Singapore Telecommunications (Singtel) on Aug 29 held its Investor Day. Key focus areas of its Singtel28 plan include: driving high-quality revenue growth, cost optimisation, associate profits growth, and proactive capital management. On cost management, Singtel reiterated its $200 million per year opex cut programme from FY202-FY2026 and guided for a 20% reduction in corporate costs over the medium term.
Analysts have reiterated their confidence in Singtel following the Investor Day presentation.
CGS International has kept its “add” recommendation and $3.40 target price.
Analysts Kenneth Tan and Lim Siew Khee say in their Aug 29 report: “We note that Singtel mentioned the possibility of share buybacks with the excess capital, while value-realisation dividends (3-6 cents per annum) remain well backed by its $6 billion asset monetisation pipeline.”
Singtel said the main growth drivers for its Singapore business revolve around its ICT arm NCS’s revenue/margin expansion, robust data centre capacity ramp-up, and potential new 5G use cases. NCS said that it benchmarks itself against global technology service peers and is working towards attaining similar 12-13% EBITDA margins (FY2024: 9.4%) over the next two years, via optimising cost-to-serve and increasing focus on higher value projects.
Meanwhile, Singtel reiterated its target of EBITDA doubling by FY2028 for Nxera, driven by commencement of DC Tuas and ramp-up of newer revenue streams (Paragon and GPU-as-a-service).
As for the core Singtel Singapore business, while revenue remains under pressure, efforts ahead are primarily focused on: further cost optimisation (labour rationalisation, synergies from merger of divisions), and increased monetisation of new use cases, such as 5G network slicing and Internet-of-things (IoT) connectivity services.
Over at Australia, management is focused on driving Australian unit Optus’ longer-term ROIC upwards, namely via: cost reductions (Optus expects absolute opex to decline y-o-y in FY2025), further capex rationalisation, and margin improvement for mobile and enterprise.
DBS Group Research too have kept their “buy” recommendation and $3.50 target price on Singtel, as the research house is positive on the group’s plans to double its data centre (Nxera) Ebitda by FY2028. This implies that is DC Ebitda might rise from $163 million in FY2024, to $326 million by FY2028.
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DBS also view Optus and Bharti as key growth drivers. Optus is expected to benefit in FY2025 from about 65% of its customers on revised tariff plans, while Bharti is expected to benefit from further tariff hikes.
The group had also mentioned room for share buybacks and capital reduction, on top of value realisation divided (VRD) and regular dividends.
On the other hand, Citi Research keeps its “buy” call and $3.60 target price.
Analysts Arthur Pineda and Luis Hilado say: “Following (Investor Day), we remain convinced on Singtel's strong earnings growth narrative with the backdrop of price repair, cost cuts and adjacent business forays into data centres.”
Capital management remains a core focus, and the analysts believe a 6-7% yield will remain comfortably in reach and can be confidently sustained given the combination of planned asset sales in addition to private capital infusion into growth projects providing a surplus to its own free cash flow generation.
As at 2.40pm, shares in Singtel are trading at $3.10.
