Shares of StarHub climbed 3.21 percent to S$1.93 by 10:40 A.M. SGT on Thursday as the market reacted positively to the Singapore telco’s announcement on Wednesday that it planned to cut at least 300 full-time employees as part of its “strategic transformation.”
The job cuts and other measures aim to eliminate S$210 million in costs over a three-year period, the telco said in a statement on its website on Wednesday. The total number of job cuts could be higher due to natural attrition and tighter management of contractor roles, it said.
In addition, StarHub said the program will seek savings in procurement, leasing costs, “rationalizing” spending in network and system repairs and maintenance and in sales and distribution expenses.
CGS-CIMB said StarHub’s plan, while not completely a surprise, was a positive as the cost savings were both quantified and “rather sizeable,” as averaging out to around S$70 million a year.
It also showed that the new CEO, Peter Kaliaropoulos, who took over in July, has been closely tracking the execution timeline that had been guided to investors, CGS-CIMB said in a note on Thursday.
As a result of the announcement, CGS_CIMB lowered its staff cut assumptions, leading it to increase its 2019-20 core earnings per share forecasts by 8-11 percent, the note said. It raised its StarHub target price to S$2.00 from S$1.85, keeping an Add call.
But other analysts had some words of caution about StarHub’s plan.
“Business transformations are tricky,” Nomura said in a note on Thursday.
“Based on transformation plans seen at other regional telcos, we do not have many instances where the final results post transformation matched the initial objectives,” Nomura said. “Further, market structure would keep changing as well and the cost savings may have to be utilised to manage competition risks.”
Nomura added that it wasn’t clear how management planned to address the headwinds in mobile, pay TV and broadband, which would be important for revenue growth amid cost and competition pressure.
“Recent expansion plans on enterprise should result in better revenue synergies from this business. However, margins are low and earnings contribution may not be material yet,” Nomura said.
Nomura raised its rating on StarHub to Neutral from Reduce, but trimmed its target price to S$1.95 from S$2.00.
StarHub has faced numerous headwinds in its core businesses in recent years. Its pay TV segment has come under pressure from new competitors, such as Netflix, leading subscribers to cut the cord on cable.
In the key mobile division, it has faced declining voice and data revenue as well as more competition from mobile virtual network operators (MVNOs). A fourth mobile operator, TPG, is expected to launch service in Singapore by the end of the year.