What Investors Need To Know About Starhub Ltd’s Investment Into mm2 Asia Ltd

In what may be surprising news for some investors, Starhub Ltd (SGX: CC3), Singapore’s second largest telecommunications company, has actually had a good partnership with film-making outfit mm2 Asia Ltd (SGX: 43D) since 2012.

The partnership involved StarHub investing in the Ah Boys to Men and Lion Men movie series which were co-produced by mm2 Asia.

On Tuesday, StarHub revealed that it would be taking its relationship with mm2 Asia onto the next level: The telco announced that it would be buying a 9.05% stake in the film producer through a private placement.

The price of the deal

StarHub plans to subscribe for 44 million new shares of mm2 Asia at S$0.41 apiece. The price of S$0.41 actually represents a 19.2% discount to the volume weighted average price of S$0.5077 for mm2 Asia’s shares on 22 March 2016. The total sum for the investment would be S$18.04 million.

The reason for the deal

In StarHub’s press release about the investment, its chief executive Tan Tong Hai had laid out a number of benefits that he sees the deal can bring. He explained:

“Taking a stake in mm2 is a strategic move. It unlocks opportunities to expand our pay TV offerings through original content creation that will set us apart in the cluttered content space. mm2 can also potentially extend the reach of our localised content through marketing and distribution efforts beyond Singapore shores.

In addition, we may choose to tap on mm2’s cineplex business to showcase our content, as well as gain access to top-rated concerts and artistes through UnUsUaL of which mm2 owns a stake.”

From Tan’s words, it seems that there is synergy between the two companies and taking a stake in mm2 Asia would allow StarHub to have a larger inventory of original entertainment content in its arsenal.

Starhub might be moving towards a business model of being both an infrastructure provider as well as a content provider in its Pay TV segment. This is similar to some of StarHub’s regional peers such as the Malaysia-based satellite TV provider Astro Malaysia Holdings Bhd (KLSE:6399.KL). Astro provides its customers with access to pay TV services and also its original TV content.

By having content that it may call its own, it might help StarHub differentiate its pay TV offerings from the competition in Singapore which include services from Singapore Telecommunications Limited (SGX: Z74) and Netfliix.

Foolish Summary

StarHub’s investment into mm2 Asia might indicate a new focus for its Pay TV business. It’s still too early to tell if StarHub is even considering a heavy push into original content production and even if it is, it’s also hard to say if it can work in meaningfully differentiating StarHub’s Pay TV product from the competition. It’d be interesting to see how this all shakes out eventually.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own shares in any companies mentioned above.