Analysts are generally upbeat on the recent announcements by Singapore Telecommunications Z74 (Singtel). Analysts are keeping their “buy” recommendations on Singtel and see a bright outlook ahead.
To recap, Singtel made two announcements on June 18.
The first announcement will see Singtel entering into a joint venture (JV) with Telekom Malaysia (TM) to develop data centres (DCs) in Malaysia, starting with a AI-ready DC campus in Johor.
The second announcement is a deal that will see Singtel, alongside ST Telemedia Global Data Centres (STT GDC) and KKR enter into a KKR-led consortium, where Singtel will invest some $1.75 billion into STT GDC. This transaction marks the largest digital infrastructure investment in Southeast Asia to date in 2024.
See more: ST Telemedia Global Data Centres Raises $1.75 bil from KKR-led consortium with Singtel
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RHB Bank Singapore has kept its "buy" call and $3.25 target price, as the Singapore research team views Singtel’s DC foray into Malaysia positively. “The JV completes its regional DC footprint, with scale economies to drive longer-term growth for its Digital InfraCo business, which is a key growth engine,” says the team.
While the JV with TM confirms earlier market talks, this is not a surprise move, as Singtel has entered into similar JVs in Indonesia with Telkomsel Indonesia and Medco Power to build a 51MW DC in Batam Island, as well as with Advanced Info Services in Thailand for a 40MW DC. “With the Malaysia DC, its overall DC capacity is set to grow from 62MW in Singapore now to over 250MW region-wide over the next three years,” according to the research team.
Slated for completion in 2026 (FY2027), the DC in Johor will be equipped with high-power density and liquid cooling technology with large computing capabilities to support artificial intelligence workloads. The research team sees the DC pre-empting capacity constraints in Singapore and meeting the overflow of inventory from the island state.
See also: Macquarie revises Singapore earnings growth for FY2024 to 7% from 3%
Peak funding requirement is estimated at RM3 billion, which could be defrayed from the proceeds raised from the sale of its 20% stake in Nxera to KKR last September for $1.1 billion.
DBS Group Research too has maintained its call and $3.50 target price on Singtel for over 35% upside potential and 6% yield. “This partnership is part of the initiative to grow the core operating profit from Singapore & Australia over the next two to three years, which has a high correlation with Singtel's share price,” says DBS.
The research house estimates a CAGR of 27% over 2023-2030 for the DC capacity of Malaysia led by ample availability of renewable power as Malaysia targets over 37% of its total power from renewables in 2030 (18% in 2023); and Malaysia’s ample submarine connectivity to meet the demand spilling from Singapore and China with at a low latency required for AI workloads.
DBS believes that Singtel’s DC business is likely to be the key earnings growth driver for the next few years from FY2026 onwards, once data-centre capacity comes onstream.
As for the investment into STT GDC, DBS says: “In our view, this investment will allow Nxtera and STT GDC to operate synergistically and present the option to merge in the longer term to create a global player with large scale.”
DBS expects STT GDC to benefit from growth in markets like UK, Germany, India and other parts of Asia, where Singtel does not have data centre presence.
Meanwhile, CGS International has kept its “add” call and $2.90 target price. “We view the deals positively as Singtel pushes towards its target of growth engines (data centres and NCS) contributing over 20% of group Ebitda by end-FY2028. Following the deals, we believe Singtel is now even better positioned to capitalise on rising DC demand in the Asean region,” say analysts Kenneth Tan and Lim Siew Khee.
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As for UOB Kay Hian, it released a sector report, keeping a “market weight” rating on the regional telecommunications sector, with a focus on the Singtel-TM JV.
“We understand that the JV may be able to secure sufficient power, water and fibre (connectivity) to allow for a timely foray in an increasingly crowded DC play in Johor. Hence, speed to market remains a key advantage for the JV,” say analysts Chong Lee Len and Llelleythan Tan. This is premised on TM’s existing presence in Johor, alongside clout in the market as a government linked company, they opine. Singtel’s trajectory into regional markets remains consistent – working with a local partner for long-term growth.
UOBKH has kept its “buy” call on Singtel, while increasing its target price to $3.05 from $2.99. “For Singtel, the Ebitda impact is minimal for a 64MW – although at Nxera level, earnings impact will be more meaningful (Ebitda is expected to rise 21% from FY2023’s base Ebitda of $172 million),” according to Chong and Tan.
However, UOBKH has kept a “hold” call on TM with a higher target price of RM7.00. “Ebitda impact is between 1% (64MW) to 6% (200MW) for 2026. Equity accretion is between 40 sen/share to RM1.33/share respectively. We are positive on the JV,” say the analysts.
In a blue-sky scenario (200MW), the analysts imply a fair value of $3.16 for Singtel and RM7.80 for TM, but this is believed to only materialised in 2030.
