S$210m savings targeted over FY19-21

• The programme is expected to realise S$210m in savings over a three-year period, i.e. across FY19-21. As resources will be directed to fund growth opportunities, StarHub says lower net savings will be realised (although no further guidance was provided).
• A one-off restructuring cost of c.S$25m will be incurred, including funding to support outplacement, training and coaching. StarHub says such cost will not impact its FY18 guidance.

Sizeable Savings & Keeping to Execution Timelines are Key Positives

• This was not entirely a surprise as StarHub's CEO, Peter K, mentioned during a luncheon in mid-Aug that he would provide more details on the company’s strategic transformation programme in 3Q18.
• Nevertheless, this announcement is positive because:
  1. the cost savings is not only quantified but also rather sizeable, averaging S$70m p.a. and
  2. StarHub’s new CEO is tracking closely with his execution timeline as guided to investors.

FY19F-20F Core EPS Raised by 8-11%

• We had previously factored in a 4.9% reduction in service opex between FY18F-21F, or a cumulative savings of S$146m over three years. We now further cut our staff cost assumptions, resulting in cumulative service opex savings of S$193m over the same period. Hence, our FY19F-20F core EPS is raised by 8-11%.
• We keep our FY18F-20F DPS forecast of S$0.10 unchanged, supported by average FCF/share of S$0.12 (ex-spectrum payments). StarHub’s net debt/EBITDA now peaks at 2.3x in FY21F.

Maintain ADD; DCF-based Target Price Raised 8% to S$2.00

• We raise our DCF-based target price by 8% to S$2.00 (WACC: 7.1%), after raising our earnings forecasts. We expect StarHub’s share price to react positively to this announcement.
• 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.
• Key risk to this announcement is that staff layoffs may attract government scrutiny, as well as, possibly dent staff morale.