Singtel is in the business of providing next-generation connectivity, digital infrastructure, and digital services in an exciting region undergoing rapid digitalization. Singtel has regional associates Airtel, AIS, Globe, and Telkomsel with a presence spanning Asia, Australia, and Africa. Singtel is scaling Nxera and NCS, focusing on growth engines in the data center and IT services space.

Singtel owns a 28.9% effective interest in Airtel. Airtel serves mobile customers 352m in India, 2.9m in South Asia, and 153 m in Africa. Singtel owns 30.1% of Telkomsel in Indonesia with 160m mobile customers. Optus has around 10.5 m mobile customers. Singtel owns 23.3% of AIS shares and 24.99% of Intouch. Singtel owns 22.3% of the voting shares of Globe.

Singtel has embarked on a strategy for growth. Firstly, they consolidate businesses to make things simpler, reducing the number of business lines with different bosses. The consumer and enterprise businesses of Singtel Singapore and Optus are combined. This removes the complexity for consumers. There is a leaner cost structure. Singtel is trying to find smart ways to save costs. A recent network-sharing deal between Optus and TPG will drive capital efficiency. They are enhancing customer experiences such as 5G network slicing, telco application programming interfaces, and Network-as-a-Service presenting the opportunity to differentiate from competitors.

Digital services arm NCS has scaled and secured S$3 billion in bookings this past year, expanding its client base to the enterprise sector and regionally. It has grown its global delivery network while investing in AI and tech resiliency for clients. Data center business Nxera is poised to expand its operational capacity from the existing 62 MT to over 200 MW in the region in the next 3 years. KKR took a 20% stake in Nxera, valuing it at S$5.5 billion in September 2023.

Singtel has included a new value realization plan, which is introduced to share the rewards of the capital recycling program. This is to return excess capital to shareholders in a sustained manner after they have set aside funds to invest in growth. The payout range of the core dividend is increased to 70% and 90% of the underlying net profit. The dividend growth plan will be sustainable for the mid term probably in the range of 3-5 years.

Capital Recycle

Singtel sold away unprofitable non-core digital businesses Trustwave and Amobee. Singtel established capital partnerships as previously mentioned KKR’s investment in Nxera, redevelopment of Comcentre, and selling 49% to Lendlease, Australian Super’s investment in Indara. The capital that’s recycled is partially used to pay down debt to reduce interest expenses. Singtel recycled its capital to further invest in data centers, which will contribute to EBIT. A higher EPS will help to contribute back to dividend growth.

Growth area

Singtel will continue to capitalize on 5G opportunities. It is expanding mobile capabilities beyond borders through connected cars and IoT solutions which see revenue growth by 41% year-on-year. This growth is enabled by roaming networks and advanced network technologies such as RedCap which reduce the battery consumption and production cost of IoT devices. This 5G IoT ecosystem spans from smart watches to industrial sensors. 

It will aim to maintain its market leader in Singapore with healthy margins. It is still a tough market to operate in Singapore, with 4 main players with 12 other brands that tap into the networks. There is tremendous competition. They are fighting for the same pool of customers, there is still growth but small growth. Any growth is based on cannibalizing from other competitors.

Singtel’s associates will continue to drive fixed mobile convergence strategy with IndiHome (Telkomsel) and 3BB (AIS) integration. They will focus on organic growth areas such as broadband penetration for regional countries like Indonesia, India, and Thailand. AIS is becoming Thailand’s leading fixed broadband provider, extending connectivity to customers in rural areas.

Nxera and Digital InfraCo will aim to become the regional leader in digital infrastructure. Data centers are very high CAPEX businesses. They do not wish to utilize debt but finance through its operating cash flow. Singtel partnered with KKR with their capital investment to grow its Data Centers.

NCS has continued its expansion from the public to the private sector and the region and boosted margins by stepping up and optimizing its global delivery resources. NCS is driving innovation in digital, data, cloud, and platforms, including harnessing generative AI to redefine experiences for consumers.

Singtel is making progress in the digital banking space. KakaoBank joined forces with Singtel, Grab, and Emtek Group to invest in Indonesian digital bank Superbank, by acquiring a 10% stake. GXBank is a digital bank venture with Grab and consortium was launched in Malaysia. GXS bank partnership with Grab is still loss-making, they aim to break even in 2026. Grab owns 60% of the entity, and Singtel owns 40%.

Valuation

The fair value for Singtel should be around S$3.74/share. We will continue to acquire more between the range of S$2.5/share – S$2.8/share. Currently, we have 10,000 shares bought at an average S$3.87/share which was held for many years, and 5,000 shares bought at S$2.38/share bought this year. Hence, we will add more to average down at the right range.

Conclusion

Singtel will focus on its business plan, and scrutinize its acquisition whether it is aligned with the overall business plan. Overall Singtel is leaner and it is more focused on its core business. The new management team has better execution and the asset allocation skills seem better than the previous. We will continue to monitor this business and understand how Singtel is improving its margins.

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