Singtel’s earnings have troughed, analysts keeps 'buy'

Singtel is aiming to build-up its Regional Data Centre platform capacity by four fold in the next three years.

Analysts at PhillipCapital Research, Maybank Securities, CGS-CIMB Research and RHB Bank Singapore have kept their “buy” and “add” calls on Singapore Telecommunications (Singtel) after attending the company’s 2023 Investor Day.

PhillipCapital analyst Paul Chew describes Singtel as “directionally healthy”, believing that earnings have troughed as mobile prices start to edge up higher and new growth engines gather scale. “The downside will depend on [its Australian subsidiary] Optus's ability to rationalise cost to cope with the unrelenting price competition,” he adds.

In Australia, tier-2 brands or mobile virtual network operators (MVNOs) have been capturing market share by 5.7 percentage points from 19.7% in 2019 to 25.4% in 2022. This was despite Optus purchasing the largest MVNO — amaysim — in 2021 for A$250 million.

In Singapore, Singtel sees strong competition in the mobile market, particularly for low-end price plans. CGS-CIMB analysts Kenneth Tan and Lim Siew Khee note that inbound roaming is recovering quickly, with the company expecting recovery to be accelerated by big festivals such as the F1 Grand Prix and resumption of no-visa travel to China.

Broadband is also seeing intensifying competition on the back of the impending entry of Simba into the broadband sector, they add. “That said, the group still expects consumers to continuously upgrade to higher bandwidth plans given the increasing data consumption trend. Singtel will be relaunching its 10 GBPS plan soon.”

Meanwhile, the company is aiming to build-up its Regional Data Centre (RDC) platform capacity by four fold to more than 220MW across Singapore, Thailand and Indonesia in the next three years, with potential monetisation opportunities. Maybank analyst Kelvin Tan highlights that Singtel is also looking for suitable partners to expand into Asean countries, namely Malaysia and Vietnam.

The company expects a healthy RDC ebitda margin of around 50%, even outside of Singapore, he adds. Singtel is positioning to have its data centres differentiated from regional peers through low power usage effectiveness while maintaining high efficiency as well as sufficient capabilities in dealing with new generation technology, Maybank clarifies.

During the investor day presentation, Singtel reiterated its commitment to improve its return on invested capital (ROIC) to low double-digits by FY2026. This will be done via a combination of greater operational expenditure efficiencies, ramping up new growth engines as well as lowering its capital expenditure intensity, among others, RHB analysts explain.

Moving forward, RHB sees scope for more cash to be returned, with another $6 billion in assets earmarked to be recycled over the mid-term.

PhillipCapital and CGS-CIMB analysts are keeping their target prices for Singtel at $2.80, while Maybank and RHB analysts are maintaining their target prices at $3.10 and $3.40 respectively.

At 2.59pm, shares in Singtel are trading 1 cent higher or 0.42% up at $2.37.

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