SINGAPORE: Shares of StarHub closed at a four-month high on Thursday (Oct 4), a day after the telco announced that it was retrenching 300 employees under a company transformation plan.
The counter surged 4.3 per cent to end the day at S$1.95, its highest level since Jun 4. It outperformed the broader Straits Times Index, which lost 1.1 per cent to end the trading day at 3,231.59.
In a media release issued on Wednesday evening, the telco announced a “strategic transformation plan” to focus on and invest in new businesses, such as its recently created cybersecurity company, and digitalisation initiatives.
The move was described by CEO Peter Kaliaropoulo as necessary amid “inevitable pressures from intense local competition and adverse industry trends”.
StarHub also said that it has initiated an “operational efficiency programme”, which will see it axe 300 of its 2,500 full-time employees. It added that the workforce reductions will primarily affect non-customer facing positions.
The overall transformation programme is expected to realise S$210 million in savings over a three-year period from 2019. Apart from workforce reduction, it is also targeting savings in areas like procurement activities, leasing costs, network and systems repairs and maintenance, as well as sales and distribution.
While there will be an approximate S$25 million one-off restructuring cost, StarHub has said that will not have any impact on its earnings guidance for FY2018.
CGS-CIMB analyst Foong Choong Chen said the announcement did not come as a surprise as Mr Kaliaropoulo had mentioned in mid-August that more details about the company’s transformation plan would come in the third quarter.
Describing Wednesday’s announcement as “positive”, Mr Foong noted that the cost savings are “rather sizeable” and that the newly minted chief executive is “tracking closely with his execution timeline as guided to investors”.
“Execution on the transformation plan is now key to delivering the cost savings, as well as ensuring they are not masked by cost incurred to pursue new revenue opportunities. Key risk to this announcement is that staff layoffs may attract regulatory (or) government scrutiny, as well as, possibly dent staff morale” he added in a note.
Upgrading the stock to a “buy” with a target price of S$2.45, DBS Group Research analyst Sachin Mittal said: “We conservatively model S$175 million in savings after factoring in costs related to growth initiatives, with savings of S$40 million, S$55 million and S$80 million in FY2019, FY2020 and FY2021."
“StarHub's earnings may stabilise now and resume growth from FY2021 onwards as we see sector consolidation in two to three years due to a weak business case for TPG,” he added, referring to Australia-based TPG Telecom which is planning to enter the Singapore market.
Year-to-date, StarHub shares have plummeted more than 30 per cent, with the counter hitting a record low of S$1.61 in June, as earnings remained on a downward trend and amid news that it will no longer be screening offerings from the Discovery brand after an impasse in negotiations.
StarHub was also dropped from the benchmark STI following the quarterly index review last month.