SINGAPORE (Nov 12): StarHub on Friday announced that its 3Q18 earnings fell 112.8% y-o-y to $57 million, due to higher operating expenses.

Revenue for the quarter was 3% higher at $582.2 million, mainly due to higher revenue from Enterprise Fixed and Sales of equipment, partially offset by lower revenue from Mobile and Pay TV services.

Operating expenses was $26.9 million higher at $506.7 million, due to higher cost of sales.

See: StarHub reports 12.8% fall in 3Q18 earnings to $57 mil on higher expenses

Following the results announcement, RHB is keeping its “neutral” call on StarHub with a target price of $1.90, as the results came in higher than the research house expected, suggesting the market may have been overly bearish on near-term projects.

However, RHB prefers Singtel for exposure to Singapore telcos.

The group’s Enterprise segment remains to be its bright spot. The merger of its cyber security arm with Temasek’s regional cyber security service provider has transformed the group into one of the largest end-to-end cyber securities providers in Asia.

In a Monday report, RHB says, “The deal – completed in October – is earnings-accretive from the onset with merger synergies to accrue over time. We had previously estimated net earnings accretion of 0.7% for FY18F and 4.7% for FY19F from Ensign, based on management’s guidance of over $100 million in combined revenues.”

In October, the group announced a strategic transformation programme to better align itself in meeting industry challenges. This plan includes a headcount reduction of 300 permanent staff and other opex realisation, which is expected to contribute to opex savings of $210 million over three years from FY19.

“With part of opex savings expected to be realised reinvested to fund new growth opportunities, net savings would be lower,” says RHB.

On the other hand, Maybank Kim Eng is reiterating its “buy” recommendation on StarHub with a target price of $2.21.

In a Monday report, analyst Luis Hilado says that the group’s soft 3Q18 revenue was expected and will likely continue.

Meanwhile, the group’s restructuring exercise remains to be on track.

“In face of overall uncertainty over how new wireless competitors will act, we believe management is rightly focussing on what it can control (costs) and foresee (pay TV model needs to be revamped),” says Hilado.

“Given the timing of other savings and measures is not as apparent, we believe it is better to err on the side of caution,” adds Hilado.

As at 11.42am, shares in StarHub are trading 4 cents higher at $1.98 or 11.0 times FY19 book with a dividend yield of 7.5%.