Data centre push
On Feb 4, Singtel confirmed reports that it is teaming up with KKR to acquire the remaining 82% of ST Telemedia Global Data Centres (STT GDC) that it does not already own. At the acquisition price of $6.6 billion, STT GDC, held under Singtel’s fellow Temasek unit ST Telemedia, has an enterprise value of $13.8 billion, including leverage and committed capex.
STT GDC is now loss-making and, as such, the immediate impact on Singtel’s financials is minimal. However, with growing demand for data centre capacity and processing power, earnings contributions are seen to kick in in a few years — around the same time Singtel is likely to have worked through its estimated $9 billion asset monetisation target and that this newly acquired growth engine, presumably, would have been tuned up and ready to fire. “We view the transaction positively as a growth funnel for Singtel post ST28,” says Paul Chew of PhillipCapital.
Chew notes that STT GDC has a pipeline of projects that can triple its existing capacity. Given that STT GDC primarily operates in underpenetrated data centre markets in Asia Pacific, he expects earnings and cash flow growth. Citing Singtel’s management, Chew notes that there are also opportunities to further increase value by spinning off some of these assets for a separate listing. For now, Chew is keeping his “accumulate” call and $5.35 price target.
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Hussaini Saifee of Maybank Securities is also optimistic about this deal. Instead of merely leasing data centre capacity — a somewhat commoditised service — Singtel has been piloting “GPU as a service”, which presumably commands more value. This larger footprint will enhance Singtel’s value proposition, says Saifee, whose target price is set at $5.08.
DBS Group Research’s Sachin Mittal has also kept his target price unchanged following the announcement. However, his forecast is already at a street-leading bullish level of $5.71. STT DC’s operational capacity of 670MW, combined with Singtel’s 150MW via Nxera, its own data centre venture with KKR, should make Singtel the largest Asian data centre player by capacity. The deal is seen to give Singtel a “long-term growth driver at a small cost,” says Mittal.
He observes that what Singtel is paying translates to a forward EV/Ebitda in the “high-teens” based on contracted ebitda of STT GDC, which Mittal says is “reasonable” for a high-growth data centre player, many of whom otherwise fetch “mid twenties” multiple.
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IPO of Indian business
In addition, Mittal says that STT GDC is rumoured to be planning an IPO of its Indian business in the near term, which might reduce its debt and establish a valuation benchmark. Singtel has India’s bouyant stock market to thank for its regular value realisation of its stake in Bharti Airtel. Mittal estimates an adverse impact of less than 1% on Singtel’s earnings per share in the near term, but contributions from STT GDC will start in the next two to three years.
Prem Jearajasingam of CGS International is cheered by Singtel’s “significant war chest”, which can be raised by trimming its stake in Bharti Airtel. Assuming Singtel further trims its current 27.5% shareholding to equalise with the Mittal family, that would be another $12 billion at current levels. Meanwhile, he has raised his FY2027 and FY2028 core earnings estimates by 1.3% and 1.7%, respectively, to reflect the STT GDC deal, resulting in a higher target price of $5.34, up from $5.20.
A team of HSBC analysts led by Piyush Choudhary is projecting Singtel’s ebit to grow in the current FY2026 from higher revenue in Optus and also its enterprise services unit, NCS. In the following FY2027, growth will be led by the doubling of data centre capacity in Singapore to 120MW. Along with the higher earnings, the HSBC analysts expect even higher dividends from Singtel. They estimate a payout of 18.5 cents for FY2026, up 9% from FY2025. For 2027, they expect Singtel’s payout to increase further to 20 cents. They have revised their target price from $5.15 to $5.20 to reflect the higher market value of the regional associates.
