ANALYSTS SAY: Buy, Sell, Hold (23 Sept)

StarHub (STH SP)

Acquisition Of A Majority Stake In MyRepublic Broadband Singapore

StarHub is acquiring a 50.1% stake in MyRepublic’s Singapore broadband business for S$70.8m. There is also a S$105m bridging loan to be superseded by a S$74.2m working capital loan. The transaction is priced at 8x EV/EBITDA, which we deem as fair given its controlling stake. There is a 3% earnings enhancement upon completion of the deal. Overall, the deal is fair as StarHub aims to drive its broadband market share to 40% with the acquisition. We re-iterate our HOLD call and DCF-based target price of S$1.30.

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Penguin ($0.66, unchanged) announced that the Company has been awarded a contract by Shell Eastern Petroleum to design, build, own and operate at least three fully-electric ferries.

When operational, they will form the first fully-electric ferry service for Shell in Singapore. Expected to set sail in the first half of 2023, the new 200-seater single-deck ferries will be used to transport passengers between mainland Singapore to Shell’s Energy and Chemicals Park on the island of Bukom, replacing the conventional diesel-powered ferries currently used.

The Contract is not expected to have a material impact on the consolidated net tangible assets per share and consolidated earnings per share of the Group for the financial year ending 31 December 2021. None of the Directors or controlling shareholders of the Company has any interest, direct or indirect, in the Contract other than through their shareholding interests in the Company.

Penguin’s market cap stands at S$144.2mln and currently trades at 0.8x PB ratio. Dividend yield stands at 2.7% and is currently trading in a net cash

LIM & TAN

LIM & TAN

Singtel ($2.47, unchanged) intends to subscribe to regional associate Airtel’s rights issue at an issue price of INR535 per share for a total consideration of up to INR29.4 billion (approximately US$405 million) over a period of up to three years. This represents Singtel’s full rights entitlement for its direct stake of 14%. Upon closing of the rights issue, Singtel will continue to be Airtel’s single largest shareholder.

With the rights issue, Airtel will be equipped to invest in 5G capabilities and ride the digital growth momentum in India. This is part of Singtel’s strategic reset announced in May to build out digital ecosystems in the region through a multi-local strategy that could involve unlocking assets to reinvest in critical infrastructure that will power the digital economy. With smart phone users in India expected to reach over 900 million in the next two years and broadband connections growing at a steady clip each month, Airtel seeks to capture the tremendous opportunities in areas such as 5G, home broadband, data centres, cloud services and cyber security.

Airtel’s India mobile business continues to demonstrate strong gains in market share and industry leading ARPU supported by solid execution. Its non-mobile businesses such as home broadband have grown signifi cantly to account for over 25% of total revenue. In Africa, its operations have been growing profi tably and generating healthy cash fl ows as Airtel Africa unlocks value in its mobile money business and towers to meet its own investment requirements. Airtel is one of India’s leading telecommunications company with operations in 18 countries across South Asia and Africa and a mobile customer base of over 440 million. It has been an associate of the Group since Singtel acquired a stake in 2000. The rights issue is subject to regulatory approval.

At $2.47 Singtel is capitalized at $40.8 billion and trades at 17.7x PE, 3.1% dividend yield and 1.5x book. We continue to like Singtel’s turnaround eff orts and also restructuring plans that are currently underway to future-proof their business. Bloomberg consensus 12 month target price of $2.94 implies a potential upside of 19% and we maintain our BUY recommendation on Singtel.

StarHub (S$1.23, down 1 cent) and MyRepublic Group Limited announced today an agreement for StarHub’s wholly-owned subsidiary, StarHub Online Pte. Ltd., to acquire a majority interest in a new entity which will hold MyRepublic’s broadband business in Singapore, providing broadband services for residential and enterprise customers. Named MyRepublic Broadband Pte Ltd (“MyRepublic Broadband”), the new entity has been incorporated by MyRepublic.

StarHub’s total investment will be up to $162.8 million, with an initial consideration of $70.8 million for 50.1% shares of MyRepublic Broadband and a deferred consideration of up to $92 million should future financial performance matrices are met. MyRepublic Broadband, a profi table and growing business, currently holds 6% share of Singapore’s broadband market and has built a strong brand and amassed a loyal base of customers.

The proposed transaction will consolidate and strengthen StarHub’s position in the Singapore broadband market, expanding its market presence to 40% and steering long-term business growth. In the future, MyRepublic’s broadband customer base will stand to gain access to enhanced off erings from StarHub’s Consumer and Enterprise Business Groups, including the growing suite of products and services off ering connectivity, Over-the-top content, cloud gaming and other experiences.

The partnership would also create mutually benefi cial opportunities through scale and synergies – in terms of joint go-to-market opportunities, future wholesale off erings, and cost savings. In addition to equity, StarHub has agreed to refinance $74.2 million of debt for MyRepublic for a period of three years, on completion of the transaction. Upon completion of the acquisition, MyRepublic Broadband will be a StarHub subsidiary.

The transaction is a mix of equity and debt and will be funded using StarHub’s internal cash resources. It is expected to close by December 2021, subject to the fulfi lment of mutually agreed conditions and regulatory approvals. At $1.23, market cap of StarHub is $2,129mln, FY20 P/E is 14.3x, current P/B is 3.8x and FY20 dividend yield is 4.1%. We are maintaining our HOLD call for StarHub, given that valuations do not look cheap although dividend yield appears palatable