StarHub Ltd (SGX: CC3) has had a good year so far.
Singapore’s second-largest telecommunication company (telco) saw its share price rise 11.7% year to date, coming close to its 52-week high of S$1.29.
The increase is in line with StarHub’s reporting better revenue and profits as the group executes its ambitious DARE+ strategic initiatives.
Income investors may be curious to know if the telco can continue to raise its dividends.
Does the business have what it takes to pay out more over time? Let’s find out.
Improving fundamentals
StarHub has seen its business improve over time as it undertakes various growth initiatives.
This growth is evident from the telco’s 2023 earnings report.
Total revenue inched up 2% year on year to S$2.37 billion while net profit shot up 140% year on year to S$150 million.
Even after excluding one-off items for both years, StarHub’s net profit would still have grown by 76.5% year on year.
The group also generated a positive free cash flow of S$185.9 million, though this was 16.4% lower than the S$222.3 million churned out a year ago.
StarHub declared a final dividend of S$0.042, bringing its total dividend for 2023 to S$0.067, exceeding its guidance of paying out “at least S$0.05”.
The 2023 dividend was also 34% higher than the S$0.05 that was paid out for 2022.
The telco has increased its dividend guidance for 2024 and will pay out “at least S$0.06”.
The first quarter of 2024 (1Q 2024) saw StarHub continue its positive earnings momentum.
Although total revenue dipped slightly by 0.1% year on year to S$545.4 million, net profit increased by 8.1% year on year to S$40.1 million.
“DARE” to be different
These improvements came on the back of StarHub’s DARE+ program, a transformation program that was unveiled during its 2021 Investor Day.
DARE+ is a continuation of the telco’s successful DARE 1.0 which was initiated in 2018 and concluded in October 2021.
DARE 1.0 helped to deliver cost savings of more than S$270 million and resulted in a 15% reduction in operating expenditure levels.
DARE+ has an ambitious goal of achieving another S$280 million in cost savings from 2022 to 2026 along with a S$220 million gross profit uplift.
To do so, DARE+ involves shifting StarHub from Quad Play to “Infinity Play” which includes aspects such as connectivity, cloud gaming, digital solutions, and streaming entertainment.
Its 2023 Investor Day offers hints of this ongoing transformation.
StarHub created an all-in-one app for existing customers, partners, and non-StarHub customers.
It has also revamped its app to simplify purchase, payment, and access to support, leading to a better user experience.
Aside from business-to-consumer (B2C), StarHub is also pursuing more business-to-business (B2B) initiatives.
The group is developing a new cloud software-as-a-service platform to deliver its services more efficiently.
These include enterprise products such as cybersecurity services and cloud networking.
This transformation should be completed by 2025.
Management is also working on introducing Cloud Infinity, the world’s first autonomous metropolitan cloud network.
Finally, StarHub plans to create a new platform called a data lake which can allow for data-driven business decisions by integrating existing platforms and customer data.
The multiple initiatives should see StarHub slowly evolve its business model and cut down on expenses to enable the organisation to emerge leaner.
Recent initiatives
Apart from DARE+, StarHub has also announced several recent business initiatives.
Earlier this month, the telco signed a memorandum of understanding with the National University of Singapore to roll out a 5G trial for students and staff.
The goal is to deploy a high-grade 5G network on campus so that staff and students will not need to use a virtual private network (VPN) to secure remote access.
This trial will last till the middle of 2025 and if successful, StarHub will expand the service to all 40,000 students and 12,000 staff.
Also in July, StarHub forged a partnership with ServiceNow (NYSE: NOW) to launch a new platform for enterprise service management.
This partnership will allow StarHub’s enterprise and government customers to automate routine tasks using the telco’s Cloud Infinity platform.
By doing so, StarHub helps its clients to streamline operations, enhance efficiency, and improve service delivery.
Get Smart: A good chance for higher dividends
With so much going on at StarHub, it’s easy for investors to feel overwhelmed.
The good news is that these initiatives should bear fruit for the telco as it seeks to evolve its business model while forging partnerships with leading organisations.
The results are showing in its latest financials and if this momentum continues, there is a good chance that the telco can increase both its profits and dividends for 2024.
Attention: Investors aiming for both growth and peace of mind. We’ve pinpointed 5 SGX stocks known for consistent dividends. If you want to build a retirement portfolio, but don’t want the stress of stock watching, this report is for you. Click HERE to download now.
Follow us on Facebook and Telegram for the latest investing news and analyses!
Disclosure: Royston Yang does not own shares in any of the companies mentioned.
