All data found in this report can be reference @ this Google Doc>>
Starhub announced its Q2 Report and here are some notable observations:
- Revenue is doing well. Revenue have been improving since last year’s Q2 as well as last quarter
- Cost have been climbing higher. On a half yearly note, cost have increased from 855 mil to 991 mil. Its not significant, but you will see in the next observation how it affects profits.
- Profit overall fell 25% from 148 mil to 109 mil quarterly. You will have to go back to Q1 2010 or Q1 2005 to find a profit this low. What this means is that it is definitely not a good sign as competition gets tougher.
- The balance sheet presents 2 significant figures. While short term bank loans differ from Q2 2009 by a reduction of 180mil, long term bank loans balanced out in Q2 2010 by an addition of 150 mil. In terms of debt finance, not much changed there.
- On a group balance sheet, the total equity is 57 mil! The question is will we reached zero or negative equity??? Do take note that at the company level Total equity is at 1.1 billion. I have an old reply from Starhub’s investor relations talking about their low equity to debt situation.
- Net Operating Cashflow fell from 217 mil(2010 Q2) to 154 mil(2009 Q2). In a sense, working capital was higher in 2009 to the tune of 40 mil. So that should partly account why cashflow is lesser in 2010
- Capital Expenditure was lower at 44 mil (2010 Q2) vs 70 mil (2009 Q2). Compare to last quarter it remain low. This is surprising since Starhubs policy is to keep within 14% of sales. This is in addition to them being the OpCo for NBN. Somehow they will need to spend to build this OpCo up.
- Essentially, free cashflow stood at 110 mil (2010 Q2) vs 147 mil (2009 Q2). Free Cashflow is the life blood of dividend companies since it determines how much they can safely give out as dividends.
- Total Dividends paid out is at 171 mil (Q2 2010) vs 154 mil (Q2 2009). This is due to the company paying 5 cent per share as dividend, which a lot of people think it is not sustainable. If you deduct this amount from free cashflow you will get –60 mil (Q2 2010) vs –5.2 mil (Q2 2009). Normally, during second quarter you account for 2 quarters worth of dividends payout so getting this figure negative is normal.
Can they safely pay out 20 cent dividends per year?
The management have reiterate that they will pay out 20 cent dividend this year. Is it sustainable?
This 20 cent will translate to 340 mil in dividend payout. Should Operation Results stay the same
Estimated Full Year Operating Cash Flow = 323 mil * 2 = 646 mil
Estimated Capex = 45 mil * 4 = 180 mil.
Estimated Free Cashflow is 646 – 180 mil =466mil
Estimated dividend payout is 340 mil.
Thus based on the example here 20 ct dividend is still sustainable. However, I expect operating cashflow is likely to be lower, cost higher and the job.
However, a more conservative pay out will have to be 300 mil or 18 cents dividend.
I will continue to hold this stock and will monitor to see if costs starts escalating out of control. The key for Starhub is to protect market share and reduce expenses.
Disclosure: Drizzt holds Starhub
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Andrew TAN
Saturday 7th of August 2010
Thanks for your analysis of Starhub. With reference to the comments on: "Can they safely pay out 20 cent dividends per year?" you calculated Estimated Capex as 45m x 2 = 90m.
I believe the 45m is for Q2. Hence, if you want to get an estimation of full year capex, shouldn't it be 45m * 4 = 180m?
In other words, estimated FCF = 646m - 180m = 466m. If Estimated Dividend payout = 340m, that leaves them with 126m.
Drizzt
Saturday 7th of August 2010
Hey Andrew, thank you for pointing out my mistake. but essentially, the problem is that if capex escalates, they will have less wriggle room to play with.
tianhong
Friday 6th of August 2010
thanks for the analysis. comparing it to suntecreit, which one would you prefer?
Drizzt
Friday 6th of August 2010
both have its cons. i prefer starhub. but not by alot. starhub has a good business cashflow working for it but long term costs could weigh in.