StarHub's aggressive cost-cutting could yield $210m in savings: analyst

The telco will cut 300 employees to improve operational efficiency.

StarHub’s operational efficiency programme is expected to generate $210m in savings which could be used to finance further investments in information and communications technology (ICT) solutions, according to UOB Kay Hian (UOBKH), as the embattled telco tries to plug losses brought about by consecutive earnings decline.

The savings would largely be generated from streamlining StarHub’s organisational structure to make it leaner and more agile, said UOBKH analyst Jonathan Koh. StarHub would be downsizing its workforce by 12% and the one-off restructuring costs are said to be at $25m, whilst Koh estimated staff costs to be reduced 7.9% in 2019.

Also read: Embattled Starhub axes 300 employees amidst restructuring exercise

“StarHub is focused on consolidating its lead to establish itself as a clear number two in the Singapore market,” Koh said. The telco’s strategic transformation programme includes accelerating investments in ICT, digitalising initiatives to enhance customer experience and building wireless and fibre services to deliver content on any device to all customers. 

Other IT investments included StarHub’s masterplan to bounce back into the back include the goal of increasing contribution from enterprise customers from the current 40% to 50% of service revenue within a two-year period as well as the establishment of wireless and fibre services that will deliver content and applications on any customer device.

As a result UOBKH raised StarHub’s net profit forecast 15.3% for 2019, lifting StarHub’s target price to $2.30.

StarHub saw its Q2 revenues crash 22% to $63m which it attributed to a declining customer base and the increasingly competitive environment in Singapore’s telco market.

Also read: Heated telco wars drag StarHub Q2 profit 22% to $63m

Meanwhile, StarHub renewed its initiatives to restart talks for mobile infrastructure sharing with fellow troubled telco M1 under new CEO Peter Kaliaropoulos.

“We suspect StarHub could be talking to TPG Singapore and M1 on sharing of RAN and NetLink NBN Trust for sharing of backhaul transmission,” Koh said. “StarHub aims to reach a commercial agreement on network sharing by 2019.”

Koh lauds the possible collaboration as a positive development for the telco as network sharing which covers new coverage, additional capacity and network modernisation could yield savings in capital expenditure of up to 30%.

“Network sharing should be explored as it is inefficient for Singapore to have four duplicated 5G networks. Network quality has also become less of a differentiating factor. By collaborating, both companies benefit from the expanded coverage and capacity of a single shared infrastructure,” he added.