Along with its FY2024 results in May 2024, Singtel introduced the ST28 $6 billion medium term asset recycling programme, where a key feature is to pay a value realisation dividend of between 3 and 6 cents per share using proceeds from its asset monetisation after taking off capex needs.
At its most recent FY2025 results, Singtel raised this asset recycling target to $9 billion.
Jearajasingam believes that this is a target that Singtel can easily hit, specifically via the steady trimming of its stake in Bharti Airtel, which has a market cap of around $160 billion.
As Singtel has articulated often, it intends to match its stake with the Sunil Mittal, the promoter of this telco.
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Following the most recent sale of 1.2% in Airtel in May worth $2 billion, Singtel holds a 28.3% stake.
Assuming the Mittal family sell their remaining direct stake in Bharti Airtel, its stake would be reduced from 22.3% to 19.9%.
If Singtel further lowers its stake to this same level, that is another 8.4% to divest, SingTel could net a further $13 billion just from this exercise, figures Jearajasingam.
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"Our understanding is that SingTel will do this progressively rather than do a one-off transaction. This is to ensure there is no buildup of capital leading to an erosion of shareholder returns," says Jearajasingam, adding that Singtel is not likely to make sizeable acquisitions which might then require speedier selling of its Bharti Airtel shares.
Jearajasingam believes that Singtel has the capacity to give more returns to shareholders via a few venues.
First, the value realisation dividend component is now guided within a range of 3 to 6 cents per share. Singtel can increase the upper limit and thereby pay more than 6 cents share in the initial years. When the underlying operations return more profit, Singtel can then lower the VRD component but continue to pay the dividends out of earnings from its operations.
Next, when VRD is stopped, perhaps after FY2023, Singtel can then increase the payout ratio of its normal dividend to the upper end of the 70 to 90% guide. For FY2024, its payout ratio for this component was 82%.
Singtel can also speed up the buyback of shares and increase the allocation for share buybacks. As announced together with its FY2025 results, it has an ongoing programme to buy back up to $2 billion worth of shares, which at current prices is around 2.8% of the company. Every extra $1 billion in share buybacks means another 1.4% in shares that can be bought back and help lift EPS and DPS, says Jearajasingam.
Meanwhile, Singtel is likely to enjoy healthy demand for regional data centre capacity, with more than 200MW of gross regional data centre capacity onstream by 2026, with a medium-term pipeline of more than 400MW. Via a partnership with the conglomerate Hitachi, SingTel is also looking to expand its footprint to Japan.
Over at Optus, market repair is taking place in Australia, thereby lifting ARPUs and Optus earnings, which was up 33% y-o-y in the most recent 1QFY2026 ended June.
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"We see further sales of its stake in Bharti, higher for longer VRD payments and further newsflow around improving earnings out of its core operations, spurring a re-rating of its shares, which currently trade at 22x FY2027 earnings," says Jearajasingam, whose new RNAV-derived target price of $4.80, from $4.10 previously, is at 22x its 2027 PE.
"A 4.6% FY2026 dividend yield provides added support, in our view," he adds.
Singtel shares closed at $4.39, up 1.39% for the day.
