StarHubs' earnings could shrink starting next year

Blame it on NBN-related grants coming to an end.

StarHub’s earnings have been cushioned by an estimated S$35-40m grant each year (~10-12% of group earnings) for National Broadband Network (NBN) as StarHub’s subsidiary is the Operating Company (OpCo) for NBN.

However, NBN-related grants are coming to an end over next 3-6 months, which may lead to earnings contraction from FY17F onwards, said DBS Group Research.

Nonetheless, Singapore's second largest telco operator can still continue to hinge growth from other earning drivers.

According to DBS Group Research, StarHub's mobile business is expected to perform better than its local peer M1.

Singapore’s incumbent mobile players slashed mobile data prices in March 2016 for postpaid users whereby effective monthly pricing for additional data is lowered by 25-50%. Also, voice and SMS revenue continue to decline due to structural shifts in the market.

This, coupled with the launch of SIM-only plans (no subsidised handsets), could result in slightly weaker top line but improved bottom line due to lower handset subsidies, said the research house.

Unlike M1, DBS Group Research said that StarHub benefits from slowing iPhone sales as it does not use fair value accounting.

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