Simons Trading Research

Author: simonsg   |   Latest post: Tue, 21 Sep 2021, 10:39 AM


StarHub - Acquisition of a Majority Stake in MyRepublic Broadband Singapore

Author: simonsg   |  Publish date: Thu, 23 Sep 2021, 10:36 AM

  • 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 There is also a S$105m bridging loan to be superseded by a S$74.2m working capital loan.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 for StarHub and DCF-based target price of S$1.30.

StarHub Is Acquiring MyRepublic Broadband Business With 6% Market Share at 8x EV/EBITDA

  • StarHub (SGX:CC3) is acquiring a 50.1% controlling stake in MyRepublic’s Singapore broadband business for an initial consideration of S$70.8m (this excludes a future consideration of < S$92m should there be EBITDA improvement from FY21-23). In addition to equity, StarHub has agreed to extend a S$105m bridging loan (at market rate) to MyRepublic. This will expire in six months and it will be superseded by a S$74.2m loan for working capital purposes. The transaction is expected to be completed by Dec 21.
  • In essence, this acquisition will augment StarHub’s broadband market share to 40% (from 34%). StarHub will keep both brands. More importantly, StarHub believes there is an opportunity to tap into MyRepublic’s enterprise business via this acquisition.
  • We believe the acquisition price is fair after a controlling stake. MyRepublic has demonstrated:
    1. the ability to grow its subscribers at an impressive 9% CAGR over five years,
    2. that ARPU is superior at S$49/month vs S$32/month for StarHub, and
    3. a net profit margin of 16% (vs StarHub’s 8%).

Earnings Accretive Acquisition

  • The deal is expected to see both revenue and net profit enhancement of 3%. The transaction will be entirely funded via internal cash (StarHub’s operating cash flow stood at S$245m as of end-Jun 21. The impact to StarHub’s net-debt-to EBITDA would be marginal at 0.1x (1H21: 1.25x)

Future Revenue and Cost Synergies

  • StarHub believes there will be further revenue and cost synergies, specfically within the enterprise customer segment. StarHub’s acquisition could allow MyRepublic customers to access additional StarHub services including Pay-TV content, gaming etc.

Maintain HOLD on StarHub

  • We make no earnings adjustment for a sustainable dividend yield of 4.8% for 2022. Suggest entry price is S$1.15.
  • Key priorities for 2021 capital from the capital market is much more attractive vs the leasing model at this juncture.

Source: UOB Kay Hian Research - 23 Sep 2021

Labels: StarHub
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SingTel - Bharti Rights Should Not Over-Burden SingTel

Author: simonsg   |  Publish date: Thu, 23 Sep 2021, 10:33 AM

  • SingTel (SGX:Z74) will fully subscribe to its share of Bharti’s rights issue for S$539m. The initial outlay is S$135m with the rest paid over two calls in three years.
  • This would have limited impact on SingTel’s gearing but could reduce the size of potential special dividends (if any) from asset monetisation, in our view.
  • Reiterate ADD rating on SingTel. Our SOP-based target price is S$2.90.

Intends to Fully Subscribe to Its Bharti Rights Entitlement

  • SingTel announced that it intends to fully subscribe to its entitlement (14% direct stake) for associate Bharti's 1-for-14 rights issue at Rs535/share for a total consideration of up to Rs29.4bn (S$539m), over up to 3 years. Bharti earlier announced that it planned to raise Rs210bn (S$3.85bn) from the exercise, mainly to fund its 5G rollout, enhance network capacity and invest more into growing Enterprise.

Singtel’s Rights Payments Will Have Limited Impact on Its Gearing…

  • This is in line with our expectations. SingTel’s cash outlay on application (25% of total payment) will BTL may fund its subscription via debt, in our view. This will not be consolidated into SingTel’s balance sheet, though BTL will incur interest cost and thus partly offset SingTel’s share of Bharti’s future earnings.

… But May Lessen Chances of Special Dividends

  • We believe SingTel’s full size of SingTel’s potential special dividends (if any) from asset monetisation, in our view.

Reiterate ADD With An SOP-based Target Price of S$2.90

  • Our SingTel core EPS forecasts are intact, as interest income foregone on the cash outlay/additional interest cost on BTL’s debt may be offset by stronger Bharti earnings, post-cash infusion.
  • Key re-rating catalysts: FY22F core EPS recovery and asset monetisation. Current SingTel's share price implies an FY22F EV/EBITDA of just 2.0x for Singtel Singapore and Optus, with decent FY22-24F yields of 3.9-5.9% p.a.
  • Downside risk: price wars in its operating markets.

Source: CGS-CIMB Research - 23 Sep 2021

Labels: SingTel
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Singapore Airlines (SIA) - Have Vaccination, Can Travel

Author: simonsg   |  Publish date: Wed, 22 Sep 2021, 10:37 AM

  • The opening up of the transatlantic travel market is the most significant development for international air travel since the start of the pandemic. This will pave the way for improved connectivity to other destinations. However, much of Asia, including Australia, still operates under travel restrictions.
  • In valuing Singapore Airlines (SIA, SGX:C6L), we have factored in a traffic recovery and have pegged valuation at 1.15x FY22/23 average adjusted book value.
  • Maintain HOLD.

What's New

  • SIA's share price rises by 3.5%, following an announcement that the US will open borders for vaccinated travellers from November. Transatlantic travel between the US and Europe is the key focus but foreign travellers from most other countries, including China, would be allowed. The move will also facilitate hub connectivity to other destinations in Asia. It will also lead to greater pressure on China, a key market for air travel, to ease travel restrictions. However, the general opinion is that China will be cautious in easing cross border travel ahead of the Beijing Winter Olympics in Feb 22, due to imported COVID-19 infections.
  • Still, the move is a clear boost for international travel and IATA terms this as “a key shift in managing the risks of COVID-19 from blanket considerations at the national level to assessment of individual risk”.

How Will Fares Fare With the Formation of Vaccinated Travel Lanes (VTL)?

  • Singapore announced a VTL with Germany and Brunei without line with SIA’s own guidance for normalisation of pax yields.

Cargo Is Still Expected to be a Key Earnings Driver for 2QFY22 and Potentially 3QFY22

  • Despite increasing capacity by 29% q-o-q in 1QFY22, SIA’s pax barring a decline in yields, we still expect cargo to the main earnings driver which should contribute to a sequential reduction in losses.

SIA - Glass Is Half Full or Half Empty?

  • 19 months after COVID-19 first made headlines, SIA’s pax traffic for August is still just 6.8% of perspective, SIA's share price is trading at close to 1.2x FY22’s adjusted book value, which is 30% higher than pre-pandemic levels.

SIA - Valuation & Recommendation

  • No changes to our earnings assumptions. Maintain HOLD rating on SIA with a fair book value.
  • Catalyst: Gradual relaxation of travel restrictions.

Source: UOB Kay Hian Research - 22 Sep 2021

Labels: SIA
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Sembcorp Marine - 42 Days to Decide

Author: simonsg   |  Publish date: Wed, 22 Sep 2021, 10:35 AM

  • As expected and stipulated in the offer document, with a post-rights allotment stake of 46.6%, Temasek triggers a conditional mandatory general offer (MGO) for MI stake at S$0.08.
  • If Temasek’s concert parties receive more offers that result in them acquiring more than 50% of Sembcorp Marine, MGO would become unconditional.
  • Temasek intends to keep Sembcorp Marine listed. But if free float falls below 10% (low likelihood), it would have to delist Sembcorp Marine under Rule 723 of listing manual.
  • Closing date of the exercise will be in Nov, or 42 days from 22 Sep’s formal announcement of MGO. Reiterate HOLD on Sembcorp Marine with unchanged target price of S$0.093.

Sembcorp Marine to Remain Listed

  • Startree, an indirect wholly-owned subsidiary of Temasek, is making a mandatory general offer (MGO) as its shareholding in Sembcorp Marine (SGX:S51) increased by more than 1% as a result of Startree’s participation in Sembcorp Marine’s rights issue. The offer price is S$0.08 per share in cash (in line with the rights issue price) and is in compliance with the requirements of the MGO code where any person who, together with its concert parties, holds between 30% and 50% of the voting rights of a company and such person, or any of its concert parties, acquires additional shares carrying more than 1% of the voting rights of the company in any six-month period is required to make a MGO.
  • Startree’s current intention is to maintain the listing status of Sembcorp Marine. However, if the free float falls below 10% as a result of the exercise, Rule 723 sets in for delisting. We think the likelihood of this happening is also low for now.

What’s the Likelihood of Sembcorp Marine's Shareholders Accepting or Rejecting Offer?

  • We believe the likelihood of shareholders accepting the combined order book of S$7.5bn (1H21: Sembcorp Marine: S$1.78bn, KOM: S$5.7bn). Recall that the combined earnings of KOM and Sembcorp Marine in the peak of the oil price cycle were S$1.9bn in 2010.

42 Days to Decide

  • The indicative date for the closing of MGO will be about 42 days form 22 HOLD rating on Sembcorp Marine with an unchanged target price of S$0.09, still based on 0.7x CY21F P/BV.
  • Temasek’s support and the potential merger with Keppel O&M are upside risks.
  • Key downside risks: impairment of assets (Brazilian and Singapore yards), cost overruns and another round of fund raising.

Source: CGS-CIMB Research - 22 Sep 2021

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StarHub - A Win-Win in MyRepublic Broadband Deal

Author: simonsg   |  Publish date: Wed, 22 Sep 2021, 10:34 AM

  • StarHub will buy 50.1% of MyRepublic’s Singapore broadband business (MRB) for an initial S$70.8m cash & deferred consideration of up to S$92m.
  • Pre-synergies, the deal values MRB at a fair FY21 EV/EBITDA of 7.6x and could enhance StarHub’s FY22F net profit by 4.6%.
  • We are positive on this deal as it is core EPS accretive and has synergistic potential. Reiterate ADD rating on StarHub.

StarHub Acquires 50.1% Stake in MyRepublic’s Singapore Broadband Unit…

  • StarHub (SGX:CC3) has signed an agreement to acquire a 50.1% stake in MyRepublic’s (Unlisted) broadband business in Singapore (MRB) for an initial cash consideration of S$70.8m (with a maximum net closing adjustment of S$5m) and deferred consideration of up to S$92m (valued at 10x the difference between MRB’s EBITDA in FY6/23 vs FY21).
  • StarHub will fund the acquisition via internal cash, with the transaction expected to close by Dec 21, subject to Infocomm Media Development Authority’s (IMDA) approval and due diligence. Upon completion, StarHub will extend a 3(+2)-year loan of S$74.2m to MyRepublic Holdings (MRH) to help refinance its debt. This is backed by a call option granted to StarHub to buy up the remaining stake in MRB, in the event of interest/principal payment defaults.
  • Post-acquisition, MRB will be a StarHub subsidiary and retain its brand/senior management team.

…at Fair Valuation; Deal to be Earnings-accretive From the Get Go

  • MRB had revenue of S$64m, EBITDA of S$18.6m (29% EBITDA margin) and net profit of S$10.4m in FY6/21. The initial consideration pegs MRB at an rise marginally from 1.32x to 1.41x post-deal, excluding the loan to be extended to MRH.

Wider Subs Base to Sell Services to and Possibly Eases Competition

  • StarHub’s broadband subscribers synergies, StarHub highlighted joint go-to-market opportunities, as well as infrastructure and resource rationalisation.

Reiterate ADD and DCF-based Target Price

  • We are positive on this deal. We keep our core EPS forecasts for now as the accretion is less than 5% in the near-term.
  • Key potential re-rating catalyst: cost savings in Phase 2 of its transformation programme, to be unveiled in Nov 21. StarHub's FY22F EV/OpFCF of 10.9x is 22% (-1.1 standard deviation) below its 13-year mean, with decent FY21-23F yields of 4.1- 4.5% p.a.
  • Downside risk: greater mobile competition.

Source: CGS-CIMB Research - 22 Sep 2021

Labels: StarHub
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Roxy-Pacific Holdings - Privatisation Offer

Author: simonsg   |  Publish date: Wed, 22 Sep 2021, 10:33 AM

  • Roxy-Pacific on 20 September announced a pre-conditional voluntary general offer from TKL & Family for all the issued ordinary shares in the company.
  • The offer price of S$0.485 is at a 33.4% discount to adjusted net asset value of S$0.7287/share (as at 30 Jun 21). 31 Dec 20’s ANAV was S$0.7215/share. Currently, the undertaking parties hold 76.44% of the total number of issued shares.

Emerging From the Trough

  • Roxy-Pacific (SGX:E8Z) posted 19.6% y-o-y increase in revenue to S$141.2m in 1HFY21, from S$118.1m a year ago. This was largely due to higher revenue from property development (+27.4%), offset by lower revenue from hotel ownership (-29.2%). Property investment segment increased slightly (+8.5%). Roxy-Pacific's 1HFY21 PATMI was S$5.9m, doubled from S$2.8m a year ago.

Property Development

  • Roxy-Pacific has 2 upcoming development projects with a forecasted gross development value of S$224.1m. We believe that with the firm prices of residential homes, along with Roxy-Pacific’s unbooked contracted sales, toplines will be firm for the Group. As at 30 June 2021, based on units sold from ongoing development projects, the Group had total attributable pre-sale revenue of S$564.4m.
  • High construction costs and delays continue to pose as headwinds and squeeze property developers’ margins. The manpower supply crunch may have slowly been easing but we see that the backlogs and delays are still ahead of the rate of manpower intake. The recent uptick in cases in foreign workers’ dormitories also pose as a risk.

Hotel Ownership

  • Grand Mercure Singapore Roxy hotel is a major asset of Roxy-Pacific. In price tag for numerous COVID-19 tests in exchange to not to serve quarantine. We expect tourism to remain weak for the rest of 2021 and hotel owners to continue to be hit by border control measures in the tourism industry.

Property Investment

  • Property investment made up the remaining 2.8% of Roxy-Pacific's revenue and comprises rental income from shop units in Roxy Square and NZI Centre. Occupancy ratios as at 30 June 2021 (based on lettable area) were 82% and 100% respectively.

Relative Peer Comparables

  • The offer price of S$0.485 per Roxy-Pacific share is at a 33.4% discount to its adjusted net asset unutilized bank facilities. In addition, it has a pipeline of residential launches. However, it trades at a smaller 15.0% discount to RNAV, the lower end of the average of 42.6% discount.

Source: SAC Capital Research - 22 Sep 2021

Labels: Roxy-Pacific
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