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Will Singtel's Rally Continue Or Slowdown In 2026? · Investor Exchange

• 0:14
  Divergence in the market. Over the last 12 months, Singapore Telecommunications,
• 0:20
  Singtel, their stock has surged a massive 51%. Yeah, it has been a huge jump.
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  It really is. But here is the multi-billion dollar question we're framing today.
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  Is that surge the result of a brilliant structural corporate turnaround?
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  Or, you know, is it just a mathematical illusion driven by an unsustainable
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  holding company discount.
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  Right. And my position is quite clear. I argue that SYNCTEL's strong core business
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  growth, their strategic investments in data centers, and their rigorous capital
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  recycling justify continued investor optimism.
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  The structural health is there.
• 0:56
  Well, I come at it from a different way. I argue that this recent rally is a deceptive anomaly.
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  Deceptive? Yes, deceptive, because it is driven almost entirely by a shrinking
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  holding company discount.
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  And when you combine that with imminent regional delays and intense local competition,
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  the stock warrants a downgrade to a hold position.
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  Look, let us lay out the foundations of our positions before we dive into the mechanics.
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  From my perspective, SYNCTO's financial performance is fundamentally strong.
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  We are moving past traditional telecommunications here. Sure.
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  The narrative is shifting. It is not just narrative. When we look at their core
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  operating profit, we are expecting an impressive 10% growth for the fiscal year 2026, or FY26F.
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  Driven largely by the Australian subsidiary, right?
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  Yes, solid performance from Optus down in Australia, and also their technology services firm, NCS.
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  But the most critical metric here is their return on invested capital, or ROIC.
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  Which is a key measure of how well a company uses its money to generate returns. Exactly.
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  And their ROIC is projected to rise to an impressive 9.9% in FY26F and hit 11.9% by FY27F.
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  Assuming the projections hold.
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  Well, they had the balance sheet to support it. They executed this strategic
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  divestment of non-core assets, bringing in over $11.2 billion Singapore dollars.
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  That fortified the balance sheet and brought net debt to EBI DTA,
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  that is earnings before interest, taxes, depreciation, and amortization,
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  down to a very healthy 1.4 times.
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  Okay, but the 51% stock rally we have seen over the past year,
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  that is a mathematical illusion, not a reflection of that core operating triumph
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  you are talking about. An illusion? Mm-hmm.
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  That is a strong word. I mean it literally. If you dig into the DBS analysis,
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  almost half of those share price gains came merely from a reduction in the holdco,
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  or holding company discount.
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  Which is the difference between the market value of Singtel and the sum of its individual parts.
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  Right, and that discount has compressed to an unsustainable eight-year low of
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  just 7%. So mathematically, the stock has essentially run out of room to rise
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  on this metric. But that does not mean the underlying business is weak.
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  It means the consensus earnings estimates for the future are simply too optimistic.
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  The revised target price has actually been downgraded to $5.36 Singapore dollars.
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  When you combine that with delayed tariff hikes from their regional associate
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  Bharti Airtel in India, plus aggressive local competition, the stock is poised to fizzle out.
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  Okay, so to understand if this rally will continue, we really have to dissect
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  exactly why the stock jumped 51% in 12 months.
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  Your entire bearish thesis seems to hinge on this hold-code discount.
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  Because it is the primary mechanical driver right now. Think about it in simple investor terms.
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  Historically, investors apply a massive discount to holding companies because
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  of tax frictions and, you know, a lack of direct control over cash flows.
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  Like a closed-end fund. Exactly.
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  Now, Singtel's holdcode discount was 35% just a year ago.
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  Today, it is 7%. That is an extreme rarity. But not unprecedented.
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  The last time we saw it this compressed was around the 2016 Brexit vote.
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  Global risk aversion sent everyone fleeing into defensive telecom stocks.
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  It was a panic-driven anomaly, not a structural re-rating.
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  And look at how this recent compression happened. You mean the regional divergence? Yes.
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  Bharti Airtelk, the massive Indian associate, saw its stock correct by 13%.
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  Meanwhile, Singtel rallied 12%. The discount narrowed largely because the value
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  of the underlying parts dropped, not because Singtel suddenly became fundamentally more valuable.
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  There is virtually no room left for the stock to re-rate further based on this
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  metric. I see why you think that, but let me give you a different perspective.
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  A narrowing discount isn't just an anomaly or mathematical quark.
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  It is when the underlying asset drops in value.
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  But it also reflects genuine market confidence in Singtel's management of its
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  associates and its core business.
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  If the market is recognizing the actual value of these associate companies,
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  isn't that a sign of an efficient valuation rather than a bubble?
• 5:23
  I mean, if it were an efficient valuation, it would be supported by the yield.
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  But Singtel's dividend yield has slipped below 4%, which is still a solid yield in this environment.
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  But well under its five-year average of 4.8%.
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  For defensive telecom stock, a sub-4% yield fails to support a major upside,
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  especially if the discount has already bottomed out.
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  Well, since you think the hold code discount offers limited future upside,
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  the debate naturally shifts to the actual profit generation of the businesses
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  Singtel owns, starting with those massive overseas associates.
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  And that is exactly where the severe risks are hiding, specifically in India.
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  I wouldn't call them severe risks. They are severe when you look at the projections.
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  Bharti Airtel was widely expected to raise consumer tariffs.
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  That is how you generate top-line growth in saturated markets.
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  But rising energy costs in India have squeezed consumer purchasing power.
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  Right, so they delayed the hikes. They delayed them for a second time.
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  We are now looking at late 2026 or early 2027 before any meaningful tariff action.
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  Because of this, Bharti's fair value has been slashed by 13%.
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  But they still generate massive cash. Sure.
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  But you also have the currency risk. The Indian rupee depreciated 4% against the Singapore dollar.
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  When you translate those profits back, it is a heavy anchor dragging down Singtel's valuation.
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  I acknowledge the Indian delay. The macroeconomic pressures are definitely real.
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  But we have to pivot to the strength of the core business here.
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  The core telecom business? Yes.
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  Singtel's core operating profit from Singapore and Australia is expected to
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  grow at a Compound Annual Growth Rate, or CAGR, of 12% over FY25 to FY27F.
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  Assuming no operational hiccups. Well, and look at Barty.
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  Even with the delayed hikes, Barty still contributed $991 million Singapore dollars in FY25.
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  Delayed hikes are deferred revenue, not lost revenue. The Indian market is an oligopoly.
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  The price increases will happen. Okay, but let us look at Australia then.
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  You mentioned a 12% growth expectation for the core, heavily reliant on Optus.
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  Optus is stabilizing its subscriber base nicely.
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  But Optus faces immense headwinds from potential irrational competition.
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  When smaller players slash sim-only prices, Optus has to increase retention
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  subsidies. That destroys margins instantly.
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  They have navigated price wars before. Add in a fluctuating Australian dollar,
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  and it could severely hinder this projected recovery.
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  Mixed overseas signals mean Singtel has to rely heavily on its home turf in Singapore.
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  And that domestic battlefield is exactly where Singtel is proving its resilience.
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  It brings us to the final piece of the puzzle, their pivot to digital infrastructure.
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  But the Singapore operations are where I see the biggest cracks.
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  Singtel historically relied on cutting costs to maintain local margins.
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  They delivered about $200 million Singapore dollars in annual cost savings.
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  Right. But those savings have run their course. The easy fat has been trimmed.
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  Now they are facing aggressive local competition from Starhub.
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  Starhub is having its own structural issues, though. Exactly. And that is the danger.
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  Starhub expects a 20 to 25 percent decline in its own group EBITDA.
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  That indicates a brutal, scorched-earth price war. Starhub bleeding margins
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  doesn't automatically mean Singtel loses.
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  It compresses the entire industry.
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  Yet, consensus estimates assume Singtel's local operating profit will just stay
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  perfectly stable at around $795 million Singapore dollars in FY27F.
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  That is far too optimistic.
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  I predict a 5-6% downside risk to these local estimates.
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  I'm not convinced by that line of reasoning, because focusing purely on mobile
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  subscriptions completely misses Singtel's structural evolution.
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  How so? The telecom business is their foundation.
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  Judging Singtel on its traditional mobile turf is like judging a modern tech
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  company strictly by its legacy hardware sales while ignoring its exploding cloud division.
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  But the cloud division in this analogy isn't paying the bills yet.
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  It is rapidly scaling. Look at their asset recycling.
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  They sold non-core assets like telecom towers. They sold the comm center building.
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  They amassed $11.2 billion Singapore dollars in capital. And parked it.
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  They are redeploying it into high-growth areas. Regional data centers, GPU as a service.
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  These segments are projected to see sharp growth from FY27F onwards.
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  This fundamentally changes their margin profile.
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  I will concede the potential of the data center business.
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  The market clearly likes it. It is valued at an impressive 25 times 12-month
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  forward enterprise value to ABDI. Exactly.
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  25 times the market sees the future.
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  That's a compelling argument, but have you considered the timeline?
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  That sharp growth is projected for FY27F.
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  We are analyzing the reality of FY26 right now.
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  Until FY27F, the core telecom business must still carry the weight of the valuation.
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  And the core business is perfectly capable of carrying that weight.
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  What if it isn't? If the return on invested capital slips below the weighted
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  average cost of capital, the WAC, the minimum return investors expect,
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  they are destroying value.
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  But the ROIC is projected to
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  be 9.9%. That is well above their cost of capital. Projections can miss.
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  If the local price war crushes margins and Indian tariffs are delayed again,
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  the stock will face a sharp correction, just as it did in 2020 and 2021 when returns dipped.
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  The balance sheet is much stronger now than it was in 2020.
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  But at a 7% holding company discount, the stock is priced for perfection.
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  Any misstep in the mathematical illusion shatters.
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  Let us step back and summarize our positions as we look forward.
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  From my perspective, Singtel's financial health is undeniably robust.
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  We're seeing intelligent capital recycling, significantly lower debt,
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  and an aggressive, forward-looking pivot into data centers and IT services.
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  The pivot is real, but the pricing is exhausted due to that compressed holding
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  company discount. Even with the lower debt profile?
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  Yes, because you have imminent risks ranging from delayed Indian tariff hikes
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  to a brutal local price war in Singapore.
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  That warrants extreme caution for investors looking at FY26 and FY27.
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  So we both acknowledge that Singtel is a fundamentally transforming company.
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  They are shedding the legacy telecom skin to become a digital infrastructure player.
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  We agree on the transformation. We are just fiercely divided on the timeline.
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  Right. Whether the current stock price has already priced in too much of tomorrow's perfection today.
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  So for anyone tracking this, investors must keep a very close eye on the execution
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  of the data center rollouts. And do not ignore the regional currency fluctuations
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  with the Indian rupee and the Australian dollar.
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  The macro environment is unforgiving right now.
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  It absolutely is. We will leave it to the listener to weigh the evidence and
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  evaluate the fundamentals for themselves.
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  This content is intended to serve strictly and only as an informational,
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  independent, objective summary of recent events and should in no way be interpreted,
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  construed, or relied upon by any party as inside information or financial advice.