in cash from operating activities. I'll be watching their FCF for the future quarters carefully.

Improved "stickiness"

They've continued to improve their Hubbing strategy for who-knows how many quarters. I view this as a positive sign in the long term as this helps in keeping their customers. This is evident in their low churn rate at about 1% for all their segments.

What's next? Is it doomsday?

The short answer is no, for me.

They're actively targeting the SMEs for NGNBN services. Commercial segment tend to have higher margins and lower churn rates. Whether they're gonna be successful, is unknown. But at least we know management is trying their best.

Monetisation of mobile data. We noted Singtel had 61% of their postpaid customers on tiered plan, and reckon Starhub's data shouldn't be too far off. There's still room for data monetisation and its a space to watch.

Hubbing/Homehub packages are already casted wide and afar, presumably to defend their customer base and to prevent any new entrants from causing significant damage to their market share.

Dividend expected to maintain at 20 cents and EBIDTA margin to resume to 32% for the full year.

Let's hope both comes true!!

So, am I worried about their results and ready to divest? Nope. Long term wise, this business is still going to do fine.