StarHub shares jump as analysts upgrade on plan to cut jobs

Analysts upgraded their ratings after the mobile-phone company announced a plan to cut its workforce by about 12 per cent or some 300 employees.
Analysts upgraded their ratings after the mobile-phone company announced a plan to cut its workforce by about 12 per cent or some 300 employees.PHOTO: ST FILE

SINGAPORE (BLOOMBERG) - StarHub shares surged on Thursday (Oct 4) as at least two analysts upgraded their ratings after the mobile-phone company announced a plan to cut its workforce by about 300 employees.

Singapore's second-largest network operator will undertake a "strategic transformation plan" that is expected to save $210 million over a three-year period from 2019, it said in a statement after the market's close Wednesday. Most of the cuts will be in non-customer facing functions, and represent about 12 per cent of the company's 2,541 permanent employees as of the end of last year.

The shares rose by as much as 4.8 per cent in early Singapore trading $1.96, their highest intraday level since June 5. They closed up 8 cents or 4.3 per cent at $1.95.

Analysts at DBS Group Holdings and Nomura Holdings upgraded the stock to buy and hold ratings respectively on Thursday.

The move comes less than a week after two shareholders of M1, the smallest of Singapore's three mobile-phone operators, offered to buy shares they didn't already own in the company. Singapore will soon see the entry of a fourth wireless operator - despite a population that is just 0.4 per cent the size of China's - giving the Southeast Asian nation a larger number of carriers than the world's biggest mobile-phone market.

"This is far bigger savings than my expectations," DBS analyst Sachin Mittal said in an email. "The magnitude of cost savings is large enough to stabilize StarHub's earnings over 2018-21 despite the entry of TPG in 2019. In fact, StarHub's earnings can resume growth post sector consolidation in 2-3 years as the business case for TPG is very weak in our view."

Mittal also raised his 12-month share price target by 73 per cent to $2.45.

As of Wednesday's close, StarHub shares were down about 36 per cent since December 2016, when Australia's TPG Telecom won a bid to become the industry's fourth mobile-network operator. It recorded the largest decline among the city-state's three mobile-phone companies.

"The key takeaway is that the telcos are really accelerating their transformation strategy," said Joel Ng, an analyst at KGI Securities (Singapore) Pte. The projected savings at StarHub could help boost its annual earnings by about 30 percent, he said.

In addition to job cuts, the company will also save costs in areas including procurement, leasing, network spending, systems repairs, and sales and distribution.

Chief Executive Officer Peter Kaliaropoulos cited "intense competitive ferocity right across the market," new entrants, reduced voice revenues, and high market penetration among reasons for the transformation plan.

Analysts have expressed confidence in Kaliaropoulos's ability to improve profit margins going forward. The executive, who took the top job at StarHub in July, built a reputation as a turnaround executive by leading mobile operator Zain Saudi Arabia to its first quarterly profit since the company was founded in 2008.

"StarHub's new CEO is tracking closely with his execution timeline as guided to investors," Foong Choong Chen, an analyst at CGS-CIMB Research Pte, wrote in an Oct. 3 note. The cost savings are "not only quantified but also rather sizeable," he said.

The company said it will start notifying affected employees no later than the end of this month. StarHub expects a one-time restructuring cost of about $25 million, which won't have any impact on the company's earnings this fiscal year, it said.