StarHub's cybersecurity venture may wipe out $30m in staff cost savings

The firm's cybersecuty business was hit by a $12m NPAT loss in Q4.

StarHub’s earning rebound is unlikely to materialise anytime soon as its cybersecurity venture may just wipe out the $30m in savings it managed to accumulate by reducing staff, according to a report by DBS Equity Research. 

In Q3, StarHub forged a joint venture with Certis Cisco to create a cybersecurity service provider called Ensign. Whilst Ensign’s operations were marginally profitable at the beginning, losses widened in Q4 2018 as StarHub reported a loss of $12m for cybersecurity subsidiaries Ensign and cryptographic technology firm D'Crypt.

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

Amidst cutthroat competition in the telco space, StarHub announced aggressive cost cutting measures aimed at achieving $210m in savings over a three-year period from Q4 2018. The measures included axing 300 employees to improve the firm’s operational efficiency with a one-off restructuring cost of about $25m.

The firm is now embarking on the migration to fibre, but the move and the accelerated depreciation of the Hybrid Fiber Coaxial (HFC) network is set to cause short-term pain and drag on the telco’s earnings in 2019.

“We expect to see a sharp rise in StarHub’s cost of services in FY19 as migrations to NBN accelerate, partially offset by reduction in content costs with the ongoing restructuring of StarHub’s Pay TV business,” Mittal said in the report. “Accordingly, HFC Network will be fully depreciated by H1 2019, placing a further burden on StarHub’s income statement in FY19.”

StarHub blamed its dismal 2018 performance to lower contributions from its mobile and Pay TV segments.The telco saw its profits fall 26.2% YoY to $201.5m from $273m in 2017, whilst revenue slipped 2% YoY from $2.41b to $2.36b, according to its financial statement.

Also read: StarHub's profits dropped 26.2% to $201.5m in 2018

Amidst the consolidation of Ensign and D’Crypt however, StarHub’s enterprise segment proved to be the only resilient business segment as revenue for Q4 and FY18 rose 12% and 16% YoY to $15.7m and $70.3m, the firm’s financial statement revealed.