StarHub’s new CEO Nikhil Eapen pushes ahead with growing its enterprise business while stemming losses in its consumer business
Nikhil Eapen is leading StarHub at a time when the telco is facing challenges on multiple fronts. Its once profitable cable TV business is being disrupted by the likes of Netflix and Hulu. Meanwhile, roaming revenue from its mobile business had all but vanished as Covid-19 shut down global travel while its staid broadband business remains precisely just that: Staid.
However, these challenges did not happen at Eapen’s watch. In fact, attempts by Eapen’s predecessor Peter Kaliaropoulos to cut costs and slash dividends were well underway to stem the slide.
Unfortunately, Kaliaropoulos was barely into his three-year turnaround plan when an unforeseen medical emergency in the family forced him to quit. Eapen, previously deputy CEO at ST Telemedia, was given the top job with effect from Jan 1.
If Eapen has his way, the tempo of activities will pick up as he aims to not only reverse the slide but inject new growth into the company. “It has been pretty action-packed and there will be much more to come over the coming year,” Eapen tells The Edge Singapore in his first media interview.
All eyes on 5G transformation race
Before joining ST Telemedia, Eapen spent the bulk of his previous career as an M&A banker with Citi. There, the former naval diver in the Singapore Armed Forces helped regional clients in the telecommunications, media and technology sector seal the best deals.
Now, as the 5G race gathers momentum in the telco sector, the next-generation high-speed mobile network technology is expected to offer more than speedier downloads of videos for consumers. Rather, the big battle will be in the enterprise space where business users are promised new ways of using 5G to function more efficiently. This is the significantly new environment Eapen will have to operate in.
Previously, Kaliaropoulos had told The Edge Singapore that the group was focused on growing its enterprise segment because of cutthroat competition in the consumer segment. With little to differentiate between rivals, telcos like Singapore Telecommunications (Singtel) and itself had no choice but to offer a buffet spread of subscription plans to defend market share, including some very low-cost options.
Eapen says Kaliaropoulos’ decision to shift its focus was “absolutely right”. “Trying to constantly compete with the same narrowly defined templates is frankly a game I am personally tired of playing. I think we would like to change the game by not competing for average revenue per user (ARPU) but instead evolve with consumers in a way that enriches their lives.”
This was evident in StarHub’s latest FY2020 ended December 2020 results where the enterprise segment was the only one that saw revenue growth. Overall, revenue grew by 12.2% y-o-y to $645.5 million, mainly due to higher revenues from the cybersecurity services and the consolidation of Strateq under its regional ICT services division, following the completion of its acquisition in July 2020.
With Eapen now leading the charge, he is determined to fulfil his predecessor’s dream and complete the telco’s transformation journey.
“There was a roadmap set in place well before I arrived and I want to accelerate it and lend some aspiration to it. There are some areas I have spent time on in my prior life and I hope that will give me a little more vantage point,” says Eapen, referring to his previous role in ST Telemedia.
In short, Eapen’s objectives for the enterprise segment are to latch on to secular tailwinds such as cloud technology, 5G and Internet of Things (IoT) that are all interlinked.
“What we want to make available to our enterprise customers is: Take our network, virtualise it, define it with software and use it for your own benefit and manage your own transformation securely. For us, it is all about defining our network, making it available to customers, empowering them to use our network in an agile way for their own transformation,” explains Eapen, adding that the enterprise segment is an area “that is primed for growth”.
However, he is aware that the enterprise segment, while showing better growth promise, is one that fetches lower margins compared to the consumer business due to the different nature of the markets.
“In the enterprise business, you are effectively working with companies to serve their customers. There is a higher degree of complexity, there is a longer and more involved supply chain, and a longer sales cycle,” Eapen explains.
“There is always an aggregation element with third-party software and hardware to run professional services for implementation. So, when you put all of those things together, it does lead to lower margins. But it is what it is,” says Eapen, who adds it is something the group will just have to deal with.
Renewed focus on consumer sector
While StarHub aims to grow its enterprise segment, the telco is certainly not giving up on the consumer segment even though it is facing multiple headwinds.
In its latest 4QFY2020 ended December 2020 results, StarHub saw a loss of some 40,000 mobile subscribers while competitors like Singtel and TPG saw an increase in mobile subscribers. In tandem, StarHub’s mobile segment saw a 24.3% y-o-y decline in revenue to $579.9 million. Meanwhile, PayTV revenue dropped 24.2% y-o-y to 187.9 million and broadband revenue remained unchanged at $176.1 million.
The drop in mobile revenue was mainly due to the halt in international travels due to the pandemic. While nothing much can be done at the moment, Eapen already has plans in motion to win back local consumers.
Although StarHub no longer enjoys the stable and highly profitable consumer business where multi-year contracts led to higher free cash flow and generous dividend payouts for shareholders, more opportunities to regain market share and tighten its grip in the consumer segment have opened up.
“The consumer segment is still a big focus for us. As you know, we are transforming every part of our business and consumer is also very much at the core of that. But now, we try to think of our consumer business less along the traditional lines that we did before,” he says. “We are focused on delivering connectivity, content and leisure products,” adds Eapen.
In terms of connectivity, every flavour of mobile plan is available at StarHub, from non-contract prepaid plans to contract postpaid plans and SIM-only plans. The group also offers broadband subscriptions for home and enterprise use.
Going forward, StarHub is more looking to boost its PayTV segment by shifting from a linear TV platform to over-the-top (OTT) products, with multiple streaming content. Most recently, StarHub managed to snag the exclusive distributorship for Disney+, the latest movie streaming platform. “There is terrific economic value for our subscribers. They don’t just get Disney+ but also a whole bunch of other networks with eight other streaming content services. There is a network proposition and Disney+ is going to be available on StarHub’s TV+ platform but it is also going to be available and is available as part of our Mobile+ plans. And when we bring in 5G, it will bring about a much more enriching customer experience,” says Eapen.
Making the call
On the whole, analysts are “neutral” on StarHub as they await a more stable outlook before they turn positive. In an April 6 report, RHB Group Research has kept its “neutral” rating on StarHub with an unchanged target price of $1.38.
RHB expects StarHub’s earnings to remain under pressure from its IT transformation exercise, cost normalisation, and extended roaming and IDD weakness. RHB projects FY2021 core earnings to fall by 16% before recovering in FY2022 by some 10% from the rebound in mobile revenue. Mobile revenue in 1QFY2021 is expected to drop by 20%– 25% y-o-y, due to continued roaming, IDD and prepaid weakness as travel restrictions have been extended. This pressure is likely buffered by stable postpaid ARPU from the take-up of Mobile+ plans (launched in August 2020) but partly offset by a higher proportion of SIM-only plans.
“We expect its enterprise business to remain the fastest-growing segment with FY2020–2022 CAGR of 13%,” says RHB. This should be driven by the resumption in customer spending after projects were deferred earlier due to the pandemic, supported by stronger GDP outlook for 2021, stronger demand for cybersecurity and cloud computing from digitalisation initiatives, and higher adoption of 5G enterprise use cases.
Maybank Kim Eng too has kept its “hold” call on StarHub with a lower target price of $1.25 compared to $1.32 previously. Analyst Kareen Chan notes that StarHub’s outlook is stabilising as it has seen encouraging uptake of its higher-priced 5G plan, driven by the launch of popular 5G premium handsets.
The group has also seen a gradual resumption of business activities and its managed services segment has seen a recovery in the order book as enterprise customers commit to strategic initiatives in FY2021 and beyond.
On a more positive note, CGS-CIMB is recommending investors “add” StarHub with a target price of $1.60. Although lead analyst Foong Choong Chen notes that FY2020 dividend was a miss and mobile service revenue continues to suffer due to the ongoing pandemic, he is positive about the group’s push towards growth in its enterprise segment, especially its cybersecurity business, which included newly acquired Strateq’s maiden full-year contribution.
Looking ahead, Eapen admits that several uncertainties still loom in the industry, especially surrounding the Covid-19 pandemic situation. Instead of obsessing over it, he would rather focus on growing the company and delivering a better customer experience. \
As at April 6, shares in StarHub are trading at $1.31, unchanged from the start of the year, giving it a market capitalisation of $2.27 billion. Eapen does not have any share price goals for StarHub nor is he gunning to reclaim StarHub’s spot on the Straits Times Index, from which it was ousted back in September 2018 and replaced by Dairy Farm International.
“We are on a very exciting journey that started before I was here. Every day, we continue to transform the company bit by bit, focusing more on our business goals. And hopefully, the rest will come as it may,” says Eapen, who can expect his work to be cut out for him.
