SINGAPORE (Oct 4): Analysts are staying positive on StarHub, after the telco yesterday announced a strategic transformation review, which will include the laying off about 300 of its full-time staff.
Following the announcement, DBS Group Research has upgraded Starhub to “buy”, from “hold” previously. The brokerage has also increased StarHub’s target price to $2.45, from $1.42 previously.
Similarly, CGS-CIMB Research has upped its target price for StarHub by 15 cents to $2.00, and reiterates its “add” recommendation on the telco.
On top of the lay-offs, StarHub is targeting savings in procurement activities, leasing costs, rationalising spending in network and systems repairs & maintenance, and overall sales and distribution expenses.
It also said that ongoing natural attrition and tighter management of contractor roles will result in additional jobs being made redundant.
See: StarHub to lay off 300 employees as telco commences strategic review
“The programme is expected to realise $210 million in savings over a three-year period, across FY19-21,” says CGS-CIMB analyst Foong Choong Chen in a Wednesday report.
The resources will be directed instead to fund growth opportunities, and the group said that lower net savings will be realised, but no further guidance was provided.
However, the group is expecting to incur a one-off restructuring cost of about $25 million, which will include funding to support outplacement, training and coaching. This will not impact FY18 guidance.
“This was not entirely a surprise,” says Foong. “StarHub's CEO, Peter K, mentioned during a luncheon in mid-Aug that he would provide more details on the company’s strategic transformation programme in 3Q18.”
Nevertheless, the analyst views this announcement as positive, because the cost savings is not only quantified but also rather sizeable, averaging $70 million per annum. Foong also notes that StarHub’s new CEO is tracking closely with his execution timeline as guided to investors.
In a Thursday report, DBS analyst Sachin Mittal says: “StarHub has committed to pay out $277 million in annual dividends in FY18. However, we project 80% payout ratio from FY19F onwards versus 100% assumption earlier as StarHub should, ideally, retain some earnings to invest in new business opportunities.”
The analyst reckons that the group could see sales & distribution cost savings of about $20-30 million, with the use of digital chat as a customer care tool.
“Investing in digital distribution channels such as online shops and effective offline-to-online model, coupled with the use of data analytics, could lead to a 10- 15% reduction in distribution costs in our estimate,” adds Mittal.
As at 12.10pm, shares in Starhub are trading 6 cents or 3.21% higher at $1.93, giving it a FY19 price-to-book ratio of 29.1, with a dividend yield of 5.8%.
