PhillipCapital is keeping its “neutral” call on StarHub with a target price of $1.24, following StarHub’s acquisition of a 50.1% stake in MyRepublic’s Singapore Broadband business.
StarHub’s total investment will be up to $162.8 million. An initial consideration of $70.8 million will be paid by StarHub for 50.1% of the shares in the new entity, MyRepublic Broadband, while a deferred consideration of up to $92 million will be paid if future financial performance matrices are met. In addition to equity, StarHub has agreed to refinance $74.2 million of debt for MyRepublic for a period of three years.
MyRepublic will retain the remaining 49.9% stake and its senior management team, helmed by co-founder and CEO Malcolm Rodrigues.
See: StarHub to invest up to $162.8 mil in MyRepublic’s broadband business, acquires 50.1% stake
Upon successful acquisition, StarHub’s market share in Singapore’s broadband market will increase by 6% to 40%, trailing slightly behind market leader Singtel at 43%. According to analyst Paul Chew, “The transaction will further consolidate the market into effectively two major operators with at least 80% share. Another benefit is the possible avoidance of a better funded shareholder of MyRepublic that could price disrupt the market.”
Chew is also positive on this deal as the cost synergies will come from sharing of network infrastructure cost and capital expenditure. StarHub can drive more products such as cloud computing and OTT into MyRepublic’s higher ARPU consumer customer base. MyRepublic also has SME customers where StarHub’s enterprise solution may become an attractive value add.
Overall, the analyst sees this deal as a financially accretive acquisition, as he believes that the acquisition will raise StarHub historical FY2020 EPS by 3.8% to almost 9 cents. EBITDA will also improve by around 3.3%.
However, the deal does not seem entirely cheap. “The historical EV/EBITDA and PE ratio of the acquisition are 8.0 times and 13.8 times respectively. It is above our target valuations of StarHub but considered fair once the potential synergies materialise,” says Chew.
Furthermore, there are some risks to this transaction, as it includes a $74.2 million loan to MyRepublic backed by an undisclosed security packages and interest-bearing.
As at 11.00am, shares in StarHub are trading at $1.24 or 20.1 times FY2021 earnings with a dividend yield of 4.0%.
Photo: Bloomberg
