Singtel’s Optus headwinds could trigger near-term risks, warn analysts

[SINGAPORE] A string of crises encountered by Singtel’s Australian unit Optus could derail planned price hikes and increase operational costs, warned analysts.

The cautionary note follows a challenging week for Optus, after an emergency call outage on Sep 18 led to three deaths in Australia.

Adding to its woes was the A$100 million (S$84.6 million) fine it was served by the country’s federal court on Wednesday (Sep 24) for selling phones and contracts to disadvantaged consumers.

This follows a string of reputational setbacks to the second-largest telco in Australia, including a similar 2023 outage – for which it was fined A$12 million – and a data breach in 2022, noted Bloomberg Intelligence analyst Chris Muckensturm.

Maybank Securities analyst Hussaini Saifee told The Business Times that Optus may encounter some near-term risks, including the inability to raise prices. He added that Australia has been seeing inflation-linked upward price adjustments every year.

Hussaini said that another risk Optus might face is rising capital and operating expenditure, since it has to invest more in network resiliency and redundancy as well as security.

Muckensturm noted that the probe of Optus’ network outage might weaken turnaround efforts and keep Singtel from reaching its “high-single-digit” earnings before interest and tax growth target this year.

She added that Optus will now face the risk of losing subscribers.

Hussaini also noted that Optus’ brand reputation will take a hit, since the company has had more frequent outage issues. The Sep 18 disruption might create bigger concerns, since it involved multiple fatalities.

Muckensturm said the outage might offset average revenue per user gains from rational pricing, and could raise compliance costs as Singtel leans on Optus to achieve its ST28 plan.

Launched in 2024, the ST28 plan refers to Singtel’s new initiative which emphasises active capital management with the aim of delivering continued growth and even higher dividends.

Despite these potential setbacks, Hussaini expects Singtel’s stock to remain “range-bound”.

“Australia only accounts for approximately 17 per cent of Singtel’s sum-of-the-parts, while other businesses and associates are unaffected,” he said.

He added that the ongoing S$2 billion buyback programme also provides downside protection.

In a Maybank Securities report on Wednesday, Hussaini said: “(Singtel) should also benefit from domestic consolidation while leveraging multiple structural tailwinds across its data centre and artificial intelligence-as-a-service units.”

He maintained a “buy” call on Singtel with a target price of S$4.75.

All eyes on Australia

Hussaini said that investors should be watching out for the regulatory outcomes in Australia. Singtel group chief executive officer Yuen Kuan Moon will be arriving in Australia on Sep 29 for an Optus board meeting, noted the Australian Financial Review.

The Australian Communications Minister Anika Wells also summoned Singtel to a meeting following the fatal outage.

Hussaini added that Optus will be seeking to recover its reputation, although it will be difficult to quantify the extent of the damage incurred to its name.

He pointed out that investors should also take note of the execution of Optus’ network investments.

Shares of Singtel closed down 0.2 per cent or S$0.01 at S$4.26 on Friday.