Analysts at Maybank Securities and Citi Research are keeping their “buy” call on Singapore Telecommunications Z74 (Singtel) at respective raised target prices of $3.40 from $3.24 previously and $3.70 from $3.52 previously following recent positive developments in the group.
Singtel’s 29%-owned associate in India, Bharti Airtel, recently raised mobile prices across various plans by 10% to 21% with an average price increase of 15%, following a price hike trend also seen in its competitors, Jio and Vi.
On this, Maybank analyst Hussaini Saifee writes in his July 1 report: “Factoring a price elasticity of 60%, we see the price increases lifting Bharti’s FY2025 to FY2027 India mobile revenues by 7% to 9% (assuming a 9-month impact for FY2025).”
Furthermore, the current mobile average revenue per unit (APRU) in India is INR209 ($3.40), and Bharti Airtel has indicated a target of taking its APRU to INR300 to enable a financially healthy business model.
“Further assuming a pass-through impact of higher revenues on earnings before interests, taxes, depreciation and amortisation (ebitda) at 60%, we see India mobile ebitda rising 7% to 10% in FY2025 to FY2027. This translates to an ebitda lift of INR37 billion to INR55 billion for FY2025 to FY2027. At a 25% corporate tax rate, we expect this to translate to Bharti Airtel earnings rising INR28 billion to INR42 billion in FY2025 to FY2027,” writes Saifee.
Factoring in the impact of Singtel’s India mobile prices increasing, the analyst is raising his Singtel earnings estimates by 4% to 8% in FY2025 to FY2027.
He continues: “Although Bharti doesn’t pay meaningful dividends, we think Singtel can raise its dividends in-line with the lift in earnings helped by past and potentially a future small stake divestment in Bharti Airtel.”
Furthermore, Singtel is looking to recycle $6 billion of capital in the medium term, which Saifee notes could “partly come from a small Bharti Airtel stake sale”.
He concludes: “We see an all-round operational turnaround and multiple catalysts on the horizon. Singtel’s holdco discount remains at 39% and Maybank’s estimates for FY2026 to FY2027 are 8% to 12% ahead of the street’s.”
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Upside factors noted by the Maybank include the potential restructuring of Singtel’s Australian asset, Optus, leading to return on invested capital (RoIC) and free cash flow improvement, stronger-than-expected ARPU growth due to easing in price competition in markets where Singtel is present and finally, a better-than-expected execution in meeting targeted cost savings.
Conversely, downsides include delays in the restructuring of Optus and potential fines levied on it due to network outage, intensifying price competition in Singtel-exposed markets and foreign exchange (forex) headwinds impacting Optus and other associates.
Meanwhile, Citi analyst Arthur Pineda sees the price hike in Singtel’s partly-owned Bharti Airtel as a driver for earnings growth, among other factors.
He notes that management has expected to book $200 million in savings in FY2025 from rightsizing exercises in Australia, as well as a recombination of its consumer and enterprise businesses which “should allow” an elimination of duplicated cost bookings. Beyond FY2025, Pineda notes that a further $200 million in cost savings should be booked.
He adds the sale of loss-making assets as another key driver. Pineda writes in his July 3 report: “Management had divested loss-making assets such as Amobee and Trustwave. The sale of Trustwave which was completed in January should bode positively having booked $56 million in earnings before interest and taxes (ebit) losses for FY2024. The benefits of which should be realised from FY2025 onwards, helping drive profit growth.”
Lastly, the Citi analyst also sees Singtel’s digital investments paying off, with the expansion of its current data centre capacities in FY2027 and potential equity earnings contributions from investments in Thailand, Indonesia and Malaysia.
“Based on these initiatives alone, we see room for ebitda and pre-tax regional associate contributions to expand by over $3 billion over the next three years. As such, we believe the company can comfortably deliver double-digit profit growth,” writes Pineda.
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Altogether, the analyst anticipates an around 21% three-year net profit after tax (NPAT) compound annual growth rate (CAGR) for Singtel.
He writes: “We estimate combined FY2024 cash and three-year free-cash flow (FCF) inflow of $11.2 billion cumulatively. This excludes additional cash proceeds from its target $6 billion in asset divestments yet to be executed. This compares against an estimated $8.6 billion in cumulative dividends needed at our around 7% to 8% yield outlook.”
“We thus see upside opportunity and not downside risk to Singtel’s yield,” concludes Pineda.
As at 2.00 pm, shares in Singtel are trading three cents higher or 1.08% up at $2.81.
