• Acquiring cyber security firm
• Reducing reliance on consumer segment
• Lack of near-term catalysts

To Acquire 51% Stake in Cyber Security Firm

StarHub Ltd (Starhub) recently announced an agreement to acquire a 51% stake or 11.7m (sale shares) in Accel Systems & Technologies Pte. Ltd. (ASTL) for a total consideration of S$19.4m, which will be paid in cash funded by internal resources, and is expected to close by mid-Jun 17. ASTL is a cyber security systems integrator specialising in the provision of security solutions, consulting and managed security services.

Starhub stated that ASTL will allow it to provide a full in-house suite of cyber security solutions and services to its customers. Postacqusition, Starhub will also expand the internal research and development abilities of its own Cyber Security Centre of Excellence (COE) to develop and localise advanced cyber security solutions.

ASTL will operate as a standalone subsidiary and continue to be led by its existing management team. According to the announcement, for the financial year ended 31 Mar 17, ASTL’s NAV and NTA represented by the sale shares are ~S$6.0m.

Necessary to Further Grow Its Enterprise Business

We recognise that cyber security demand will continue to grow, and it is identified by the Singapore Committee on the Future Economy as one of the high growth industries. In our view, while it makes sense for Starhub to strengthen and diversify away from consumer business towards enterprise business, we think it will take time to build up its cyber security capabilities before it gains significant traction in this business.

Over the near to medium term, we continue to expect a lack of catalysts for Starhub: 1) mobile outlook remains weak with intensifying competition, 2) pressure from over-the-top (OTT) services and piracy on Pay TV are expected to persist, and 3) competition in broadband segment is set to increase as we expect TPG to enter this market as well.

Unchanged FV of S$2.40

For now, we opt to keep our forecasts unchanged. On weaker EBITDA margins ahead given the aforementioned reasons, maintain SELL on Starhub with an unchanged FV of S$2.40

Source: OCBC Research - 9 Jun 2017