• Maintain NEUTRAL and DCF-based SGD1.78 Target Price (WACC: 7.5%, TG: 1.5%), 10% upside.
• StarHub has announced the merger of its cybersecurity arm with Temasek-owned Quann to create one of the largest pure play end-to-end cybersecurity outfits in Asia: Ensign. The deal structure provides for the crystallisation of some value of its investments from Year 3, for which it is forking out SGD52m (net outlay: SGD36m), in exchange for new shares. Assuming Ensign generates revenue in excess of SGD100m pa and a 15% net margin (ex-management charges), we estimate net earnings accretion of 0.7% for FY18 and 4.7% for FY19, all else being equal.
• While the merger is positive to drive scale and scope, we leave our core earnings forecasts unchanged for now, as we expect synergies to accrue over time with a progressive ramp-up over the next 1-2 years.
• Key risks of the exercise: higher opex and slower merger synergies. 
• We prefer Singtel (SGX:Z74) for exposure.

Source: RHB Invest Research - 06 Sep 2018