StarHub's MyRepublic deal revives buzz in local telecom market

Singapore

MAINBOARD-LISTED StarHub's purchase of a controlling interest in MyRepublic's Singapore broadband business is unlikely to make a major dent on the telecom landscape for now. But it could set the stage for more consolidation by bigger players, even as it revives interest in long-delayed listing plans at MyRepublic.

StarHub on Wednesday announced plans to take a 50.1 per cent stake in MyRepublic's Singapore broadband business for an initial S$70.8 million - with a deferred consideration of S$92 million also payable later if certain financial performance metrics be met.

StarHub - which is also extending a S$74.2 million loan upon completion of the deal that will go to debt repayment at MyRepublic - has the option of eventually picking up MyRepublic's 49.9 per cent minority stake in the jointly owned MyRepublic Broadband.

The deal size is small and "on its own, it doesn't move the needle", DBS telecom analyst Sachin Mittal said.

Dan Baker, senior equity analyst for Asia telecoms and technology at Morningstar, also said the deal is "not likely to be a company changer" for StarHub - even if earnings accretion makes it "a handy acquisition".

But StarHub's latest move in the fibre broadband space may herald other corporate action in the crowded consumer mobile market, where players are struggling with margins.

Mr Baker said "logic would suggest the prospect of future similar deals in the Singapore mobile market", with mobile network operators potentially buying out the mobile virtual network operators (MVNOs) that lease frequency spectrum from them. But he also expressed doubt over "whether the valuation expectations of potential buyers and sellers are close enough".

Mr Mittal suggested potential "bargain-hunting for value" could be going on - especially as the national 5G rollout "is a killer for small telcos" that cannot afford high-speed next-generation networks.

Kam Ee Fai, head of data and research operations at Preqin, warned that MVNOs risk losing large swathes of their customer base from 5G-era competition, so further consolidation in the market "really would depend on how the incumbents price the rental of their 5G networks".

For StarHub, the question is whether chief executive Nikhil Eapen's strong appetite for mergers and acquisitions could encompass more MyRepublic assets.

MyRepublic also delivers mobile services in Singapore as an MVNO. It used to partner with StarHub, but has since migrated to Keppel-owned M1's network. MyRepublic also runs customer-facing businesses in Australia and New Zealand, and offers a digital platform for the telecom industry in Indonesia and Brunei.

Speaking of consolidation opportunities in general, StarHub's Mr Eapen had last month told The Business Times that "we don't know what the potential targets are, to be honest, because, again, it takes two to tango".

Responding on Wednesday to a query about the attractiveness of MyRepublic's other units, a StarHub spokesperson told BT: "We see this acquisition as the start of a long-term partnership with MyRepublic, which may open doors to other opportunities for greater collaboration."

Also up in the air is how the deal affects MyRepublic's oft-cited plans for an initial public offering (IPO) in Hong Kong. The management has talked of going public since 2017, but repeatedly missed proposed deadlines - most recently, an end-2020 target.

But now, StarHub's investment "propels us forward in MyRepublic's journey towards IPO", said chief executive Malcolm Rodrigues, a former StarHub executive who co-founded MyRepublic in 2011.

DBS' Mr Mittal suggested to BT that "MyRepublic might not let go of all its business if they want to go for an IPO, so I see a status quo in StarHub maintaining a majority stake".

On the other hand, Mr Kam of Preqin posited that the deal "is likely to result in full ownership by StarHub of MyRepublic's broadband business eventually". He added: "The remaining MyRepublic unit eligible for a future listing will be a smaller one. Will that be more attractive for the IPO market or would that nimble unit be easier to grow organically?"

When approached, Jeannie Ong, chief investor relations officer at MyRepublic and also an ex-StarHub executive, said: "At this stage, it is premature to confirm a timeline for our IPO. We have an internal goal and we are working towards it."

MyRepublic's Singapore broadband business recorded earnings before interest, taxes, depreciation and amortisation of S$18.6 million for the year to end-June, according to pro forma management accounts. Revenue was S$63.9 million.

BT understands that the Singapore broadband business contributed more than 40 per cent of MyRepublic's overall group revenue in FY2021.

Broadband is StarHub's top-performing consumer segment as well, with 489,000 lines as of mid-2021; subscription numbers would have risen to 578,000 with MyRepublic's user base taken into account.

The transaction is tipped to be earnings-accretive for StarHub, and would have bumped its full-year earnings per share up by 3.8 per cent had the deal been done on Jan 1, 2020.

The telco also noted that the deal is expected to create mutually beneficial opportunities through scale and synergies in joint go-to-market opportunities, future wholesale offerings and cost savings.

Said Mr Baker of Morningstar: "Synergies are expected mainly from cross-selling StarHub products to the MyRepublic customer base and from network synergies, including the possibility of MyRepublic using some existing StarHub wholesale products."

Citi analysts Arthur Pineda and Hussaini Saifee, who also flagged the potential for cross-selling across regional enterprise services, said the acquisition will help StarHub narrow its market share gap with Singtel.

"Most of MyRepublic's broadband-related expenditures can also be subsumed and scaled up under StarHub (or vice-versa), thereby driving group profits," they added. They have raised their target price from S$1.92 to S$1.98.

The counter shed S$0.01 or 0.81 per cent to S$1.23 after the news.

Additional reporting by Michelle Zhu