Daiwa: StarHub’s earnings could get ‘wild’ as new accounting rules kick in

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StarHub could have a “wild reporting season” as new accounting standards are adopted, with some key metrics, such as average revenue per user (ARPU) potentially dropping, Daiwa said.

“While most of the changes are a result of timing, rather than permanent differences, in income recognition, we expect a material impact to some of the key metrics that analysts rely on (for example: service revenue and EBITDA margin),” Daiwa said in a note dated Friday. EBITDA is earnings before interest, taxes, depreciation and amortization.

“This effectively means analysts would face challenges in evaluating operators’ performances within both a historical and regional telecom context,” it said, pointing to rising uncertainty in interpreting Singapore telcos’ results, particularly for the first quarter.

Daiwa noted that StarHub had disclosed its EBITDA margin guidance for 2018 could rise by around 4-6 percentage points. But the telco hasn’t disclosed the service revenue impact, Daiwa said, but noted that based on rival M1’s disclosure that its 2017 service and total revenues could fall by 10.5 percent and 1.7 percent respectively, it estimated StarHub’s service revenue hit for 2017 could be higher than M1’s 10.5 percent.

StarHub told Shenton Wire that it briefed analysts on the impact of accounting rule changes only “on a broad basis,” without providing details beyond the EBITDA margin expectations.

ARPU could fall by around 38 percent from the current reported S$68 to S$42, due to changes how re-contract vouchers are allocated, Daiwa noted.

“In some ways this, perhaps, is a truer reflection of the revenue generated from the provision of services but still, for an investment community used to seeing high headline ARPUs, this could come as a shock,” Daiwa said.

While Daiwa said StarHub’s effort to explain the accounting changes is “commendable,” it doesn’t change the outlook.

“We continue to believe that the core business is facing significant structural challenges – due to new entrant threats in mobile and shifting consumer patterns in pay TV,” Daiwa said, keeping a Sell call.

The stock was down 0.44 percent at S$2.27 at 9:49 A.M. SGT on Tuesday.