---
endpoint: analytics
pattern: Telecoms
status: done
latency_ms: 179368
conversation_id: 4f47c1f8-78df-4e92-b833-51ad2f948dec
citations: 6
created: 2026-05-31 19:10:50Z
---

# What is the investment thesis for Singtel in the current market environment?

# Singtel (Z74 SP) — Investment Thesis in the Current Market Environment

**CLSA latest call: OUTPERFORM, TP S$4.20** (lifted from S$3.80 on 22-May-2025) [5]. Last close priced into report: S$3.95, implying ~6% upside plus a ~4.7% forward dividend yield [5]. Singtel just closed FY26 (year ending Mar-26) with a 21% YoY increase in underlying profit and ROIC of 11.1%, meeting management's medium-term low-double-digit ROIC target set in 2023 [7]. The investment case is no longer the legacy "Singapore incumbent telco" — it is now a **capital-return + data-infrastructure re-rating story**, anchored by associate dividends from Airtel/AIS, accelerated capital recycling, and an emerging AI-infra growth engine.

---

## 1. Core Pillars of the Thesis

### Pillar A — Capital Management is the Re-Rating Catalyst
This is the dominant near-term driver of the share price.

- **S$2bn share buyback programme** announced through FY28 [1].
- Medium-term capital recycling target **raised from S$6bn to S$9bn** (~S$4bn already realised at announcement; another **5% stake trim in Bharti Airtel worth ~S$8bn** flagged as the next lever to "equalise" with the Mittal Group) [1][3].
- **Value Realisation Dividend (VRD)** of 3–6 cents per share maintained in the medium term, on top of a 70–90% core payout policy [2][6].
- FY26 has booked the **fifth consecutive year of dividend growth**, with ordinary DPS hitting a record S$0.185 (+9% YoY), comprising a S$0.134 core dividend plus VRD [8].
- An additional **~S$200m of shares have already been bought back and cancelled** under the Value Realisation Share Buyback (VRSB) programme [8].

CLSA's view: the S$9bn recycling target is **conservative**, since the Airtel stake trim alone is worth ~S$8bn, and management has explicitly said the asset-recycling pipeline will target "non-core assets or businesses with a lower earnings yield than Singtel Group's c.4.5%" [1].

### Pillar B — Two Growth Engines: NCS + Data Centres (DICo / Nxera)
The "boring telco" multiple is being broken by two non-telco engines.

- **NCS** (IT services) — FY26 revenue +7%, EBIT +30% ex one-offs, with **book-to-bill of 1.2** signalling continued growth in FY27 [8]. CLSA cites strong bookings momentum as the reason it has lifted NCS EBIT forecasts [5].
- **Digital InfraCo / Nxera** — FY26 revenue +12%, EBIT +24% (or +54% ex non-recurring reservation fees) [8]. Tuas DC turned on January 2026, only the last quarter of FY26, with the **full margin contribution flowing in FY27**. Regional DCs in Thailand, Indonesia, Malaysia have already secured contracts/reservation fees before being operational [7].
- **CLSA explicitly models Nxera EBITDA to roughly double by FY28** from a S$165m FY25 base, supporting the structural growth story [6].
- The **STT GDC transaction** (25% stake) is layered on top — pre-IPO in India creates a near-term capital-recycling option [8].

### Pillar C — RE:AI: The New Optionality
Singtel debuted **RE:AI** (GPU-as-a-Service / sovereign AI) as a standalone business in FY26:

- Two-year pilot deployed **1 megawatt of capacity, generating S$25m of revenue** [12]. Management is now scaling it.
- Singtel has the **largest GPU cluster in Singapore by far**, only player offering GB200 chips locally, NVIDIA / Mistral partnerships, with sovereign AI credibility for government workloads [11].
- Analysts pressed management on whether RE:AI's revenue potential is **~S$300m annually with S$60m EBIT** at scale [11] — this is the upside lever embedded in FY27 growth CapEx of S$0.5bn extra (S$1.2bn growth CapEx vs S$0.7bn last year) [10].

### Pillar D — Optus: Margin Recovery, Not Just Top-Line
- Optus mobile service revenue **+4% in FY26**, driven by postpaid price rises and amaysim sub growth [7].
- Optus FY25 EBIT jumped 52% YoY to S$389m vs CLSA's S$208m estimate — CLSA upgraded FY26/27 Optus EBIT by **+74.7% and +88%** respectively on better pricing/cost rationalisation [6].
- Australia industry consolidation review was suspended by the regulator, which CLSA treats as a watch-item, not a near-term break [7].

### Pillar E — Associates Still Carry Most of the SOTP
On CLSA's sum-of-parts, **associates = 72% of NAV**, consolidated ops = 28% [3]:

| Component | TP/share (S$) | % of NAV |
|---|---|---|
| Singtel Singapore (DCF, 6.6% WACC) | 0.89 | — |
| Optus (DCF, 7.8% WACC) | 0.73 | — |
| NCS + DIC (1.2x EV/Sales) | 0.28 | — |
| Net debt | -0.31 | — |
| **Consolidated** | **1.59** | **28%** |
| Bharti Airtel (23%, 13x EV/EBITDA) | 2.52 | 45% |
| AIS (32%, market price) | 0.68 | 12% |
| Telkomsel (30.1%, 11x PE) | 0.61 | 11% |
| Globe (46.7%) | 0.26 | 5% |
| Less holdco discount (-25%) | -1.44 | — |
| **Net SOTP** | **4.20** | **100%** |
[3]

Airtel alone is ~45% of the valuation, meaning the thesis is implicitly a **leveraged play on India wireless** — and CLSA argues "Bharti Airtel in India looks the most promising for growth prospects in the portfolio" [2].

---

## 2. Earnings & Guidance Snapshot

| Metric | FY25A | FY26 Guidance | FY27 Guidance |
|---|---|---|---|
| Group OpCo EBIT growth | +20% | High single-digit [4] | **Low-to-mid single-digit** (cautious, Hormuz/macro overhang) [9] |
| Cost-out | S$250m delivered | Another S$200m [6] | — |
| CapEx | S$2.4bn | S$2.5bn (S$1.7bn core + S$0.8bn growth) [6] | **S$3.0bn** (S$1.8bn core + S$1.2bn growth — RE:AI + Nxera) [10] |
| Associates dividends | — | — | **~S$1.1bn**, plus S$700m of AIS/Gulf specials already received [10] |
| ROIC | 9.6% (9.8% ex one-offs) [6] | — | Low-double-digit by FY28 [6] → already hit 11.1% in FY26 [7] |
| DPS | S¢17.0 (vs prior guide S¢16.5) [6] | S¢18.5 (record high, +9% YoY) [8] | — |

---

## 3. What's Different vs Consensus

CLSA forecasts sit **+16% (FY26), +32% (FY27), +10% (FY28) above Visible Alpha consensus on EBIT**, reflecting greater confidence in Optus margin recovery, NCS scaling, and Nxera ramp [6]. Net profit forecasts are broadly in-line to slightly below consensus, because CLSA models a lower associates contribution as Bharti stake gets trimmed.

---

## 4. Key Risks / Negative Space

1. **4QFY25 missed VA consensus by 19%** on core PATMI, with weakness in Telkomsel and Globe contributions and FX [5] — the buyback/recycling announcement was specifically what "overshadowed" the operational miss.
2. **FY27 EBIT guidance moderated to low-to-mid single digit** (vs FY26's high single digit) — management explicitly cites the **Hormuz/Middle East energy overhang**, slower regional economic growth, and FX translation risk [9]. Long-term Singapore/Australia power contracts mitigate the first-order energy hit but not the second-order demand effect.
3. **Singapore consumer market remains pressured** by aggressive price competition (CLSA cut Singtel SG FY26/27 EBIT by 15.8% / 13.7%) [6]; potential industry consolidation is the swing factor.
4. **EVA still negative** through FY27CL (–S$30m), turning positive only in FY28 (+S$93m) — the value-creation crossover is still 2+ years away [6].
5. **Holdco discount of 25%** applied in the SOTP [3] — a structural drag that limits how far the share price can re-rate without further structural simplification (the SDS-to-CDP transfer being completed by Nov-2026 is a small positive on this front) [8].

---

## 5. Forensic Synthesis — Why CLSA Stays at O-PF (Not BUY)

Despite raising the TP 10% to S$4.20 [5], CLSA is at **Outperform, not Buy**, because:
- Implied upside is only ~6% [5] — the share price has already moved on the capital-return story.
- Most of the "growth" being underwritten (Nxera, RE:AI) is **back-half FY27 / FY28** — investors are paying ~22x FY26 PE for an earnings trough year [6].
- EVA only crosses positive in FY28 [6], so the cash-on-cash return story is on the horizon, not in-hand.

The thesis works if (a) Airtel stake monetisation continues to flow through VRD + buybacks, (b) Nxera + RE:AI commercialisation prints in FY27, and (c) Singapore competition rationalises post-consolidation review. If any one of those breaks, the holdco discount widens and the SOTP-driven TP compresses materially.

---

**Sources**
[1] Singtel — O-PF (All about the capital) — CLSA, 22-May-2025 (607960285LinqAlpha.PDF) — capital management section
[2] Singtel — O-PF (All about the capital) — CLSA, 22-May-2025 — investment thesis paragraph
[3] Singtel — O-PF (All about the capital) — CLSA, 22-May-2025 — SOTP valuation table (Figure 12)
[4] Singtel — O-PF (All about the capital) — CLSA, 22-May-2025 — FY26 EBIT guidance commentary
[5] Singtel — O-PF (All about the capital) — CLSA, 22-May-2025 — Target price lift commentary
[6] Singtel — O-PF (All about the capital) — CLSA, 22-May-2025 — FY25 earnings reconciliation / FY26 guidance table (Figure 10)
[7]–[12] Singapore Telecommunications Ltd, Q4 FY2026 Earnings Call, 20-May-2026 — CEO/CFO commentary on FY26 results, FY27 guidance, RE:AI, Nxera, capital management, Singapore Enterprise

## Citations

- [7] **Singapore Telecommunications Ltd., Q4 2026 Earnings Call, 20-May-2026 11** · external
- [8] **Singapore Telecommunications Ltd., Q4 2026 Earnings Call, 20-May-2026 11** · external
- [9] **Singapore Telecommunications Ltd., Q4 2026 Earnings Call, 20-May-2026 11** · external
- [10] **Singapore Telecommunications Ltd., Q4 2026 Earnings Call, 20-May-2026 11** · external
- [11] **Singapore Telecommunications Ltd., Q4 2026 Earnings Call, 20-May-2026 11** · external
- [12] **Singapore Telecommunications Ltd., Q4 2026 Earnings Call, 20-May-2026 11** · external

