Macquarie trims Singtel target price to S$4.98, keeps ‘outperform’ rating

[SINGAPORE] Macquarie has lowered its target price for telecommunications giant Singtel by 6 per cent, largely due to lower fair values for its regional associates and a weaker currency exchange outlook.

Despite the target price cut to from S$5.29 to S$4.98, the brokerage maintained its “outperform” rating in a Monday (Sep 21) note.

Macquarie analyst Foo Zhiwei cited robust growth prospects for the telco’s core operating business and potential sector consolidation as key rerating catalysts.

He projected Singtel’s core business to expand by 12 per cent in the 2027 financial year, outpacing its management’s current low-to-mid single-digit growth guidance.

This is expected to be “driven by mid-teen percentage Ebit (earnings before interest and taxes) growth” from the group’s Australian subsidiary Optus and enterprise unit NCS, alongside an estimated 70 per cent Ebit surge from its Digital InfraCo segment.

However, Macquarie adjusted its earnings per share estimates down by 15 per cent for FY2027 and 10 per cent for FY2028, factoring in higher depreciation from the digital infrastructure business and revised associate earnings.

While the outlook for Singtel’s domestic market remains muted amid price-driven competition, Foo noted that a potential consolidation of Singapore’s telco sector in the short to medium term could deliver upside.

The brokerage estimated that a S$1 improvement in mobile average revenue per user (Arpu) would add S$0.02 per share to its fair value. New contract wins from Singtel’s GPU-as-a-service business, RE:AI, could further lift valuations, with every S$300 million contract contributing an estimated S$0.12 per share in upside.

Singtel in August reported a 71.6 per cent drop in first-quarter net profit to S$818 million from S$2.88 billion a year earlier. It attributed the dip to lack of exceptional gains, such as the sale of a partial stake in Airtel and the Intouch-Gulf Energy merger recognised in Q1 FY2025.

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Underlying net profit for the three months to Jun 30 was up 21 per cent at S$831 million from S$686 million a year earlier, driven by Airtel, AIS, NCS, Optus and Digital InfraCo.

Singtel’s group operating revenue grew 4.9 per cent to S$3.6 billion, while earnings before interest, taxes, depreciation and amortisation rose 8.7 per cent to S$1.1 billion.

Shares of Singtel fell 0.5 per cent to close S$0.02 lower at S$4.33 on Monday.