Will Starhub snatch back its glory days amidst transformation plan?

Following the recent round of job cuts, Starhub's share price rose to a 4-month high.

At a time when tech companies are booming and hiring like crazy, Singapore's embattled telco Starhub just laid off 300 employees as part of its transformational plan.

The overall transformation programme is expected to realise $210m 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.

The costly road to transformation
Starhub has decided to embrace a transformation plan to beef up its cybersecurity firm Ensign and its digitisation initiatives for better customer experience, and to boost even further its fibre services. With this, the firm will roll out a one-off restructuring cost of $25m as it lets go of about 300 full-time employees who will be ’redundant’ along the road to transformation.

The heated telco wars has beaten up Starhub, with its Q2 profit dropping 22% to $63m as it recorded falling revenues in both mobile segment and pay TV. Meanwhile, its operating expenses hit $51.4m as sales cost jumped 16.5% YoY.

However, the recent round of cost-cutting measures saw Starhub's share price rising to a 4-month high. The counter surged 4.3% to end the day at $1.95, its highest level since 4 June. It outperformed the broader Straits Times Index, which lost 1.1% to end the trading day at 3,231.59.

Also read: StarHub gears up to defend mobile market share

In September, Starhub lost its place in the Strait Times Index (STI) to retail firm Dairy Farm International. It was also dropped by the MSCI Singapore and was replaced by Venture which saw returns at 6.1% back in May.

Moving forward, the firm is poised to raise almost $100m of total savings within the next three years due to its staff reduction, DBS Equity Research analyst Sachin Mittal said. According to her, about 30-40% could be saved in customer care costs with the use of digital chat.

“Investing in digital distribution channels such as online shops and effective offline-to-online model, coupled with the use of data analytics, could lead to a 10- 15% reduction in distribution costs in our estimate,” Sachin said.

As it goes into boosting Ensign with through investments, analysts were positive that the firm could be a viable competitor to Singtel in snatching cybersecurity contracts. The firm is a merger between Starhub and Temasek subsidiary Certis Cisco.

“We believe the combined cybersecurity technology and the talent pool of the two entities, with years of experience and training, would help Ensign effectively compete with the leading cybersecurity players in the region,” DBS Equity Research said in a previous forecast.

Ensign is one of the few pure-play cybersecurity entities in across the ASEAN. DBS Equity Research thinks that Certis Cisco’s history of handling cybersecurity contracts for the government could help Ensign to be strongly competitive with the likes of Singtel in terms of bagging cybersecurity-related smart nation contracts, not only from Singapore but from other countries in the ASEAN.