Analysts mixed on Singtel’s outlook following partial divestment of Comcentre HQ

SINGTEL’S plans to redevelop its Comcentre headquarters into an office redevelopment and divest a partial stake in the asset has drawn mixed reactions from analysts.

Citi Research estimates the transaction to free up between S$630 million and S$880 million in cash for Singtel . Based on its predicted gross rent of S$12 per square foot (psf), the research house believes the property’s office component is priced at about S$3,100 psf on net lettable area (NLA).

While Citi views the psf gross rent as “aggressive”, it sees room for upside in the medium to long term, given limited office supply within Orchard Road precinct and completion of the development only in 2028.

Similarly, CGS-CIMB is positive on the impending divestment as it believes the transaction will help preserve cash generated from Singtel’s core business to sustain its 60-80 per cent dividend payout policy - which the company can “comfortably” meet, in the research house’s view.

It also highlighted the possibility of the telco monetising its 51 per cent stake in its joint venture company with Lendlease.  

In their separate reports on Wednesday (Jun 1), CGS-CIMB and Citi both reiterated their “add” and “buy” ratings on Singtel with the respective target prices of S$3.20 and S$3.22. 

S&P Global Ratings likewise acknowledged that Singtel’s divestment plans could help the telco better manage its capital expenditure (capex), keep leverage in check and fund inorganic growth plans. 

The credit ratings provider however maintained a “A/Negative/A-1” rating on the stock to reflect the risk of a lag in earnings recovery and investment returns. 

“For example, 5G capex and associated spectrum liabilities will weigh on the company’s leverage while commercial use remains some time away. Costs must be incurred upfront for the company’s data-centre expansion plans. Therefore, the company will seek timely capital recycling to manage such investments, in our assessment,” said its analysts in a report on Thursday. 

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“The negative outlook on our ratings on Singtel reflects the risk that the company’s performance recovery may fall below our expectations, preventing its debt-to-Ebitda ratio from improving to well below 2.5 times,” they added. 

S&P Global also predicts dividends from Singtel’s associates to decline in FY2023 despite improvements in the operating environment. It projects such dividends will fall year on year to S$1.2 billion, down from a high base of S$1.6 billion.