Financial Analysis Starhub

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Business Profile
SWOT Analysis
Strengths
Effective management team
Distinguished brand
Strong bargaining position with suppliers
Large customer base
Offers integrated services Weaknesses
Scaling operating costs
Market position relative to SingTel

Opportunities
New technologies
Changing customer preferences
Government initiatives (e.g. island-wide wi-fi access)
Changing network infrastructure (e.g. next-gen broadband network)Threats •Government regulations
Technological obsolescence
Changing customer preferences
Increasing competition (e.g. SingTel in cable TV market) •Growing market saturation
Economic recession that puts downward pressure on ARPU
Starhub Ltd is one of the stalwarts in the local telecommunications industry and a major player in the broader info-communications industry. Its competitors are MobileOne (M1) and Singapore Telecom (SingTel). The company officially arrived onto the telecommunications scene in early 2000; and was publicly listed in the Singapore stock exchange since October 2004.

Starhub's core business lies in the provision and operation of a broad range of info-communication services to both consumer and corporate customers such as mobile communications, subscription television, broadband connection, fixed network connection and sale of mobile-related equipment. Mobile communications is the primary contributor to Starhub's revenue stream.

Over the years Starhub has managed to deliver steady growth, by acquiring a larger customer base. Revenues from 2005 to 2008 have grown steadily year-on-year, at an average annual rate of 10.77%. Additionally, average revenue per user (ARPU) rates had also risen from $71 in 2005 to $75 in 2008. A lot of this success can be attributed to Starhub's innovative business strategy, management competence and distinctive branding. Starhub’s core strategy is centred on an innovation they developed in the local industry known as "hubbing". It refers to bundle offerings of their main services (broadband, cable TV, mobile etc) to consumers. Hubbing has also contributed significantly to Starhub's branding. Starhub has been synonymous with hubbing to consumers. In addition, its management's experience over the years with the execution of the hubbing strategy is expected to give them an edge over competitors who are trying to replicate their strategy. Financial Ratio Analysis

Liquidity Ratio Analysis
The industry generally has low current ratios; partly because companies carry low amounts of inventory. Excluding SingTel in FY2006 and FY2007, current ratios fall below one. Starhub’s current assets hovered around 50% of current liabilities, posing a concern of difficulty in meeting short-term obligations. Consequently, Starhub’s Net Working Capital (NWC) is negative for all three years. This is partly due to large cash outflows for investments in fixed assets and dividend payments to shareholders. Also, Starhub holds a high amount of trade payables in its composition for current liabilities. Possessing a negative NWC does not necessarily reflect badly on Starhub, as it could indicate a possible strategy, as Starhub is likely to have a greater bargaining position with its suppliers given the oligopolistic industry. In addition, Starhub’s current and quick ratios have been on a decline year-on-year in the three years reviewed. Fortunately, it has managed to improve its cash ratio from FY2006 to FY2008 while its peers have seen theirs decline.

Overall, relative to its SingTel, Starhub’s liquidity position is weaker. However, Starhub fares slightly better in comparison with M1. There are concerns about Starhub’s short-term solvency, yet despite low current ratios Starhub has an average interval measure of 98 days. Long-Term Solvency Ratio Analysis

Based on gearing ratios, Starhub has the highest leverage among the three telecom companies. FY2007 and FY2008 debt ratios were particularly high at 93%, due to...
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