Singapore Telecommunications Limited (Singtel)

Recommendation: BUY
Target Price: SGD 3.45
Stop Loss: Not specified
Date of Recommendation: 2nd September 2024
Broker: Maybank Research Pte Ltd

Investment Thesis: Singapore Telecommunications – Riding on Digital Transformation and Dividend Clarity

Singapore Telecommunications Limited (Singtel) remains a strong investment opportunity as it continues to capitalize on its digital infrastructure and strategic investments across ASEAN, India, and Australia. The company’s recent investor day highlighted several areas of growth and potential challenges, positioning it as a resilient player in the telecom industry.

Digital InfraCo as Growth Engine: Singtel’s Digital InfraCo division, which houses data centers and AI-linked businesses, is on track to emerge as a significant growth driver. The company plans to increase its data center capacity from 60MW to over 400MW in the medium term. Additionally, Singtel’s involvement in the AI space, supported by its infrastructure, positions it well for future demand in government and healthcare sectors.
Dividend and Capital Recycling: Singtel reiterated its SGD 6 billion asset recycling target, with potential proceeds from divestments and equity from capital partners. The company’s strong balance sheet allows it to potentially pay dividends at the higher end of its guidance, translating to an attractive 6% yield. The potential for share buybacks adds further downside protection.
Optus and Telkomsel Challenges: While Singtel’s overall operations remain steady, there are concerns regarding Telkomsel’s revenue growth and potential penalties linked to the 2022 Optus cyberattack. However, Optus is showing signs of recovery with rational competition and cost optimization efforts, including workforce reductions and capex cuts.
Associates on Strong Footing: Bharti Airtel in India is performing well, with management targeting ARPU increases and strong momentum in enterprise and data center spaces. AIS in Thailand and Globe in the Philippines also show positive growth potential, with room for higher payouts and price increases.

Valuation and Financials:
Singtel is currently trading at SGD 3.13, with a target price of SGD 3.45, offering an upside potential of 15%. The stock’s attractive dividend yield of 6% and strong growth prospects in its digital infrastructure make it a compelling buy.

Share Price Catalysts:

Successful expansion of the Digital InfraCo business and AI opportunities.
Completion of asset recycling and capital management initiatives, supporting dividend payouts.
Continued growth in key associates, particularly in India and Thailand.

Investment Risks:

Potential penalties from the Optus cyberattack and challenges in Telkomsel’s growth.
Intensifying competition in key markets impacting ARPU and margins.
FX headwinds affecting Optus and other international operations.

Company Overview: Singapore Telecommunications Limited is a major telecommunications company with a significant presence across ASEAN, India, and Australia. The company offers a wide range of services, including mobile and fixed-line communications, data hosting, and digital infrastructure. Singtel’s diversified portfolio and strategic investments position it as a leader in the evolving telecom landscape.

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