You are here

Hot stock: Shares in StarHub up 4.8% as telco cuts 300 jobs

colin-sh2-3.jpg
Shares in StarHub rose in early trading on Thursday morning after the telco confirmed that it was cutting over 10 per cent of its staff amid industry woes.

SHARES in StarHub rose in early trading to as high as S$1.96 - up 4.8 per cent - on Thursday morning after the telco confirmed that it was cutting over 10 per cent of its staff amid industry woes.

At 9.40am, the counter was trading at S$1.92, up five cents or 2.7 per cent from Wednesday's close, with some 4.15 million shares having changed hands. 

StarHub is expected to reap S$210 million in cost-savings from a three-year period starting 2019 as it slashes 300 jobs. It currently has some 2,500 full-time employees.

Upgrading the stock to a "buy" with a target price of S$2.45, DBS Group Research analyst Sachin Mittal wrote in a research note: "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." Australia's TPG Telecom is poised to enter the market as the fourth telco operator in Singapore.

sentifi.com

Market voices on:

Meanwhile, OCBC Investment Research maintained its "hold" rating and fair value price of S$1.65 for now. Analyst Joseph Ng noted that net savings from the cost cutting will be lower than S$210 million as the group will be redirecting resources to fund growth opportunities.

CGS-CIMB, which has an "add" rating on the stock, upgraded its target price from S$1.85 to S$2. Analyst Foong Choong Chen described the cost-savings as rather sizeable, and noted that StarHub's new chief executive Peter Kaliaropoulos was keeping to execution timelines on the group's strategic transformation programme as guided to investors. He added: "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."

RHB is neutral on the counter, maintaining a target price of S$1.78. "We estimate that the one-off (restructuring) cost (of S$25 million) could shave 3 per cent off FY18 Ebitda (earnings before interest, tax, depreciation and amortisation), all else being equal," RHB said in a note. "This should not impact StarHub's guidance for the full year."

While cost savings of S$70 million per year from FY2019 could potentially lift its core earnings forecasts by 8-9 per cent for FY2019-20, for now it is not making changes to its forecasts. It projects that core earnings will decline by 19 per cent and 13 per cent in FY2018 and FY2019 respectively owing to stiff competition in the market.

StarHub's new chief Mr Kaliaropoulos, who took the reins in July, stressed that the restructuring was necessary given industry headwinds such as intense competition in the industry, the entry of new players, thinner broadband margins as well as higher content costs for pay television.