Unveils Restructuring Savings; Maintain BUY

• StarHub has unveiled manpower- and other cost-restructuring moves to prepare for future competition and industry trends.
• We raise our 2019- 20E core EPS and DCF-based (WACC 5.7%, LTG -1%) Target Price by 11-15% and 13%, respectively. Maintain BUY based on these catalysts.
• Worse-than-expected wireless competition is a key risk to our outlook.

Phase 1: Staff Cuts

Next Phases: SGD210m Gross Savings in 2019-21

• Management also intends to rationalise procurement, leasing, repair & maintenance and distribution costs. Its target is to save SGD210m over 2019E-21E.
• Part of the savings will be re-channelled to new growth opportunities which will lessen the positive net cash flow impact. As such, we have only taken staff-cost savings in our new forecasts, pending more clarity on the other measures and potential new investments.

Heady Upside From Staff-cost Savings Alone

• With staff-cost savings alone and no other changes in revenues or opex, our 2019-20E forecasts are already significantly raised. 
• Admittedly, new competition from 4Q18 onwards and possible ownership changes at another competitor could affect the industry and StarHub’s revenue outlook.

Swing Factors 

Upside 

• Potential source of new revenues from enterprise segment targeting, including government contracts revolving around the Smart Nation initiatives. 
• A strong contribution from leasing fees from the MyRepublic MVNO deal. 
• A muted entry by TPG is a potential upside to valuation and market sentiment. 

Downside 

• Re-contracting/retention costs rising on the back of new smartphone launches and defensive preparation against TPG’s entry. 
• Further wireless tariff package pressure on rates and/or data allocations possible due to new competition or from incumbents. 
• Material investments in enterprise or content space that may have a lengthy gestation period before realizing returns. 

Source: Maybank Kim Eng Research - 04 Oct 2018