StarHub - UOB Kay Hian Research 2018-09-06: Scaling Up In Cyber Security

StarHub - UOB Kay Hian Research 2018-09-06: Scaling Up In Cyber Security STARHUB LTD SGX:CC3

StarHub - Scaling Up In Cyber Security

  • StarHub and Temasek (under its wholly-owned subsidiary Leone Investments) will inject their respective cyber security operations under Accel Systems & Technologies and Quann World to form 40:60 JV Ensign InfoSecurity.
  • StarHub would also be assigned economic rights to a 20% stake in Ensign for three to five years.
  • We view the JV as mildly positive for StarHub as it continue to engineer growth in the fixed enterprise space.
  • Maintain HOLD. Target: S$1.85.


  • StarHub and Temasek Holdings have agreed to merge their respective owned cyber security operations.

~ ~ Where SG investors share

Joining forces in cyber security.

  • StarHub and Leone Investments, a wholly-owned subsidiary of Temasek, have incorporated Ensign InfoSecurity.
  • StarHub will inject Accel Systems & Technologies and its cyber security centre of excellence for 104m Ensign shares and S$16m cash (consideration: S$120m). Accel is a cyber security systems integrator specialising in the provision of security solutions, consulting and managed security services.
  • Leone will inject Quann World for 140m Ensign shares (consideration: S$140m). Quann is a leading regional cyber security services provider.
  • StarHub will own 40% of Ensign while Leone will hold 60% after the transactions are completed in Oct 18.

StarHub assigned 20% economic interest in Ensign.

  • Leone will assign 20% economic interest and voting rights for Ensign to StarHub for S$52m. StarHub will be able to terminate the assignment in three to five years and receive the lower of:
    1. fair market value as determined by Deloitte & Touche, Ernst & Young, KPMG and PwC, or
    2. reference price with built-in return of 6% p.a..
  • Thus, StarHub has an economic interest of 60% in Ensign until the assignment is terminated.

Scaling up in cyber security.

  • Ensign will be a pure play cyber security player with end- to-end capabilities. It has unique telco-centric and network-based security monitoring capabilities critical to providing enhanced security for enterprises and critical infrastructure. It has a talent pool of 500 analysts, consultants and researchers.
  • Ensign will support government and enterprise customers and generate revenues in excess of S$100m annually in cyber security solutions, systems integration and managed services. Management expects Ensign to generate a low double-digit EBITDA margin.

Accel is more profitable.

  • StarHub disclosed that Accel made net profit of S$3m in 1H18 (held back by management charges). Management did not disclose Quann’s financial performance but shared that Quann is profitable.


New CEO injects new vigour.

  • We view the merger as a mild positive for StarHub as it continue to engineer growth in the fixed enterprise space. The cyber security market in Singapore is estimated at S$700m and is projected to grow to S$1b by 2020, representing a CAGR of 15%.


  • We have raised our 2019 earnings by 0.6% due to contributions from Quann and cost synergies from combining Accel and Quan.


  • Maintain HOLD. Our target price of S$1.85 is based on DCF (COE: 9.25% and terminal growth: 1.0%).


  • StarHub’s dividend yield is attractive at 9.9% for 2018 but could drop to 7.5% in 2019 and 6.2% in 2020.
  • Secular downtrend for pay-TV business.
  • Risk from entry of TPG Telecom as the fourth mobile operator.

Jonathan Koh CFA UOB Kay Hian Research | 2018-09-06
SGX Stock Analyst Report HOLD Maintain HOLD 1.85 Up 1.820