Singapore Telecommunications Ltd – Directionally healthy August 28, 2023 338

PSR Recommendation: BUY Status: Maintained
Last Close Price: 2.33 Target Price: 2.800
  • 2023 Investor Day: Mobile price recovery is underway in India, delayed in the Philippines and Thailand and likely in Indonesia. Australia and Singapore face challenges due to low-end competition by MVNOs.
  • Growth drivers for Singtel include fixed broadband (Indonesia, India and Thailand), data centres and NCS. There is an upside to ordinary dividends with S$2bn of excess cash yet to be returned. Generative AI will soak up data centre supply even faster due to the spike in power and cooling requirements.
  • Our BUY recommendation and SOTP TP of S$2.80 are maintained. We believe earnings have troughed as mobile prices start to edge up higher and new growth engines gather scale. The downside will depend on Optus’s ability to rationalise cost to cope with the unrelenting price competition. Other catalysts for Singtel include the disposal of loss-making Trustwave, paring down of associate stakes (to narrow holding co-discount) and monetisation of fixed assets (towers, real estate) and other businesses (IPO).



Key Highlights from Singtel Investor Day 2023


  1. Corporate

CEO: Unwavering focus on strategic reset

  1. Consolidation amongst mobile operators is underway and healthy for the industry. For Singtel, 4 of the 6 countries they operate have consolidated. In Singapore, Singtel is not allowed to become the consolidator.
  2. With mobile market repair, ARPU and EBITDA margins are improving such as India, Thailand and Indonesia.
  3. 5G is not up to scale but you do see early adopters at the Hyundai factory deploying robotics at a commercial level to assemble cars and not just trials. Other adopters are aviation and ports. Singtel’s Paragon 5G software has been developed with interest from North American and European telcos.
  4. GXS digital bank was launched in August 2022 and deposits were even rolling in too fast. Malaysia and Indonesia are the opportunities with a target launch date end 2023.
  5. Fibre broadband penetration is low at 10-17% and will be a high growth area for the next five years. There will be synergies and momentum with bundling with mobile phone plans.



CFO: ROIC, growth and monetisation (to rerate share price)

  1. Will “double down” (capital) in the growth engines of digital infraco and NCS. Telco industry EBITDA has been lost and will never be replenished. Singtel will focus on new growth areas.
  2. Current ROIC is 8% (excluding Optus goodwill or ignoring the purchase price of Optus) with the target of low double-digits by FY26. Drivers to ROIC improvement are increasing efficiencies for Optus and Singtel SG; sale of loss-making businesses (e.g. Trustwave with EBIT loss of S$100mn p.a.); reduced capital intensity and improvement at Airtel.
  3. On NCS and regional data centre (RDC), the combined EBITDA contribution to rise from 12% to more than 20% by 2028 of Group EBITDA. This implies outpacing the growth of matured telco businesses by only 1.6% points per year (including acquisitions). The current market is not conducive to IPO, but NCS or RDC can bring in 20-25% stake partners.
  1. On the associate stakes, Singtel will look to pare down the stakes but not completely dispose them. There is S$50bn in value in the associate stake which can be reallocated to growth areas.
  2. There is more latitude to raise ordinary dividends with the S$2bn excess cash (or 11 cents) in operating cash flow not paid out. Will not borrow to pay dividends.



  1. Subsidiaries

Optus: MVNOs the formidable 4th operator

  1. Tier 2 brands or MVNOs have been capturing market share by 5.7% points from 19.7% in 2019 to 25.4% in 2022. This was despite Optus purchasing the largest MVNO amaysim in 2021 for A$250mn.
  2. MVNOs value proposition is lower prices with a Telstra network for coverage. Telstra has a sticky postpaid market share of 50% share and uses wholesale to take the lower-tier plans. The trend of the 40 MVNOs capturing more share or customers trading down is unlikely to stop unless downtrading hurts Telstra or prices come down to wholesale cost. Telstra’s wholesale price arrangement with MVNOs can be revenue share, fixed fees, etc.
  3. The deteriorating consumer confidence is also causing a trade-down effect. Any price repair in the industry will be anchored down by the MVNO prices.
  4. Optus is competing in mobile service innovation. These include donating data plans to the underprivileged, the ability to pause network connection (for the whole household), mobile turbocharge during congested periods, unlimited data days, call translation between speakers, call notes, subhub to consolidate all content providers and smartspace experts to install a well-connected home for customers.



Singtel Singapore: Merging consumer and enterprise for cost and revenue synergies

  1. The ROIC is healthy at low20% but still working on cost synergies at the operating and capital expenditure level post the integration of both businesses.
  2. Mobile ARPU is down despite an uplift in roaming due to SIM-only plans. EBITDA is a better gauge.
  3. On consolidation of mobile operators, regulators could be more understanding and voicing an opinion. If it does happen, Singtel will be the major player.
  4. Hyundai is using 5G for their Ionic 5 assembly in Singapore and requires only 10 workers in the factory. Robotics can help resolve labour and union issues. 5G is better than WiFi due to low latency. WiFi performance also degrades when more devices are connected. If successful, other models could be assembled in the Singapore plant. Micron is also using 5G for detecting faults. 5G can also provide slicing for security purposes or reserved bandwidth for emergency cases.
  5. Other countries are still pacing out their 5G rollout because the application is not here yet. But 5G can raise prices when transitioning from 4G. 5G penetration is now 40%. Any mass adoption of 5G still relies on the consumer market.



NCS: Targeting key sectors

  1. Started in 1981, it is the largest systems integrator in SE Asia with more than 12,000-strong workforce and more than 4,000 ongoing projects. The top 30 clients provide 70% of revenue and more than 10 years of relationship. The target is S$5bn revenue in three years from current S$2.7bn. This likely includes acquisitions after completing the recent acquisition of Australian businesses.
  2. EBITDA declined in 2022 due to the acquisition cost of four companies in Australia to penetrate the market, and a one-off wage increase in the middle of last year but the situation has settled down and there are investments to change the model to three strategic focuses. The book to bill is 1.02.
  3. The government sector customers are stat boards, ministries, defence and homeland security. NCS is essentially the tech partner of the government. Some projects include tax collection solutions, IOT sensors in the housing estate, smart lighting/lifts/sensors, robotics for surveillance, and data analytics for the tourism sector. 
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About the author

Profile photo of Paul Chew

Paul Chew
Head of Research
Phillip Securities Research Pte Ltd

Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.

He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.

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