Broker: Maybank Research Pte Ltd
Date of Report: May 23, 2025

Singtel Accelerates Capital Returns and Narrows Holdco Discount: A Comprehensive Investment Outlook

Executive Summary: Singtel’s Investment Case Strengthens

Singapore Telecommunications (Singtel, ST SP) has entered a new phase of operational excellence and capital management, positioning itself as a compelling investment opportunity in the telecommunications sector. With a forecasted 14% earnings CAGR (FY25–28), robust dividend yields (5–6%), and clear progress on capital returns, Singtel’s holdco discount is expected to narrow further. Maybank Research reiterates a BUY rating, raising the target price (TP) to SGD4.30 and lowering the holdco discount to 20% from 25%, reflecting a more confident outlook on operational execution and shareholder rewards.

Key Investment Highlights

• BUY rating, TP SGD4.30: Increased from SGD3.96 reflecting stronger outlook, capital discipline, and a reduced holdco discount.
• Capital management in high gear: Enhanced dividends and share buybacks underpinned by asset recycling and balance sheet strength.
• Diversified business with growth engines: Five out of eight business segments on solid footing, with Optus, NCS, and Nxera leading organic growth.
• Resilient to competitive pressures: Singtel’s pivot to higher-end Singapore mobile, rational Australian market, and strong associate contributions provide downside protection.
• ESG leadership: Comprehensive sustainability targets and governance, with strong transparency and above-average ESG scores.

Capital Returns Take Center Stage

Singtel’s management has launched a three-pronged capital return strategy:

• Core Dividend: 70–90% of underlying NPAT.
• Value Realisation Dividend (VRD): SGD 3–6 cents/share annually.
• Value Realisation Share Buyback (VRSB): Up to SGD2b over three years.

These initiatives are supported by a strong balance sheet (net debt/EBITDA at 1.2x) and ongoing asset recycling, such as the divestment of non-associate assets (e.g., Comcenter). The company’s commitment to maximizing shareholder value is expected to drive the narrowing of the holdco discount, which recently stood at ~27%.

Business Segment Analysis

Optus (Australia): Strength in Tier-2 Market and Enterprise

• Rational competitive landscape in Australia supports stable pricing and margin expansion.
• Optus leads in Tier-2 market via Amaysim (largest fighter brand in Australia) and enterprise wins.
• MOCN partnership with TPG and declining capex intensity are positive tailwinds.
• EBITDA margin improvement: Forecast to rise to 30% by FY28 from 26% in FY24.
• EBIT growth: Projected to grow 19% in FY26.
• Cost management: Ongoing structural cost-out programs underpin margin sustainability.

Singtel Singapore: Resilient Despite Mobile Competition

• Mobile and fixed broadband competition remains high, with persistent pricing pressures.
• Singtel shielded: Singapore consumer contributes less than 10% of group SOTP.
• High-end market focus: Singtel leverages 5G+ and exclusive 700MHz spectrum for service differentiation.
• Digital/fighting brands like GoMo continue to resonate strongly.
• Enterprise services growth offsets consumer headwinds, keeping segment stable.

NCS and Nxera: Enterprise and Data Center Momentum

• NCS: Bookings up 5% YoY in FY25, setting the stage for firm FY26 growth despite macro uncertainty.
• Nxera (Data Centers): Benefiting from rapid ramp-up in Thailand and Singapore, with 50–80% of capacity already presold. Major launches in Thailand (June 2025) and Singapore (January 2026).

Associates: Mixed Performance but Silver Lining in Indonesia

• Bharti Airtel (India): Market cap less BTL debt, strong PBT growth (28% CAGR FY25–28E), low dividend yield but high cash generation.
• AIS (Thailand): Forecast 21% earnings growth in FY25 with 4–5% yield.
• Telkomsel (Indonesia): Challenges persist but potential inflection as industry rationalizes starter pack pricing (IDR30k/month).
• Globe Telecom (Philippines): Telco business slowdown is a concern (9% of group earnings), but fintech arm GCash shows strong progress.
• Intouch: No longer recognized as an associate post-amalgamation into Gulf Energy Development.

Cautious Approach to Inorganic Investments

Singtel is opting for a measured strategy regarding growth investments. Management remains open to acquisitions, but only where they align with core expertise and operational strengths. The focus is on organic growth in enterprise services, data centers, and NCS, avoiding large, earnings-dilutive deals as seen previously (e.g., Amobee, Trustwave). This discipline preserves balance sheet strength and supports ongoing capital returns.

Financial Performance and Outlook

• 14% EPS CAGR forecast (FY25–28), with consolidated EBITDA to grow at 3% CAGR over the same period.
• Net debt/EBITDA (incl. associates): Expected to remain below 2x through FY28, supporting dividend commitments.
• Dividend per share (DPS): Raised to SGD19–22c for FY26–28, yielding 5–6%.

Sum-of-the-Parts (SoTP) Valuation

Maybank’s revised SoTP-based target price of SGD4.30 is underpinned by:

• Lower holdco discount (20% vs. 25% prior)
• DCF roll forward and higher Bharti valuation
• Offset by trimmed core earnings and currency headwinds

ESG and Sustainability: Above-Average Transparency and Targets

• Net-zero target: Brought forward to 2045 (from 2050).
• GHG emissions: Scope 1 & 2 reduced by 11.31% in FY23; intensity improved to 0.030tCO2e/TB.
• Social initiatives: Digital inclusion for disadvantaged communities, gender diversity (43% female directors), zero fatality rate in FY23.
• Governance: Board with majority independent directors, no recent corruption cases, strict adherence to data protection laws.
• ESG rating: Overall score of 85 (Quantitative 88, Qualitative 83, Target 80).

Risks and Swing Factors

• Upside: Optus restructuring, ARPU growth from easing competition, cost-saving execution.
• Downside: Potential Optus fines or delays, intensified market competition, currency headwinds.

Peer Comparison: Other Companies Mentioned

• AIS (ADVANC TH): Target Price THB319, expected 21% earnings growth, 4–5% yield.
• Bharti Airtel (BHARTI IN): Strong PBT growth (28% CAGR), not rated.
• Telkomsel (Indonesia): 70% owned by Telkom (TLKM IJ, Target Price IDR4,500), challenges but signs of market rationalization.
• Globe Telecom (GLO PM): Target Price PHP2,750, BUY recommendation, facing telco growth challenges but offset by GCash.
• Optus (Australia): 100% owned by Singtel, focus on operational excellence and enterprise expansion.
• NCS (Singapore): 100% owned, key to enterprise growth and future bookings.
• Nxera (Data Centers): 80% owned, ramp-up in Thailand and Singapore driving future growth.
• Amaysim (Australia): Optus-owned MVNO, key lever in the Tier-2 and value segment.
• TPG (Australia): MOCN partnership with Optus, not rated.

Conclusion: A Defensive Yield Play with Growth Upside

Singtel’s strategic transformation, operational improvements, and disciplined capital management are converging to create a robust investment case. With a healthy balance sheet, diversified cash flows, and a clear commitment to shareholder returns, Singtel is well-positioned to deliver both yield and growth for investors. The narrowing holdco discount and ongoing asset recycling further enhance the value proposition. Maybank Research’s upgraded target price reflects growing confidence in Singtel’s ability to deliver sustainable returns in a dynamic regional telecom landscape.