• 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