Analysts are generally upbeat on the recent announcements by Singapore Telecommunications Z74 0.38% (Singtel). Analysts are keeping their &ldquo buy&rdquo 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. 

 

See more: Singtel&rsquo s Nxera and Malaysia&rsquo s TM form joint venture to develop next-generation data centres

 

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.

 

RHB Bank Singapore has kept its " buy" call and $3.25 target price, as the Singapore research team views Singtel&rsquo s DC foray into Malaysia positively. &ldquo 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,&rdquo 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. &ldquo 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,&rdquo 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.

 

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. &ldquo 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,&rdquo 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&rsquo 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&rsquo 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: &ldquo 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.&rdquo

 

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 &ldquo add&rdquo call and $2.90 target price. &ldquo 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,&rdquo say analysts Kenneth Tan and Lim Siew Khee.

 

As for UOB Kay Hian, it released a sector report, keeping a &ldquo market weight&rdquo rating on the regional telecommunications sector, with a focus on the Singtel-TM JV.

 

&ldquo 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,&rdquo say analysts Chong Lee Len and Llelleythan Tan. This is premised on TM&rsquo s existing presence in Johor, alongside clout in the market as a government linked company, they opine. Singtel&rsquo s trajectory into regional markets remains consistent &ndash working with a local partner for long-term growth.

 

UOBKH has kept its &ldquo buy&rdquo call on Singtel, while increasing its target price to $3.05 from $2.99. &ldquo For Singtel, the Ebitda impact is minimal for a 64MW &ndash although at Nxera level, earnings impact will be more meaningful (Ebitda is expected to rise 21% from FY2023&rsquo s base Ebitda of $172 million),&rdquo according to Chong and Tan.

 

However, UOBKH has kept a &ldquo hold&rdquo call on TM with a higher target price of RM7.00. &ldquo 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,&rdquo 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.

The JV will develop a data centre campus in Johor, which will be the largest to date for both companies

 

SINGTEL&rsquo S : Z74 +1.18%regional data centre business, Nxera, is partnering Malaysia telco TM to develop data centres, starting with a data centre campus in Johor, the joint venture (JV) said on Tuesday (Jun 18).

 

&ldquo This strategic partnership aims to serve the needs of hyperscalers, next-generation AI application providers and enterprises pursuing accelerated digitalisation and cloud in the region,&rdquo the companies said in a joint statement.

 

Located in Iskandar Puteri, about 16 km from Singapore, the data centre campus will be the largest to date for both TM and Nxera.

 

It will be built to the latest standards of reliability, security and sustainability while offering the best local and international connectivity.

 

With its close proximity to subsea cable links between Singapore and Malaysia, the data centre will be well-placed to support the increasing demand from both countries&rsquo digitalisation and development initiatives, the JV said.

 

Bill Chang, chief executive officer of Nxera and Singtel&rsquo s Digital InfraCo unit, said in addition to data centres, the JV will expand the submarine cable connectivity between Singapore and Johor. Additionally, the JV will partner institutes of higher learning in Malaysia to nurture talent for the industry.

 

Chang said: &ldquo Our strategy of developing data centre sites with close proximity to our operations in Singapore allows us to capture spill-over demand from our customers and help them scale their business with confidence.&rdquo

 

The initial phase of the data centre is planned for 64 megawatt (MW) and can be scaled up to 200 MW in response to market demand. This high-power density campus will be able to host large computing and artificial intelligence (AI) capabilities such as those required by cloud hyperscalers and GPU-as-a-Service providers.

 

It will feature technologies such as liquid cooling to support high-power density workloads and operations efficiently.

 

Nxera is developing three new AI-ready data centres in the region in addition to 62 MW of existing capacity in Singapore. This includes a new 58 MW data centre in Tuas, and data centres with partners in Indonesia and Thailand.

 

Nxera&rsquo s total pipeline capacity is set to increase from its current operational capacity of 62 MW in Singapore to more than 200 MW in the region in the next three years.

A KKR-Singtel consortium will invest S$1.75 billion in data-centre provider ST Telemedia Global Data Centres (STT GDC), in a deal said to be this year&rsquo s largest digital infrastructure investment so far in South-east Asia.

 

The initial S$1.75 billion investment by the consortium will be via redeemable preference shares with detachable warrants, global investment firm KKR said on Tuesday (Jun 18), in a statement issued jointly with Singtel and STT GDC.

 

Upon the exercise of the warrants in full, the investors will inject an additional S$1.24 billion, giving them a stake of 18.3 per cent in STT GDC, ST Telemedia said.

 

KKR&rsquo s stake will be approximately 14.1 per cent, and Singtel&rsquo s, about 4.2 per cent.

 

Arthur Lang, Singtel&rsquo s group chief financial officer, said: &ldquo We see digital infrastructure, particularly data centres, as a growth asset and a compelling investment, with the remarkable rise of the sector driven by rapid digitalisation and AI adoption around the world.&rdquo

 

He added: &ldquo This is a solid opportunity for Singtel to gain exposure to an established platform with a footprint in high-quality data centre markets, and which aligns with our&hellip strategy to further scale our digital infrastructure business in collaboration with like-minded partners.&rdquo  

 

The consortium beat out New York alternative investment firm Stonepeak for the stake in STT GDC, which is one of Asia&rsquo s largest data-centre providers.

 

The consortium was created following an independent competitive process by ST Telemedia and STT GDC, which considered, among other things, the resulting consortium&rsquo s collective expertise and track record, financial strength, and proposed business strategy.

 

The proceeds of the investment will be used to advance STT GDC&rsquo s position in its markets, and to support its continuing international expansion and growth plans through organic and inorganic strategies.

 

KKR will make this investment from its Asia-Pacific Infrastructure Investors II Fund. 

 

Following the transaction, ST Telemedia will continue to be the majority shareholder of STT GDC.

 

STT GDC has more than 95 data centres across 11 geographies and points of presence in over 20 major business markets. Its data-centre portfolio has a total capacity of more than 1.7 gigawatt of IT load.

 

The closing of the deal is subject to the satisfaction of certain conditions precedent, including regulatory approvals.