Daiwa: StarHub cost focus a positive amid headwinds

StarHub billStarHub bill

Singapore telco operator StarHub’s focus on changing its cost models is a positive amid challenging “market realities,” Daiwa said after a meeting with newly appointed CEO Peter Kaliaropoulous.

StarHub said it was working to change its cost structure amid “dwindling pay TV customer base, shifting consumer and technology trends, and intensifying mobile competition,” Daiwa noted in a research note on Tuesday on the meeting takeaways.

“Significantly, the company is currently examining various alternative business models for its pay TV division, whose economics are severely challenged by regulations and the rise of alternative viewing platforms like Netflix,” Daiwa said. “If executed well, we think its costs transformation plans could help buffer the company’s medium-term earnings from likely escalation in competition in the mobile industry.”

Earlier this month, StarHub reported its second quarter net profit fell 22.8 percent on-year to S$61.7 million, despite a revenue increase, as the contribution from the higher-margin mobile segment decreased.

Additionally, StarHub said it was working to improve the customer experience as a way to differentiate itself from the competition, the note said.

“The CEO observed that while the company has been a customer-focused organisation even in the past, the consistency of experience was a bit uneven (for example: in areas like delivering SIM cards to customers at home, like the more nimble peers),” Daiwa said. “To rectify this aspect, the company intends to ‘digitise’ its internal processes and promote ‘self-service’ options in a big way.”

Daiwa also noted that StarHub didn’t plan to invest heavily in 5G unless the use cases, which the CEO said weren’t very evident yet, make it a compelling proposition.

It kept a Hold call with a S$1.72 target price, noting that its dividend per share forecast of S$0.10 for 2019-20 was 16-18 percent below consensus.

“We are more bearish than the market on the company’s earnings outlook. However, we believe this outlook is largely discounted,” Daiwa said.

The stock ended Tuesday down 0.60 percent at S$1.65; the market was closed on Wednesday for a holiday.

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