STT DC’s operational capacity of 670MW combined with Singtel’s 150MW via Nxera should make Singtel the largest Asian data-centre player by size. The deal is seen to give Singtel a "long-term growth driver at a small cost," says DBS in its Feb 4 note.
The acquisition aligns with Singtel's medium term growth plan, where data centres figure as a key engine.
Specifically for Singtel, it will be paying $740 million to raise its stake in STT GDC from 4% previously to 25%.
At what Singtel is paying, this translates to a forward EV/EBITDA in the "high-teens" based on contracted EBITDA of STT GDC, which DBS says is "reasonable" for a high-growth data centre player, many of whom otherwise fetch "mid twenties" multiple.
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Also, DBS says that STT GDC is also rumoured to an initial public offering (IPO) of its Indian business in the near term which might reduce its debt and establish a valuation benchmark.
DBS estimates a less than 1% adverse impact on Singtel’s earnings per share in the near term but growth will kick in over the next few years.
Singtel's share of the commitment, says DBS, can be "adequately" funded by big dividend boost from its Thai associate AIS.
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Singtel has assured investors that as the investment will be equity-accounted, it should not affect its dividends or investment grade rating.
Meanwhile, it retains significant upside potential as STT GDC grows, helping to support Singtel's earnings in the next 2-3 years, says DBS.
Singtel shares are down 0.41% to trade at $4.84 as at 10.55 am.
