CGS International (CGSI) analysts Kenneth Tan and Lim Siew Khee have kept their “add” call on Singapore Telecommunications Z74 (Singtel) with a raised target price of $3.30, a 40 cent increase from $2.90 previously, following recent positive developments from the group.
In their July 9 report, the analysts note Singtel’s positive performance in its share price, increasing by 13% m-o-m.
These gains were largely attributed to optimism surrounding Singtel’s focus on growing its data centre (DC) business as well as improvement in its investor sentiment towards its earnings outlook which are in line with the group’s 3QFY2025, ended Sept 30, earnings before interest and taxes (ebit) growth guidance of high-single-digit to low-double-digit, in the analysts’ view.
Additionally, Tan and Lim view the price hikes for both Optus and the group’s 29%-owned associate in India, Bharti Airtel (Bharti), positively.
This comes alongside the potential further stake sale of Bharti which could unlock value for Singtel.
“At current prices, we estimate that Singtel’s holding company discount has narrowed meaningfully to around 35%, from around 45% in April,” say the analysts.
Furthermore, Tan and Lim like Singtel’s ongoing DC investments, as it positions the group for potential growth.
With Singtel currently holding 62 megawatts (MW) of live capacity in Singapore, an additional 58 MW is set to follow in FY2026 following the commencement of DC Tuas.
Regional DCs in Indonesia, Malaysia, and Thailand, in which Singtel owns stakes ranging from 35%-49%, are also set to commence during the same period.
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“With Singtel’s DC earnings before interests, taxes, depreciation and amortisation (ebita) and capacity set to approximately double by FY2027, coupled with new earnings from regional DCs, we think it fair to value Nxera (Singtel’s 80%-owned DC subsidiary) separately from the Singapore business,” add the analysts.
As of now, Tan and Lim value Singtel’s share of Nxera at an estimated value of $4.4 billion, which is in line with Kohlberg Kravis Roberts and Co.’s 20% stake acquisition valuation of $1.1 billion.
The analysts view this development positively as valuation upside could potentially follow the group’s action of ascribing ebitda multiples to DC profits beyond FY2027.
Meanwhile, UOBKH analysts Chong Lee Len and Llelleythan Tan has maintained "buy" on Singtel with a target price of $3.05, being its top pick over Starhub and NetlinkNBN Trust. The analysts expect Singtel to double down on data centres which has been earmarked as the group’s next growth driver. "We reckon that any upcoming positive news flow for data centres would likely drive share price performance," they add.
CGSI highlight that the potential 2.3% stake sale of Bharti is set to unlock up to $3 billion of proceeds, allowing Singtel to comfortably fund FY2025 dividends of 17 cents which could generate a yield of 5.9%.
“Easing capex burden from FY2026 onwards (absence of large spectrum payments) combined with further asset recycling (towards $6 billion medium-term target) should support our FY2026-FY2027 dividend per share (DPS) assumption of 19-21 cents, translating into decent yields of 6.7%-7.3%,” conclude the analysts.
Following these developments, Tan and Lim see healthy double-digit core earnings per share (EPS) growth ahead for Singtel in FY2025 to FY2026.
As of 11.29am, shares in Singtel are trading at 1 cent higher or up 0.35% at $2.91.
