Kenneth Tan and Lim Siew Khee of CGS International have raised their target price for Singapore Telecommunications Z74 to $2.90 from $2.84, on expectations that the telco will see gradually better earnings on lower capex needs from FY2026 and beyond.
For now, with the telco's active asset recycling efforts and committed dividend payout, the analysts have kept their "add" call on the stock.
They like Singtel as an "attractive yield and growth play", as they point out that Singtel now offers a yield of more than 6% and earnings CAGR of 9% between FY2024 and FY2027, and trades at just 8.5x ebitda, which is one standard deviation below its 10-year mean.
In their May 31, note, the analysts estimate that Singtel's capex will taper off in the current FY2025 due to the completion of spectrum payments in Singapore and Australia and the decommissioning of legacy equipment.
Optus, Singtel's Australia subsidiary, is seen to have "room" for ebit "repair" in the coming 6 to 12 months.
First, of the $200 million Singtel is targeting in group-wide opex reduction, 70% is estimated to come from Optus, via streamlining of businesses and headcount.
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More recently, Optus has raised the prices of some of its mobile price plans, in line with other competitors. "We think the competitive landscape in Australia has indeed improved and see steady mobile revenue growth ahead," according to Tan and Lim.
These should "flow positively" to its current FY2025 margins, they reason.
On the other hand, Singtel's domestic Singapore mobile business continues to face "intense competition" and would likely "hinder" recovery in average revenue per user.
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NCS, the enterprise services unit, reported "soft" 4QFY2024 revenue but is seen to generate 8% CAGR in revenue between FY2024 and FY2027.
"We expect Singtel's Singapore margins to improve over the coming quarters due to cost-cutting efforts and synergies realised from the integration of its consumer and enterprise businesses," the CGS International analysts say.
Singtel's data centre business, organised under its digital infrastructure unit, is a sector to watch.
The analysts project revenue from this business to more than double by FY2027 from FY2024, led by new capacity from its Tuas data centre coming on-line. Singtel has earlier indicated plans to grow its regional data centre capacity to 200MW from 62MW now.
Separately, Singtel has maintained it has no definitive deal to take a minority stake of 20% worth US$1 billion in ST Telemedia Global Data Centres, which has an existing capacity of 1.6GW as at the end of May 2024. According to a Reuters report on May 28, Singtel is one of the two front runners.
"An acquisition of a minority stake in STT GDC would allow Singtel to significantly exceed its longer-term 200MW target, given that STT GDC’s Asean data centres alone contribute around 600MW of capacity," the CGSI analysts say.
A deal with STT GDC aside, the analysts expect Singtel's data centre business ebitda to increase to 7% come FY2027 from 5% in FY2024.
Singtel shares as at 2.32 pm changed hands at $2.48, unchanged for the day.
