Ensign: high-growth sector that complements telecommunications
Pure-play, end-to-end cybersecurity service provider. Ensign’s three core cybersecurity services are consulting, system integration and managed security. Around 20% of revenue comes from its high-margin consulting business. This is where it advises clients on their cyber-readiness, develops cybersecurity strategies and responds to their cyber incidents. Lowest-margin system integration sells tools and software to bolster clients’ cyber defences. Managed security provides threat-detection, monitoring and response services. Ensign’s share of Singapore’s security service market was 16% in an S$814mn market in 2019. Contracts are secured on a multi-year basis, providing revenue stability.
Still in investment stage. The company is still in an investment mode. It continues to expand its regional footprint and R&D to enhance technology capabilities. EBITDA margins depend on the product mix. Temasek has a call option to acquire 20% of Ensign from October 2021. The price will be the higher of its fair market value as determined by an independent valuer or a 6% compounded annual return on the consideration paid. The 20% stake will be returned to Temasek if the option is not triggered by the fifth year, in October 2023.
5G: beyond connectivity with more value-added services
Not yet prime time in enterprise. Many uses of 5G for enterprises have been touted and discussed. So far, none has been proven. StarHub still needs to build deep vertical solutions and work with the 5G ecosystem. It appears 5G adoption by enterprises will take longer than expected.
Some customer excitement. Adoption of non-standalone 5G has been “encouraging”, says the company, especially after the launch of iPhone 12. The number of 5G subscribers was not furnished. The three propellers of consumer adoption are speed and performance, cloud gaming and media content. Bundling content with 5G can gain traction with consumers. Even professional gamers can harness 5G delivery speeds and low latency without investing heavily in hardware. Another opportunity highlighted was 5G fixed wireless broadband.
Pay TV: rethinking its economics
OTT* can circumvent boxes and help StarHub move to variable costs. Pay TV is an almost 100% fixed-cost business. Revenue has contracted S$161mn in the past two years. To overcome the negative operating leverage of a fixed-cost model, StarHub needs content costs to become more variable. To this end, it has renegotiated content contracts and is building new OTT experiences. With StarHub TV+, customers can access a variety of OTT channels such as HBO and Netflix on a single platform. This IPTV-OTT hybrid will provide more variability in priced content. Another benefit is lower delivery costs, from a plug-and-play solution. Box installation and servicing are not required.
Digitalisation: lower costs and better customer experiences
Giga! is a pure digital mobile service plan. Giga! is StarHub’s first pure digital-only product. From KYC validation to shipment of the SIMs, it is a zero-touch customer experience. Giga! is StarHub’s answer to competition from the MVNOs that target millennials with data-rich SIM-only mobile plans.
Digitalisation can save costs and improve customer experiences. StarHub is undergoing a major digital transformation. Fewer physical touchpoints have reduced the need for retail space and yielded rental savings. Commissions paid to partners can be lowered when StarHub distributes directly to customers. Customer experience on digital is enhanced as they have the convenience of picking the time to purchase their products.
Cost-optimisation: the journey continues
75% of 3-year cost-savings plan executed. StarHub is on course to save more than S$210mn over three years. As at 2Q20, 75% had been achieved: 39% from workforce optimisation, 16% from operational efficiencies and 20% from TV operations. Yet to be executed are another 9% from operational efficiencies and 16% from TV operations. Costs saved have been lower commission costs with increased online touchpoints, fewer operating leases with a more effective retail footprint, lower staff costs from simplified and streamlined processes, right sourcing, digitalisation efficiencies, lower repair & maintenance expenses from a partnership model and lower licence fees.
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Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.
He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.
