The higher core net profit is underpinned by a projected core ebit growth of 9% over FY2025 to FY2028, supported by a 5% growth in Singapore’s ebit as well as a 15% growth in Optus’ ebit from FY2025 to FY2028.
“Optus and NCS are already contributing to core ebit growth, while the data centre business is expected to see a significant rise in its contribution from FY2027 onwards,” writes Mittal in his report dated June 19.
As such, the analyst sees a “strong case” for Singtel to post a 300% increase in core business value, driven by a re-rating from 5 times to 18.5 times its 12-month forward P/E.
“Positive surprises could come from the ramp-up of data-centre, GPU as a service and potential consolidation in Singapore,” Mittal adds.
In his view, positive catalysts could stem from Singtel’s higher investment in its core business and a potential consolidation in Singapore. The telco may redeploy capital to accelerate its core ebit growth through data centres and GPU as a service. Consolidation among the smaller telco players in Singapore is also a possibility, notes Mittal.
On his target price, Mittal explains: “With a revised divestment target of $9 billion (previously $6 billion) over the next three years, we narrow the HoldCo discount to 10% (previously 15%) and value its associates at $3.66 per share (previously $3.50), using market prices for all except Telkomsel, which is valued at a fair value.”
Mittal’s new valuation metrics, which changed from from EV/ebitda to a forward 12-month P/E ratio of 18.5 times, due to improvising visibility of core earnings growth from Singapore and Australia, results in a core value of 93 cents per share from 90 cents. “Singtel’s share price of $3.99 suggests a core value of only 33 cents per share, suggesting just 6.6 times P/E ratio for the core business.”
Further to his report, Mittal notes that Singtel’s associate value has increased by 62% from 2017, yet the stock is still trading flat due to Singtel’s Singapore and Australian businesses’ value is down by 80%.
A decline in the Australian dollar or “irrational competition” in Australia could hinder recovery, Mittal adds.
Shares in Singtel closed 5 cents lower or 1.28% down at $3.86 on June 20.
