Cybersecurity venture props up struggling StarHub as losses narrow
However, the segment remains loss-making.
StarHub’s cybersecurity business was the lone bright spot of its dismal Q2 performance after losses from the segment narrowed to $0.8m from a massive $11.4m loss booked in the previous quarter, according to analysts.
The absence of one-off costs related to the Ensign joint venture and set-up costs have already been recognised in Q1. RHB says in a report that management expects the business to break even by the end of the year fuelled by domestic and regional demand.
“Despite acceleration of revenue, StarHub expects cybersecurity losses to be sustainable and not bounce back to the levels seen over 1Q19,” DBS analyst Sachin Mittal said in a report.
DBS notes that robust growth in the cybersecurity segment propelled growth in fixed services, leading to a 15% YoY expansion in the unit.
In Q2, StarHub profits crashed 36.1% to $39.5m from $61.7m in the same period last year and revenue fell 7.4% to $552.8m over the same period.
However, StarHub cannot rely solely on its cybersecurity business to make up for its faltering business lines given that the segment is still loss-making and ‘may not materially contribute to the bottomline in the near term’, warned Mittal. “Cyber-security security is the only segment growing but is a razor thin-margin business if profitable,” he added.
He added that savings from the firm’s aggressive cost cutting programme is unlikely to yield tangible results as savings are reinvested into the business. “Whilst StarHub offers an attractive 6% FY19F yield, the sustainability of the current yield remains questionable with ongoing pressure on the bottom line, ~$282m payment due over FY20F for the 700MHz spectrum and high leverage of 1.64x net debt to trailing twelve month EBITDA,” he said.
“We keep our FY19E earnings estimate, but cut our forecast for FY20 by ~5.1% and reduce our terminal growth assumption from 1.5% to 1.25% as we adopt a more conservative posture, given how headwinds remain unabating,” OCBC Investment Research said in a separate report.