StarHub upgraded to Buy by DBS after release of cost cut plan

StarHub retail store at Singapore’s VivoCity mall; taken September 2018.StarHub retail store at Singapore’s VivoCity mall.

DBS upgraded StarHub to Buy from Hold after the telco released a plan for “massive” cost cuts to stabilize earnings.

StarHub plans 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.

DBS said it was conservatively modeling S$175 million in savings over three years after factoring in costs for the telco’s growth initiatives. That would boost 2019, 2020 and 2021 earnings by 20 percent, 35 percent and 55 percent, respectively, it said.

“StarHub’s earnings may stabilise now and resume growth from 2021F onwards as we see sector consolidation in two to three years due to a weak business case for TPG,” the company which will be the fourth telco in Singapore’s market, DBS said in a note on Thursday.

DBS raised its target price for StarHub to S$2.45 from S$1.42

Shares of StarHub were up 3.74 percent at S$1.94 at 15:09 SGT.

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