SINGAPORE (Oct 1): Changes in dynamics among Singapore’s telco players could see StarHub or M1 turn acquirer during an industry consolidation in two to three years, says UOB KayHian.

In a Monday report, UOB KayHian analyst Jonathan Koh says possible M&A scenarios include StarHub acquiring TPG Singapore, M1 acquiring TPG Singapore or StarHub and M1 in a merger of equals, says UOB KayHian.

Firstly, Keppel Corporation and Singapore Press Holdings have made a joint pre-conditional voluntary general offer for M1 at $2.06.

In the past, M1 was seen as a takeover target with a fragmented shareholding structure. If Keppel and SPH are successful in their efforts to gain majority control of M1, M1 could be positioned as an acquirer during the industry consolidation due to support from strong shareholders.

Secondly, Singapore’s newest telco TPG Telecom intends to undertake a separation of its Singapore mobile business to its existing shareholders through an in-specie distribution before the implementation of merger between TPG and Vodafone Hutchison Australia (VHA).

TPG Singapore would become a separate standalone company, presumably listed on ASX. TPG Singapore could be open to an M&A and should be seen as a takeover target.

To recap, StarHub’s customer service has seen an improvement in execution at StarHub since Peter Kaliaropoulos took over the helm as CEO with effect from July 9, according to Koh’s channel checks.

StarHub plans to differentiate itself by delivering high service standards to delight its customers. It has integrated customer service touchpoints like retail centres and My StarHub app.

Within two months of Kaliaropoulos’ appointment, StarHub has scaled up in cyber security with the merger of Accel Systems & Technologies with Temasek’s Quann World to form Ensign InfoSecurity.

After reducing valuation discount, UOB has lowered the beta for StarHub from 1.25x to 1.1x, which reduces its cost of equity from 9.0% to 8.25% and lift its target price higher from $1.92 to $2.10 accordingly.

“At the offer price of $2.06, M1 is valued at EV/EBITDA of 7.2x based on its financial performance in 2018F. StarHub would be valued at $2.15 if we apply the same 2018F EV/EBITDA of 7.2x,” says Koh who is maintaining a “buy” on StarHub.

However, investors should not be presumptuous to assume another general offer is forthcoming, warns Koh.

Year to date, shares in StarHub have fallen 36.3% to $1.84.