Singtel reiterates new strategy moving forward

In its latest annual report published on July 7, Singtel chairman Lee Theng Kiat and group CEO Yuen Kuan Moon have recognised that the Covid-19 pandemic has provided tailwinds of digitalisation that the telco intends to exploit. “The pandemic has pushed things over the technology tipping point, amplifying trends that are redefining the basis for success for our industry. Customers have embraced self-service customer care, digital-enabled sales interactions have surged, and business processes have moved irrevocably online. We believe that this is a unique opportunity to restructure for recovery and growth and have embarked on a strategic reset to sharpen the group’s focus and improve shareholder value,” says Lee and Yuen in their joint message to shareholders.

This comes on the back of Singtel announcing its plans for a strategic reset on May 27, as what analysts have been calling a “clean slate” for the group to move ahead in the current FY2022. This was also announced alongside a lacklustre FY2021 ended March earnings which fell 49% y-o-y to $544 million, as well as $1.2 billion in impairment.

In its annual report, the group highlights its strategic focus and the deep changes it will be making across the group. The new strategy prioritises three areas: investment in 5G and emerging technologies to reinvigorate its core consumer and enterprise businesses; development of new growth engines in ICT and digital services in Singapore and the regions; and unlocking value of the group’s portfolio of quality infrastructure assets to better invest for growth in the digital economy.

Singtel noted that it will be fighting to increase its market share in the 5G space, particularly in Singapore and Australia. For the consumer segment, the group intends to push out innovative products and services to deliver the best possible customer experience, and growing digital businesses in adjacent lifestyle sectors. For the enterprise segment, it will be focusing on cloud and more holistic technology solutions.

With that, Singtel has identified NCS as its key growth engine and recast it as the group’s pan-Asian B2B digital services provider.

“After seven straight years of positive revenue growth, mostly from servicing Singapore’s public sector, we are recasting our ICT subsidiary as a pan-Asian B2B digital services provider. While e-government remains a key focus, NCS will seek out new business in telecoms, healthcare, transport, communications, technology, media and financial services, in Singapore, Australia and Greater China. This is a major turning point for NCS which has already begun building new capabilities to expand its scope of business,” says Yuen.

Arthur Lang, group CFO, says: “In the regional markets, our associates, which are some of the strongest operators, are evolving into digital companies and growing their digital ecosystems to deepen engagement with their extensive customer base to capture value.

“We intend to pursue a multi-local strategy with our associates by extending the requisite skills, talent and capital to create and facilitate the propagation of products, services, and even companies among the group, to capture growth. We have also stepped up our ongoing collaboration with the associates in enterprise 5G, cloud solutions, ICT and digital business – areas which we view as growth engines of the future.”

Another way Singtel intends to realise the digital opportunity is through its portfolio of infrastructure assets including towers, data centres, subsea cables and satellites across the region. These assets are key digital enablers. Hence, it plans to explore options to unlock value given the growing connectivity and digital needs of large corporates and fast-growing companies, or, what Singtel dubs “hyperscalers”.

As Singtel looks to new avenues of growth, it also intends to unlock value of existing assets. Lang explains that the Optus partial sale of its towers is already underway in Australia and the group has received significant interest from strategic and financial investors. This transaction is expected to close before the end of this year.

Apart from actively seeking to recycle its assets, Singtel is also looking to diversify its funding sources to improve financial flexibility, optimise capital structure and minimise financing costs.

“My aim is to establish a proactive capital management approach to achieve an optimal capital structure, that positions us to deliver value for our stakeholders,” says Lang, adding that achieving this aim will allow the group to maintain a sustainable dividend programme in line with earnings and cash flow generation, and more importantly, enable the market to better appreciate the intrinsic value of the group’s various assets and businesses. Barring unforeseen circumstances, Singtel plans to pay dividends at between 60% and 80% of underlying net profit.

Following the release of its annual report, UOB Kay Hian analyst Chong Lee Len remains positive on the group as it keeps its “buy” call on Singtel with a target price of $2.84, in a July 7 note. Some rerating catalysts for the stock include: reopening of economies towards 2022; successful monetisation of 5G; faster-than-expected recovery in Optus’ consumer and enterprise business; and market repair in Singapore. E