DBS upgrades Singtel to ‘buy’ as Bharti Airtel gets valuation boost with upcoming industry tailwind

[SINGAPORE] Singtel has been upgraded from “hold” to a “buy” rating by DBS Research, following a higher valuation of the group’s India-listed Bharti Airtel, in which Singtel holds a 27.5 per cent stake.

In a report on Tuesday (May 26), DBS also raised its 12-month target price for the telco by about 1.9 per cent to S$5.46 from S$5.36, offering significant upside from the S$4.35 being traded on Thursday afternoon.

The upgrade is mostly driven by fair valuations of Singtel’s regional associates, primarily a revision in Bharti Airtel’s fair value to 2,300 rupees per share from 2,000 rupees.

Bharti Airtel accounts for about 64 per cent of Singtel’s sum-of-the-parts valuation for its regional associate segment, and 49 per cent of the group’s total valuation.

DBS expects a major near-term catalyst, with Singtel competitor Reliance Jio anticipated to file its initial public offering this year, potentially paving the way for industry-wide tariff hikes in India.

In addition, a recent share price correction caused Singtel’s holding company discount to widen to 17 per cent, from 7 per cent in March.

DBS projects the telco’s operating company (OpCo) Ebit (earnings before interest and taxes) – a key share price driver – to grow 5 per cent in FY2027, before accelerating to 10 per cent in FY2028.

Optus expected to still drive growth

Its Australian subsidiary Optus, as well as Singtel’s data centre business and growth engine NCS, are expected to continue driving OpCo Ebit growth.

Looking ahead, DBS analyst Sachin Mittal expects Optus to stage a “strong recovery”, which could support mid-single-digit group Ebit growth in FY2027. 

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However, FY2027 OpCo Ebit growth is likely to be weighed down by weakness in Singapore’s consumer business amid uncertainty surrounding industry consolidation.

The projected acceleration to 10 per cent growth in FY2028 is expected to be supported by the ramp up of its GPU-as-a-service offerings, as well as a potential recovery in Singapore’s consumer business.

Re-entry opportunity?

This widening valuation discount of Singtel shares aligns with views from RHB analysts, who noted on May 22 that recent price volatility presents a potential “re-entry opportunity” into the counter.

They also pointed to “early success” in Singtel’s artificial intelligence and cloud initiatives, which generated S$25 million in revenue from the initial phase of its data centre and AI deployment, alongside a return on invested capital of 11.1 per cent and a record FY2026 dividend.

That said, DBS’ Mittal highlighted key risks, including a decline in regional currencies such as INR, THB and IDR, as well as “irrational competition” in Australia, which could hinder recovery.

Optus may also face headwinds from intense competition, although the base case assumes a gradual recovery in its operating profit.

The company has previously faced pressure, including accumulated losses since FY2021 and operational disruptions such as a major outage in February that affected about 200,000 customers.

Singtel’s results

The brokerage noted that analysts’ and market consensus forecasts for the group’s earnings have been trimmed by about 7 per cent for FY2027 and FY2028, respectively, following Singtel’s second-half FY2026 results, bringing estimates closer in line with DBS’ revised projections.

On Thursday, the telecommunications giant reported fourth-quarter FY2026 core net profit of S$672 million, down 10 per cent quarter on quarter but up 11.8 per cent year on year, bringing full-year core net profit to S$2.8 billion.

As a result, several brokerages said the results were “slightly below expectations”.

Citi analysts noted that Singtel’s underlying profit slightly missed expectations, citing a weaker fourth quarter in which recurring profit fell about 10 per cent sequentially on softer Singapore operations.

DBS’ Mittal shared a similar view, saying core net profit was about 6 per cent below consensus forecasts, citing “lower-than-expected” contributions from Singapore and Australia, which weighed on operating company earnings.