StarHub Ltd: Upgrading on a potential consolidation play
- Upgrade to BUY with a TP of SGD1.40, driven by industry recovery, consolidation benefits and potential earnings growth
- We estimate a potential StarHub-M1 merger could drive ~SGD70mn of annual synergies by FY29F, though EPS accretion is expected from FY28F given integration costs
- With a bruised SIMBA under investigation, potential StarHub-M1 deal could herald mobile ARPU recovery in Singapore even without any synergies
We conservatively estimate a SGD70mn of annual recurring synergies, ~2.0-2.5% of combined FY26F revenue, or ~9-11% of combined FY26F EBITDA. We assume M1 to be acquired at an enterprise value of SGD1,022mn at 7-7.5x EV/EBITDA (near StarHub’s own EV/EBITDA and the regional average of 7.0x) on our FY26F EBITDA estimate of ~SGD140mn. Previously, Keppel had agreed to sell M1 to Simba Telecom (SIMBA) for SGD1,430mn, or 7.3x EV/EBITDA based on M1’s trailing twelve-month EBITDA of SGD195.4mn ending in April 2025. We assume a potential StarHub-M1 transaction to be announced in 2026, with synergies reaching an annual run-rate of SGD70mn in 2029. Headquarters/staff rationalisation should be the largest source of savings, followed by retail footprint consolidation. Network savings should be much smaller than regional peers due to a smaller footprint and a shared 5G network in Singapore.
We project the potential transaction to be ~120% & ~250% EPS accretive in the second and third year of the merger. We expect the acquisition to be funded by a potential sale of Ensign for ~SGD400mn (SGD121mn already received, plus an estimated SGD280mn from potential sale of the remaining stake) and ~SGD621mn of debt (3.6% interest rate). As integration costs fall away and gross synergies ramp to SGD50mn in FY28F, combined EPS recovers to ~5.7-5.9 Scts, turning accretive against the FY26F standalone base roughly by the end of the second-year post-completion. By FY29F, at the full run-rate of SGD70mn, EPS reaches ~9.0-9.2 Scts. For reference, StarHub's standalone (pre-deal) net profit is forecast to recover from SGD45.2mn in FY26F to SGD58.4mn in FY27F and SGD81.8mn in FY28F, so the merger's EPS accretion builds on an already-improving base.
Post-deal net debt/EBITDA could peak ~3.5x at FY27F close. This reflects ~SGD621mn of incremental debt assumed by StarHub together with an estimated SGD210-280mn of M1’s own net debt. We estimate M1’s net debt to FY26F EBITDA to be 1.5-2.0x, consistent with typical telco leverage. We expect StarHub to debase its dividends for ~2 years till its net debt to EBITDA drops below 2.5x
Market consolidation provides incremental ARPU upside. Beyond the transaction-specific revenue and cost synergies, we see additional upside from a more rational competitive landscape. Our StarHub standalone forecast is already based on a 5% mobile ARPU CAGR over FY26F-28F. Post-merger, we assume this improves modestly to 6.5% over FY27FFY29F, reflecting reduced pricing pressure. As both scenarios begin from the same ARPU level at deal close, the uplift only emerges from FY28F as the higher growth rate compounds, contributing an incremental ~SGD15mn of EBITDA by FY29F. We apply an 80% incremental EBITDA margin to this benefit, reflecting the high operating leverage of monetising an existing subscriber base. While additive to our merger synergy assumptions, we view the ARPU upside as relatively modest given our conservative growth differential and the continued presence of strong competitors, with Singtel remaining the market leader; SIMBA, meanwhile, could emerge a comparatively weaker fourth-turned-third player following consolidation, given its smaller scale relative to the combined StarHub-M1 entity.We expect headquarters and staff rationalisation to generate the largest share of cost savings, given headquarters costs are primarily staff-related. A potential merger of StarHub and M1 removes the need for duplicate corporate functions and senior leadership roles (e.g. executive management, finance, legal, HR, procurement and other head-office functions) that each currently maintains independently. This is grounded in StarHub’s disclosed FY25 staff cost of SGD252.9mn and M1’s disclosed headcount of over 1,000 employees, per Tuas Limited in August 2025.
Retail footprint consolidation ranks second, given overlapping stores between the two operators. In Singapore, StarHub currently operates 11 retail outlets (7 fully-managed shops and 4 exclusive partner outlets), while M1 operates 10 retail outlets according to IMDA records. Where their shops sit close together serving overlapping catchments, the combined entity would not need both storefronts, closing the redundant ones saves rental costs directly and reduces retail staffing, alongside more modest savings from dealer commissions and marketing consolidation.
Network savings are the smallest of the three drivers, reflecting StarHub and M1’s existing network sharing arrangements. Both operators already share elements of their network infrastructure, which limits the scope for further consolidation-driven savings relative to a market where operators start from fully independent, unshared networks. Where genuine overlap remains, Singapore’s site economics are structurally higher-cost than regional peers: with 100% of Singapore’s population classified as urban, every remaining network site sits in a premium urban rooftop or street-furniture location, unlike markets such as Indonesia, where a majority of towers serve lower-cost rural or outer-island locations.
Funding structure: Ensign divestment proceeds plus debt, with no equity issuance
We assume StarHub funds the M1 transaction entirely through Ensign divestment proceeds and debt, with no new share issuance. StarHub received SGD121mn in April 2026 for a partial Ensign stake sale. We assume StarHub sells its remaining 38.92% stake in Ensign at a valuation consistent with its last reported sale value, raising a further ~SGD280mn and taking total Ensign-related proceeds to ~SGD401mn. Against an M1 enterprise value of SGD1,022mn, this leaves ~SGD621mn to be funded by incremental
debt, with no new StarHub shares issued and no increase in Keppel’s existing stake. Integration costs are assumed to be absorbed through operating cash flow rather than additional borrowing.
EPS and dividend implications
The transaction might be ~120% & ~250% EPS accretive in the second and third year of the merger. M1’s standalone net profit is not disclosed by Keppel, which reports M1 as a discontinued operation; we estimate it in the region of SGD8-15mn across FY27F-28F, based on our estimate of M1’s EBITDA. Combined with StarHub’s own net profit and after deducting the after-tax cost of ~SGD621mn of incremental debt at a 3.6% interest rate, FY27F combined net profit might be dragged down by an estimated integration cost of SGD20mn resulting in a pro-forma EPS of ~2.0-2.2 Scts, dilutive against StarHub’s 2.6 Scts standalone base. By FY28F, as net synergies turn positive (SGD40mn), EPS might recover to ~5.7-5.9 Scts, turning accretive. By FY29F, at the full SGD70mn run-rate, EPS might reach ~9.0-9.2 Scts. Given StarHub’s FY25 payout ratio of 113% already exceeds net profit, we
would expect dividend guidance to be rebased lower to reflect the higher gearing, before potentially recovering as leverage normalises alongside synergy realisation.
Upgrade to BUY with a revised TP of SGD1.40 (previous SGD0.94). We value StarHub using two approaches. We raise StarHub’s standalone value to SGD1.02 based on 7.3x EV/EBITDA and SGD0.18 per share from Ensign. This is further uplifted by synergies worth SGD0.35 per share. In our alternative valuation, we apply 9x 12-month forward EV/EBITDA multiple (vs regional average of 7x) to drive TP of SGD1.44. Our higher multiple is due to higher consolidated EBITDA CAGR of 14% over FY26F-29F (regional average CAGR of 4%) aided by synergies. Averaging the two core valuations, we arrive at SGD1.40 per share.
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