Analysts expect potential Starhub-M1 merger this year as Singtel dominates telco sector

SINGAPORE: Talks of a potential merger involving StarHub, M1, and Simba Telecom have stirred speculation about a significant shift in Singapore’s telecommunications sector.

While StarHub has yet to release official statements on the matter, such a consolidation is expected to help “right-size” the intense competition in the mobile virtual network operator (MVNO) space.

RHB Group predicts that 2025 could usher in more mergers and acquisitions (M&A) in the telecom sector. This trend is likely to be driven by favourable economic conditions, such as a projected interest rate downcycle and promising investment opportunities in infrastructure assets.

Telcos are also seeking to bolster their value as they transition into technology companies, capitalizing on the ongoing artificial intelligence (AI) boom.

“For StarHub, the completion of its multi-year transformation programme (2022-2025) positions the company to start reaping synergies in 2025,” RHB noted.

However, they added that the most significant earnings impact might be observed between FY26 and FY27 as legacy network costs decline.

Nonetheless, heightened competition in the market could temper these benefits, potentially leading to slower revenue growth and more modest operating expense (opex) savings.

Amid these industry shifts, Singtel remains Singapore’s dominant telecommunications player.

The company’s leadership is underpinned by strong earnings from outside Singapore, capital management strategies, and structural gains from new growth engines. RHB estimates Singtel’s return on invested capital (ROIC) will grow by 10% in FY2025.

Singtel’s earnings before interest and taxes (EBIT) are expected to post low double-digit growth for the year, with H1 FY2025 seeing a 12.8% EBIT increase in its core Singapore and Optus units.

Optus’ EBIT surged 58% in Australian dollar terms, driven by cost efficiencies, while NCS recorded a 40% EBIT rise due to improved delivery margins.

Additionally, Singtel is on track to achieve $200 million in opex savings by the financial year’s midpoint, with RHB affirming its commitment to a mid-term capital recycling target of $6 billion.

This effort supports a variable realisation dividend (VRD), with $1 billion (6 cents per share) expected to be recognised in the next six months.