Starhub

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(07-08-2014, 09:47 PM)specuvestor Wrote: Starhub is a very interesting extreme case study on debt structure

Indeed they can repay their debt in 1.5 years if they choose not to pay dividends. In that case their equity will jump and debt goes to zero. ROE plunges while PE slides

Obviously the company is a cashcow that will not collapse. But will the share price collapse?

Asset and business didnt change but the structure change and shareholders are affected nonetheless

Or take the middle path and use ½ the FCF to retire debt instead of dividends to save interest cost. After 3 years go debt free. Will that be better for shareholders?

It's going to be a very difficult decision for starhub to make if they want to take the bold step of cutting or drastically reducing dividends. Their share price may plunge and the CEO would be under tremendous pressure and his (plus others) options may be underwater. As it is, things are not looking good. If I were a long term investor of starhub, I would prefer them to take the middle path. Their dividend strategy of driving the share price higher has turned them into a 'dividend junkie'.
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(06-08-2014, 02:16 PM)Stecano Wrote:
(06-08-2014, 12:24 PM)specuvestor Wrote: Starhub has negative consolidated reserve due to goodwill in SCV. That's why on a holding company basis it looks ok.

Since our discussion below, IMHO it is clear the moat is slowly but surely eroding.

On cashflow basis we also have to be very careful as the dividend payment depends on no surprises on the FCF as it is very tight so no margin of error. Stecano should also understand that FCF is different from Earnings.

Yes I'm learning that FCF is different from earnings. Indeed I'm glad I came across this website and learn from many of the helpful folks here.
Interesting though, if I use FCF instead of earnings, this is going to be even more stressful for Starhub as their DPS is higher than FCF and could be in that state from 2009 to 2013. That makes me wonder how long can their share price maintain. It is getting more and more difficult for them to keep up with their high dividends. And if they stick to it without growing their income, their retained earnings is going to continue to get worse.
Retained Earnings is a very tricky item to look at by itself only.
Why? Here's why:-

Retained Earnings on the Balance Sheet
Investing Lesson 3 - Analyzing a Balance Sheet
Joshua Kennon

When a company generates a profit, management has one of two choices: They can either pay it out to shareholders as a cash dividend, or retain the earnings and reinvest them in the business. That reinvestment may be used to fund acquisitions, build new factories, increase inventory levels, establish larger cash reserves, reduce long-term debt, hire more employees, start a new division, research and develop new products, buy common stock in other businesses, purchase equipment to increase productivity, or a host of other potential uses.
When the executives decide that earnings should be retained, they have to account for them on the balance sheet under shareholder equity. This allows investors to see how much money has been put into the business over the years. Once you learn to read the income statement, you can use the retained earnings figure to make a decision on how wisely management is deploying and investing the shareholders' money. If you notice a company is plowing all of its earnings back into itself and isn't experiencing exceptionally high growth, you can be sure that the stock holders would be better served if the board of directors declared a dividend.
Ultimately, the goal for any successful management is to create $1 in market value for every $1 of retained earnings. Any business that insisted upon keeping the profit that belonged to you, the owner, without ever sending funds to you in the form of a dividend or increasing your own wealth through higher capital gains is not going to have much utility. Investing is about putting out money today for more money in the future. No rational personal would continue to hold a stake in a corporation that never permitted any of the rewards to flow through to the stockholder.

Retained Earnings Examples from Real Companies
Let's look at an example of retained earnings on the balance sheet:

• Microsoft has retained $18.9 billion in earning over the years. It has over 2.5 times that amount in stockholder equity ($47.29 billion), no debt, and earned over 12.57% on its equity last year. Obviously, the company is using the shareholder's money very effectively. With a market cap of $314 billion, the software giant has done an amazing job.

• Lear Corporation is a company that creates automotive interiors and electrical components for everyone from General Motors to BWM. As of 2001, the company had retained over $1 billion in earnings and had a negative tangible asset value of $1.67 billion dollars! It had a return on equity of 2.16%, which is less than a passbook savings account. The company is astronomically priced at 79.01 times earnings and has a market cap of $2.67 billion. In other words: Shareholders have reinvested a billion dollars of their money back into the company and what have they gotten? They owe $1.67 billion.1 That is a bad investment.
The Lear example deserves a closer look. It is immediately apparent that shareholders would have been better off had the company paid out its earnings as dividends. Unfortunately, the economics of the company are so bad had the profits been paid out, the business probably would have gone bankrupt. The earnings are reinvested at a sub par rate of return. An investor would earn more on the earnings by putting them in a CD or money market fund then by reinvesting them into the business.
1) You may be wondering how the company has a supposed book value of $23.77 per share, and yet the shareholders owe a billion and a half dollars. If you look at Lear's balance sheet, you will notice it shows shareholder equity of $1.6 billion and tangible assets of -1.665 billion. This doesn't look as horrible as it is until you discover $3.27 billion of the assets on the company's balance sheet consist of goodwill. The shareholders' equity is being inflated by the goodwill figure - without it, the shareholders are left owing money to the company's creditors.
NB:-
So until someone does a complete analysis of STAR HUP what is the use at looking at the retained earning of STAR HUP or any company for that matter?

Additional:-

Is Retained Earnings real cash (balance)?

Retained earnings are the sum of a company's profits, after dividend payments, since the company's inception. They are also called earned surplus, retained capital, or accumulated earnings.
How it works/Example:
Let's assume Company XYZ has been around for five years. During this time, it reported the following net income:
Year 1: $10,000
Year 2: $5,000
Year 3: -$5,000
Year 4: $1,000
Year 5: -$3,000
Assuming Company XYZ paid no dividends during this time, XYZ's retained earnings equal the sum of its net profits since inception, or in this case, $8,000. In subsequent years, XYZ's retained earnings will change by the amount of each year's net income, less dividends.
The retained earnings statement summarizes changes in retained earnings for a fiscal period, and total retained earnings appear in the shareholders' equity portion of the balance sheet. This means that every dollar of retained earnings means another dollar of shareholders' equity or net worth.
A company's board of directors may appropriate some or all of the company's retained earnings when it wants to restrict dividend distributions to shareholders. Appropriations are usually done at the board's discretion, although bondholders and other circumstances may contractually require the board to do so. Appropriations appear as a special account in the retained earnings section. When an appropriation is no longer needed, it is transferred back to retained earnings. Because retained earnings are not cash, a company may fund appropriations by setting aside cash or marketable securities for the projects indicated in the appropriation.
Why it Matters:
It is important to understand that retained earnings do not represent surplus cash or cash left over after the payment of dividends. Rather, retained earnings demonstrate what a company did with its profits; they are the amount of profit the company has reinvested in the business since its inception. These reinvestments are either asset purchases or liability reductions.
Retained earnings somewhat reflect a company's dividend policy, because they reflect a company's decision to either reinvest profits or pay them out to shareholders. Ultimately, most analyses of retained earnings focus on evaluating which action generated or would generate the highest return for the shareholders.
Most of these analyses involve comparing retained earnings per share to profit per share over a specific period, or they compare the amount of capital retained to the change in share price during that time. Both of these methods attempt to measure the return management generated on the profits it plowed back into the business. Look-through earnings, a method that accounts for taxes and was developed by Warren Buffett, is also used in this vein.
Capital-intensive industries and growing industries tend to retain more of their earnings than other industries because they require more asset investment just to operate. Also, because retained earnings represent the sum of profits less dividends since inception, older companies may report significantly higher retained earnings than identical younger ones. This is why comparison of retained earnings is difficult but generally most meaningful among companies of the same age and within the same industry, and the definition of "high" or "low" retained earnings should be made within this context.

Hope the article is informative and enjoyable.
Shalom.
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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(06-08-2014, 02:41 PM)opmi Wrote: Just a comment on Starhub Rewards Program. It is getting devalued. No more offset of services.
Probably Lim TH stressed on maintaining Starhub ARPU.

But you still can do a bill rebate. So a case of same same but different.

What is different is that you can redeem a few months of service offset and used your reward pts at one go.

Now you can only redeem 1 bill offset per billing cycle. So if you have a chunk of reward pts to redeem, you better do it progressively and dun wait until the month it expires.

I made that mistake and in the end has to redeem for things which I would normally not have redeem.
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Kim Eng analyst report on the company, rating HOLD and TP $4.44

--------
Mobile star dimming
 2Q14 results below, revenue guidance cut. Downgrade our least preferred telco to HOLD from BUY. TP cut to SGD4.44 (DCF, WACC 7.8%).
 Sharp slowdown in mobile revenue growth as fall in voice/SMS offset data growth.
 Broadband’s revenue free fall unlikely to end soon.
http://remisiers.org/cms_images/research...tarhub.pdf
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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Was wondering why so much time being spent analysis a fixed income type of business?

If Starhub is trading half the price, may be worth spending time but now that it is trading at near all-time highs, I think better quality of time should be spent looking at other counters...

Vested
Long Term Investment
GG

(08-08-2014, 08:57 PM)CityFarmer Wrote: Kim Eng analyst report on the company, rating HOLD and TP $4.44

--------
Mobile star dimming
 2Q14 results below, revenue guidance cut. Downgrade our least preferred telco to HOLD from BUY. TP cut to SGD4.44 (DCF, WACC 7.8%).
 Sharp slowdown in mobile revenue growth as fall in voice/SMS offset data growth.
 Broadband’s revenue free fall unlikely to end soon.
http://remisiers.org/cms_images/research...tarhub.pdf
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(08-08-2014, 09:40 PM)greengiraffe Wrote: Was wondering why so much time being spent analysis a fixed income type of business?

If Starhub is trading half the price, may be worth spending time but now that it is trading at near all-time highs, I think better quality of time should be spent looking at other counters...

Vested
Long Term Investment
GG

(08-08-2014, 08:57 PM)CityFarmer Wrote: Kim Eng analyst report on the company, rating HOLD and TP $4.44

--------
Mobile star dimming
 2Q14 results below, revenue guidance cut. Downgrade our least preferred telco to HOLD from BUY. TP cut to SGD4.44 (DCF, WACC 7.8%).
 Sharp slowdown in mobile revenue growth as fall in voice/SMS offset data growth.
 Broadband’s revenue free fall unlikely to end soon.
http://remisiers.org/cms_images/research...tarhub.pdf

Why long-term investment leh? How long is long-term?
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
Reply
(08-08-2014, 09:51 PM)Temperament Wrote:
(08-08-2014, 09:40 PM)greengiraffe Wrote: Was wondering why so much time being spent analysis a fixed income type of business?

If Starhub is trading half the price, may be worth spending time but now that it is trading at near all-time highs, I think better quality of time should be spent looking at other counters...

Vested
Long Term Investment
GG

(08-08-2014, 08:57 PM)CityFarmer Wrote: Kim Eng analyst report on the company, rating HOLD and TP $4.44

--------
Mobile star dimming
 2Q14 results below, revenue guidance cut. Downgrade our least preferred telco to HOLD from BUY. TP cut to SGD4.44 (DCF, WACC 7.8%).
 Sharp slowdown in mobile revenue growth as fall in voice/SMS offset data growth.
 Broadband’s revenue free fall unlikely to end soon.
http://remisiers.org/cms_images/research...tarhub.pdf

Why long-term investment leh? How long is long-term?

Bought at low $2, CPF no more available funds (still owing CPF investment amount) - lucky pick right counter with strong cashflow to better CPF minimum rate.

HU8TPPY
GG
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(08-08-2014, 09:40 PM)greengiraffe Wrote: Was wondering why so much time being spent analysis a fixed income type of business?

If Starhub is trading half the price, may be worth spending time but now that it is trading at near all-time highs, I think better quality of time should be spent looking at other counters...

Vested
Long Term Investment
GG

(08-08-2014, 08:57 PM)CityFarmer Wrote: Kim Eng analyst report on the company, rating HOLD and TP $4.44

--------
Mobile star dimming
 2Q14 results below, revenue guidance cut. Downgrade our least preferred telco to HOLD from BUY. TP cut to SGD4.44 (DCF, WACC 7.8%).
 Sharp slowdown in mobile revenue growth as fall in voice/SMS offset data growth.
 Broadband’s revenue free fall unlikely to end soon.
http://remisiers.org/cms_images/research...tarhub.pdf

I am kind of puzzle with your statement. Seems like your view is "since i buy low, i can continue be vested". Shouldn't it be based on today price to justify hold or not else you are in the opinion that losing the capital gained does not matter ?

Just my Diary
corylogics.blogspot.com/


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(08-08-2014, 10:07 PM)corydorus Wrote:
(08-08-2014, 09:40 PM)greengiraffe Wrote: Was wondering why so much time being spent analysis a fixed income type of business?

If Starhub is trading half the price, may be worth spending time but now that it is trading at near all-time highs, I think better quality of time should be spent looking at other counters...

Vested
Long Term Investment
GG

(08-08-2014, 08:57 PM)CityFarmer Wrote: Kim Eng analyst report on the company, rating HOLD and TP $4.44

--------
Mobile star dimming
 2Q14 results below, revenue guidance cut. Downgrade our least preferred telco to HOLD from BUY. TP cut to SGD4.44 (DCF, WACC 7.8%).
 Sharp slowdown in mobile revenue growth as fall in voice/SMS offset data growth.
 Broadband’s revenue free fall unlikely to end soon.
http://remisiers.org/cms_images/research...tarhub.pdf

I am kind of puzzle with your statement. Seems like your view is "since i buy low, i can continue be vested". Shouldn't it be based on today price to justify hold or not else you are in the opinion that losing the capital gained does not matter ?

I have to stay invested with my CPF holdings. I can easily sell but money in CPF only earns 2.5% so it turned a good problem holding so long as Starhub pays 20 cents. Anyway, in another 3-4 years, my investment will be free so no worries.

Hence, for forced circumstances, the choice of the vehicle is extremely important.
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[/quote]
(08-08-2014, 04:08 PM)Temperament Wrote: Retained Earnings is a very tricky item to look at by itself only.
Why? Here's why:-

Retained Earnings on the Balance Sheet
Investing Lesson 3 - Analyzing a Balance Sheet
Joshua Kennon

Why it Matters:
It is important to understand that retained earnings do not represent surplus cash or cash left over after the payment of dividends. Rather, retained earnings demonstrate what a company did with its profits; they are the amount of profit the company has reinvested in the business since its inception. These reinvestments are either asset purchases or liability reductions.


Hope the article is informative and enjoyable.
Shalom.

Temperament, thanks for sharing the extract. It's very informative.
My original question came about because I am learning how to read financial statements and I was comparing my singtel shares with that of starhub and m1. I use the data from poems stock analytics. In comparing the 3 telcos, it became obvious that starhub has several years of negative RE whereas m1 has a nice incremental RE. I agree RE should not be the one and only factor but I was curious whether investors are bothered by the string of -ve RE. I wonder if all the earnings go into paying dividends then how long more can that last?
I was then even more surprised to learn from the folks here that even worse, they don't even have sufficient FCF to cover the dividends. And we are not talking about 1 or 2 years. It's several years in a row. I did hear there are companies running in this mode for a long time but personally, I would ask myself, why don't look elsewhere? To be specific, I wasn't targeting starhub and it just turns out that starhub's RE stood out like a sore thumb amongst the 3 telcos. Although this factor alone may not form an investment decision but at least it would lead me to try and understand more (for my learning purposes). Anyway, once again, thanks for sharing the article.
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