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StarHub (S$1.23, down one cent) and MyRepublic Group Limited announced today an agreement for StarHub’s wholly owned subsidiary, StarHub Online Pte. Ltd., to acquire a majority interest in a new entity which will hold MyRepublic’s broadband business in Singapore, providing broadband services for residential and enterprise customers. Named MyRepublic Broadband Pte Ltd (“MyRepublic Broadband”), the new entity has been incorporated by MyRepublic.

StarHub’s total investment will be up to $162.8 million, with an initial consideration of $70.8 million for 50.1% shares of MyRepublic Broadband and a deferred consideration of up to $92 million should future financial performance matrices be met. MyRepublic Broadband, a profitable and growing business, currently holds 6% share of Singapore’s broadband market and has built a strong brand and amassed a loyal base of customers.

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The proposed transaction will consolidate and strengthen StarHub’s position in the Singapore broadband market, expanding its market presence to 40% and steering long-term business growth. In the future, MyRepublic’s broadband customer base will stand to gain access to enhanced offerings from StarHub’s Consumer and Enterprise Business Groups, including the growing suite of products and services offering connectivity, Over-the-top content, cloud gaming and other experiences.

The partnership would also create mutually beneficial opportunities through scale and synergies – in terms of joint go-to-market opportunities, future wholesale offerings, and cost savings. In addition to equity, StarHub has agreed to refinance $74.2 million of debt for MyRepublic for a period of three years, on completion of the transaction. Upon completion of the acquisition, MyRepublic Broadband will be a StarHub subsidiary.

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The transaction is a mix of equity and debt and will be funded using StarHub’s internal cash resources. It is expected to close by December 2021, subject to the fulfilment of mutually agreed conditions and regulatory approvals. At $1.23, market cap of StarHub is $2,129mln, FY20 P/E is 14.3x, current P/B is 3.8x and FY20 dividend yield is 4.1%. We are maintaining our HOLD call for StarHub, given that valuations do not look cheap although dividend yield appears palatable.