An Overview of Singtel’s Strategic Growth and Financial Health

Singapore Telecommunications (Singtel), a leading telecommunications giant, remains a robust contender in the communication services sector. Singtel continues to maintain its competitive edge through a diversified portfolio, providing fixed-line, mobile, data, internet, TV, and digital solutions across Singapore and its regional operations in Australia, India, Indonesia, Thailand, and the Philippines. With a market capitalization of S\$51,979.1 million, it stands out as a major player in the industry.

The report reiterates a “BUY” recommendation for Singtel, with a target price of S\$3.58, reflecting a 13.7% upside. The company’s commitment to enhancing shareholder value through its ST28 growth strategy is evident, focusing on value-unlocking initiatives, improved operational efficiency, and exploring future growth drivers such as NCS and Nxera.

Driving Shareholder Value Through Strategic Initiatives

Singtel’s management remains steadfast in its goal of improving Return on Invested Capital (ROIC), which currently stands at around 9%, surpassing the Weighted Average Cost of Capital (WACC) of approximately 7%. The company aims to achieve low double-digit ROIC within the next three years, driven by:

• Enhanced profitability from core businesses in Singapore and Optus.
• Cost-cutting measures.
• Stronger contributions from regional associates.
• Revenue growth from NCS and Nxera, its infrastructure arm.

Management has also identified potential value-unlocking opportunities amounting to S\$12 billion to S\$13 billion. This includes paring down stakes in regional associates like Bharti Airtel, non-core fixed assets, and monetizing assets in Thailand. The redevelopment of the Singtel Comcentre is expected to generate an additional S\$1 billion in cash by FY26.

Higher Dividends on the Horizon

In alignment with its ST28 strategy, Singtel is projected to increase its value-realisation dividends (VRD). The report anticipates a total dividend of 16.5 S cents per share for FY25, implying a 5.2% dividend yield. Leveraging its strong cash position, Singtel could potentially exceed its dividend guidance over the next three to five years, providing sustained returns to shareholders.

Financial Performance and Projections

Singtel’s financial metrics for the year ending March 31, 2025, reveal steady progress:

• Net turnover projected at S\$14,527 million, a 2.8% year-on-year increase.
• EBITDA forecasted to grow to S\$3,713 million, with a margin of 25.6%.
• Net profit (adjusted) expected to rise to S\$2,601 million, up 15.1% year-on-year.
• EPS projected at 15.7 S cents.
• Dividend yield expected to climb to 5.2% in FY25 and further to 6.1% by FY27.

The company’s robust financial health is further highlighted by its manageable net debt-to-equity ratio of 30.2% for FY25.

Market Dynamics and Competitive Position

Despite stiff competition from low-cost SIM-only plans in Singapore, Singtel maintains its focus on higher-value segments. However, competitors like Simba and mobile virtual network operators have been steadily gaining market share. Simba, in particular, has doubled its subscriber base from 487,000 in February 2023 to over 1 million by July 2024.

Industry consolidation could provide an opportunity for market repair. While Singtel is unlikely to participate directly due to regulatory challenges, a potential merger between other players like Starhub and M1 could rationalize pricing and stabilize the market, indirectly benefiting Singtel.

Strategic Focus on Growth Engines

Singtel’s subsidiaries, NCS and Nxera, are pivotal to its future growth. Nxera plans to expand its regional data center operations through strategic partnerships, such as its recent S\$1.1 billion deal with Kohlberg Kravis Roberts & Co. (KKR) for a 20% stake in its data center business. These initiatives are expected to bolster earnings and provide robust growth opportunities in the near term.

Valuation and Key Catalysts

UOB Kay Hian values Singtel at S\$3.58 per share based on a discounted cash flow (DCF) model, with a discount rate of 7% and a growth rate of 2.5%. Key re-rating catalysts include:

• Successful monetization of 5G technologies.
• Further monetization of data centers and NCS.
• Market stabilization in Singapore through industry consolidation.

Conclusion

Singtel remains an attractive investment, backed by its resilient business fundamentals, strategic growth initiatives, and promising dividend yields. The company’s focus on value creation through asset monetization, coupled with its robust financial performance, positions it well to navigate industry challenges and deliver sustained shareholder value in the years ahead.