Overview of Singtel
Singtel stands as one of Asia’s foremost communications technology groups, delivering a broad portfolio of next‐generation communication and technology services. With a strong focus on both consumer and business segments, the group continues to reinvigorate its core business while capitalising on emerging trends in 5G, digital transformation, enterprise services, cybersecurity, as well as data centre and satellite development. The firm’s vast landscape covers platforms such as Singtel Singapore, Optus, NCS, Digital InfraCo, and Trustwave – along with significant contributions from its regional associates like Telkomsel, AIS, Airtel, Globe, and Intouch.
Investment Thesis & Recommendation
The equity research report, dated 20 February 2025, maintains a BUY rating on Singtel. The research provides a bullish outlook anchored on solid underlying business drivers, favourable operating performance and strategic reinvestments. Key highlights include:
- Stable operating revenue and EBITDA performance in 3QFY25.
- Improved EBIT figures supported by measures such as lower depreciation costs and cost optimisation.
- Enhanced regional associate contributions driven by strong results from Airtel, AIS, Optus and NCS.
- Positive guidance revision with raised FY25 EBIT growth expectations (from low double digits to high teens to low twenties) and an announced total ordinary dividend of approximately 16.5 cents per share.
Deep Dive Analysis by Business Segment
Singtel Core Business Performance
In the 3QFY25 period ending 31 December 2024, Singtel’s operating revenue and EBITDA remained broadly in line with 1% year-on-year growth. EBIT increased by 6.2% YoY, largely as a result of lower depreciation costs. The company reported an underlying net profit increase of 22% YoY to SGD680 million in constant currency, underpinned by strong contributions across multiple segments. A significant net exceptional gain, largely attributed to partial stake sales in Intouch and Indara, resulted in net profit more than doubling to SGD1.3 billion.
Optus
Optus has demonstrated a commendable recovery trajectory. In 3QFY25, its revenue recorded a 4.1% YoY growth, driven by robust mobile service expansion. EBIT surged by 45% YoY, primarily benefiting from lower depreciation and amortisation costs. With the advent of postpaid price increases and anticipated revenue from its network rental deal with TPG, Optus is well positioned for further improvement, supporting its role as one of Singtel’s key growth engines.
Singtel Singapore
The domestic business, Singtel Singapore, encountered a challenging environment with a 4.8% decline in YoY revenue. The impact of competitive pricing in mobile services was partly offset by a 1.1% YoY uptick in EBITDA due to an ongoing focus on cost optimisation. Despite these pressures, the segment remains critical to Singtel’s overall performance.
NCS
NCS, an important driver of the group’s growth engine, experienced a 5.9% YoY increase in revenue. This growth was largely attributable to its Gov+ and Telco+ businesses, which delivered EBITDA and EBIT increases of 10% and 15% YoY respectively. While the company anticipates that scalability-related costs, particularly in recruiting suitable talent, may constrain EBITDA margins in the near term, NCS is positioned as a vital long-term contributor to Singtel’s strategic agenda.
Digital InfraCo
The Digital InfraCo segment faced headwinds with a 6.4% YoY decline in revenue, which translated into a substantial 51% YoY drop in EBIT and a 21% decline in EBITDA. The decline stemmed from lower satellite deployment fees coupled with higher expansion expenses, underscoring the challenges in this rapidly evolving sector.
Future Guidance & Investment Initiatives
Management has raised its guidance for FY25, forecasting EBIT growth in the high teens to low twenties – a positive shift from the previous outlook of low double-digit growth. The dividend is projected to be approximately 16.5 cents per share for FY25. Capital expenditure is expected to reach SGD2.8 billion, with SGD1.8 billion earmarked for core investments encompassing 5G, cybersecurity, and digital transformation. Additionally, an extra SGD1 billion will be allocated to the development of data centres and satellite projects.
Singtel remains optimistic about Asia’s long-term digital growth prospects, particularly with the expansion of artificial intelligence, data centres, and enhanced global connectivity. The company is expected to benefit significantly from the Singapore Budget 2025 initiatives, including the SGD150 million Enterprise Compute Initiative aimed at supporting enterprises in integrating AI solutions.
Valuation Analysis & Peer Comparisons
The report provides a thorough valuation analysis, comparing Singtel with peers such as Netlink NBN Trust and Starhub. Key valuation multiples for Singtel include:
- Price/Earnings: FY25E at 21.9 and FY26E at 18.9
- Price/Book: 2.2 for both FY25E and FY26E
- EV/EBITDA: 16.9 for FY25E and 16.0 for FY26E
