DBS downgrades Singtel to ‘hold’ on weaker valuation of Bharti Airtel

[SINGAPORE] DBS Group Research analyst Sachin Mittal has downgraded his rating on Singtel to “hold”, with a lowered target price to S$5.36 in his Monday (Mar 23) report, citing the lower valuation of the telco’s regional associate Bharti Airtel.

He decreased the fair value of the Indian mobile carrier by 13 per cent, from 2,295 rupees (S$31.38) to 2,000 rupees.

He also expects Singtel’s operating profit to be “under pressure” in FY2027 amid moves of sector consolidation if a merger between Simba Telecom and M1 goes through.

In August 2025, M1’s telco business was put up by Keppel for sale to mobile network operator Simba Telecom for an enterprise value of S$1.43 billion, in an all-cash deal. Regulatory approval is still pending for the merger.

Intensified sector competition from a more “aggressive StarHub” has also left the analyst unable to rule out downside risks of 5 to 6 per cent to Singtel’s FY2027 consensus estimates.

Annual cost savings of around S$200 million, which Singtel has delivered over the past three years, have ended now, too, Mittal noted.

This means that amid such conditions, Singtel’s core business – trading at a seven times 12-month forward Ebitda, may not re-rate further, he said.

Singtel users reported Internet disruption on Monday, after three consecutive days of similar issues the week before; an eight-hour disruption occurred on Mar 16.

Its shares ended Monday 5.4 per cent or S$0.28 lower at S$4.93.

At this juncture, however, Singtel’s Australian player Optus and NCS in Singapore still drive some Ebit growth, and data centres are expected to grow sharply from FY2027 as well.

But a decline in the Australian dollar or “irrational competition” within Australia itself, could hinder recovery, noted Mittal, with Optus facing potential headwinds.

Bharti Airtel weakness

On the lower valuation for Bharti Airtel, he said there could be “downside risk to market expectations” even though the brokerage forecasts an approximate 25 per cent earnings growth for Bharti Airtel in FY2027.

“(T)his is materially below the over 40 per cent expected by consensus,” he said.

The potential six-month delay in the tariff hike in India could lead to Bharti Airtel’s share price being “range-bound” as well, said Mittal.

“We see limited near-term likelihood of tariff hikes for Bharti Airtel, with increases now unlikely in June 2026 amid rising energy costs that are weighing on consumer purchasing power in India,” he said on Monday.

This performance is thus expected to lower Singtel’s FY2027 forward earnings by 7 per cent, he added.

“Singtel’s dividend yield is also below 4 per cent, as compared with a five-year average of 4.8 per cent, which does not support big upside potential either,” he said.

He said that since June 2024, there has been a “strong correlation of 63 per cent” between Singtel’s share price and the market value of its key associate companies like Bharti Airtel, Advanced Info Services, Telkom Indonesia, and Globe Telecom.

“From September 2009 to December 2017, this correlation was robust, with Singtel’s share price showing an approximate 69 per cent positive correlation with its associates’ market value,” said Mittal.

The period reportedly coincided with Singtel’s core business strength, with core Ebit steadily increasing until the third quarter in 2018 to S$768 million.

That said, Singtel’s core Ebit steadily declined after that point, due to weak performances in Singapore and Australia – with the company’s share price exhibiting a strong correlation with core Ebit at 74 per cent.

“This divergence indicates that Singtel’s core operations’ declining performance have begun to overshadow contributions from its regional investments,” said Mittal.

Singtel holds significant stakes in telecom associates in India, Indonesia, the Philippines and Thailand; these have contributed to over 64 per cent of the group’s operating profit in FY2025.