Singtel’s capex will rise to $2.7b to $2.8b: S&P

Cash dividends from associates are expected to decline in 2023.

Singapore Telecommunications (Singtel)’s spending is expected to rise to between $2.7b to $2.8b in the current fiscal year as it embarks on building more data centres, according to S&P Global Ratings.

Capital expenditure, or capex, is expected to remain elevated through fiscal year 2025.

An improving, albeit still flat EBITDA for 2024 will likely cause a decline in Singtel’s cash dividends from its associates. S&P expect dividends to drop to $1.3b in FY2024, from S$1.5b in FY2023. 

“The higher dividend in fiscal 2023 had benefitted from special dividends from Singtel's Indonesian telco associate, Telekomunikasi Selular Tbk. PT, on the back of telecom tower sales,” S&P noted.

The estimates are based on Sintel’s earlier announcement that it intends to undertake $6b of capital recycling in the mid-term, including a partial divestment of Comcentre, which houses its headquarters. Proceeds from the divestment– expected to be $1.6b– will come in FY2025.

Assuming only the Comcentre divestment, the ratings agency anticipates that Singtel's debt-to-EBITDA ratio to be 1.9x-2.1x through fiscal 2025, S&P said. 

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“This is below the downgrade trigger of 2.5x. We estimate leverage to be 1.6x for Singtel's actual results on an adjusted basis in fiscal 2023. Further capital recycling beyond Comcentre would therefore provide Singtel with even more financial flexibility at the current rating level,” the ratings agency wrote in a commentary.

EBITDA to recover
Singtel’s earnings before interest, taxes, depreciation, and amortization (EBITDA) is sighted to increase 5% to 7% in FY2024, pushed up by improvement in the Singapore consumer segment. 

Singtel is expected to enjoy stronger prepaid and roaming revenues as international travel recovers, S&P noted.

The telecom company will also see better profitability from NCS, its information, communications, and technology segment. Margins in that segment were weighed down by sector-wide wage inflation in fiscal 2023, S&P said.

Singtel Opus, however, will likely log a lower contribution as a result of the Australian dollar’s relative weakness compared to the Singapore dollar. However, in Australian dollar terms, Optus’ earnings should modestly improve in FY2024, S&P said.

“Optus' earnings will benefit from an improvement in operating conditions, increased demand for data, and the return of roaming revenues,” the ratings agency wrote in a report.

S&P expects a “rational environment” for mobile pricing in Australia, as industry players face pressure to offset inflationary cost increases and recover ongoing investment in 5G enhancements.