Company Coverage
Singapore Telecommunications (ST SP): Driving Long-Term ROIC Goals
BUY (Maintained)
Current price:
Target price:
Upside:
S$4.52
S$5.50
21.7%
Analyst
Highlights
- Singtel aims to lift ROIC by leveraging on Optus ARPU uplift and EBIT margin expansion while deploying resources to high growth businesses, namely NCS, RE: AI and Nxera.
- Management is at the preliminary stage of unlocking value in fast-growing Nxera, suggesting either a tax-efficient REIT structure or listing of Nxera. An IPO could fetch an equity value of S$4b-4.5b for Nxera.
- Singtel has unlocked S$6.8b through asset recycling, bringing the group closer to its S$9b mid-term target. Maintain BUY with a fair value of S$5.50.
Analysis
- Beyond Singtel28: Driving ROIC uplift... Singtel aims to lift current ROIC of 11% to mid-teens and this is done via a two-pronged approach: a) organic ROIC – improve Optus and Singapore consumer market via rationale market behaviour and cost discipline; and b) portfolio ROIC – reallocate asset to be deployed to higher ROIC business (NCS, RE: AI and Nxera). We believe an imminent market consolidation in Singapore will drive market repair and improve the Singapore segment outlook.
- …as management aims to lift FY30 opco EBIT to S$2.5b… Optus will continue to benefit from a sector wide ARPU uplift, evident in a 14% yoy growth in 1QFY27 Optus operating profit. With 40% of Singtel’s capital invested in Optus, the near-term aim is to drive opex efficiency and lift EBIT margin to 31-32% (FY26: ~26%) – a level comparable to its Australian peers. Together with strong underlying growth for NCS, Nxera and RE:AI, Singtel aims to drive opco EBIT from S$1.5b (FY26) to S$2.1b-2.5b by FY30.
- …and deliver attractive shareholder returns. To-date, Singtel has unlocked a total of S$6.8b through its active asset recycling programme. This brings Singtel closer to its S$9b mid-term recycling target. The S$9b has been allocation as such: a) S$5b for value realisation dividend (VRD) of 3-6 cents annually up to FY30; b) S$2b for share buyback – having utilised S$0.9b to-date; and c) S$2b for growth – committed S$1b to-date. The strategic acquisition of STT-GDC (S$1b commitment) is categorised under its S$2b growth funding initiative.
Highlights
- Singtel aims to lift ROIC by leveraging on Optus ARPU uplift and EBIT margin expansion while deploying resources to high growth businesses, namely NCS, RE: AI and Nxera.
- Management is at the preliminary stage of unlocking value in fast-growing Nxera, suggesting either a tax-efficient REIT structure or listing of Nxera. An IPO could fetch an equity value of S$4b-4.5b for Nxera.
- Singtel has unlocked S$6.8b through asset recycling, bringing the group closer to its S$9b mid-term target. Maintain BUY with a fair value of S$5.50.
Analysis
- Beyond Singtel28: Driving ROIC uplift... Singtel aims to lift current ROIC of 11% to mid-teens and this is done via a two-pronged approach: a) organic ROIC – improve Optus and Singapore consumer market via rationale market behaviour and cost discipline; and b) portfolio ROIC – reallocate asset to be deployed to higher ROIC business (NCS, RE: AI and Nxera). We believe an imminent market consolidation in Singapore will drive market repair and improve the Singapore segment outlook.
- …as management aims to lift FY30 opco EBIT to S$2.5b… Optus will continue to benefit from a sector wide ARPU uplift, evident in a 14% yoy growth in 1QFY27 Optus operating profit. With 40% of Singtel’s capital invested in Optus, the near-term aim is to drive opex efficiency and lift EBIT margin to 31-32% (FY26: ~26%) – a level comparable to its Australian peers. Together with strong underlying growth for NCS, Nxera and RE:AI, Singtel aims to drive opco EBIT from S$1.5b (FY26) to S$2.1b-2.5b by FY30.
- …and deliver attractive shareholder returns. To-date, Singtel has unlocked a total of S$6.8b through its active asset recycling programme. This brings Singtel closer to its S$9b mid-term recycling target. The S$9b has been allocation as such: a) S$5b for value realisation dividend (VRD) of 3-6 cents annually up to FY30; b) S$2b for share buyback – having utilised S$0.9b to-date; and c) S$2b for growth – committed S$1b to-date. The strategic acquisition of STT-GDC (S$1b commitment) is categorised under its S$2b growth funding initiative.
BUY (Maintained)
Current price:
Target price:
Upside:
S$4.52
S$5.50
21.7%
Analyst
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