DBS Group Research has kept its “buy” call and $3.15 target price on Singapore Telecommunications, following news that the telco is moving further ahead to become a regional data player.
The telco on Feb 6 announced that it has started the construction of a new data centre in Thailand, with a capacity of 20MW, or more.
The data centre is a joint venture with Gulf Energy (GULF) and Singtel’s associate, Advanced Info Service (AIS).
The data centre is expected to begin commercial operations by 2025. GULF, Singtel and AIS hold equity stakes of 40%, 35%, and 25%, respectively in this venture, which is called GSA Data Center.
GSA aside, Singtel is already building a data centre in Indonesia with partners Telkom and Medco Power that will have a capacity of 51MW when completed.
DBS believes that having a regional footprint in the data centre market can help Singtel narrow its so-called holding company discount, which has widened to 35% from just 10-15% before 2018.
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This trend implies that Singtel is not benefiting from its associates and is rather creating an additional layer of tax on dividends received from the associates.
“By leveraging on its regional footprint, Singtel is showing an intent to generate synergies with its associates,” says DBS.
Singtel now owns 60MW in data centre capacity in Singapore and last December, has submitted a bid for another 40MW.
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Along with the pipeline in Indonesia and Thailand, Singtel is likely to have a total data centre capacity of 170MW by 2025. According to DBS, big customers of data centres prefer to deal with one vendor across a region.
For 1HFY2023 ended Sept 2022, Singtel generated operating earnings of $86 million from its Singapore data centre business.
By applying a 20x EV / Ebitdat multiple, that makes the current data centre business worth $3.2 billion. If a strategic investor were to take a one-third stake, that’s $1 billion in cash that could potentially be unlocked.
As at 10.34 am, Singtel shares traded $2.55, up 0.79% for the day.
