Kenneth Tan and Lim Siew Khee of CGS International have raised their target price for Singapore Telecommunications Z74 -0.4% 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.

 

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&rsquo 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.