Both parties plan to explore the use of artificial intelligence and orchestration tools while gaining greater depth in network virtualisation and other technologies.

 

SINGTEL has inked a memorandum of understanding (MOU) with South Korean mobile carrier SK Telecom (SKT) to collaborate on building next-generation networks over the next two years.

 

The proposed tie-up will drive innovation, improve network performance and security, and deliver enhanced customer experiences, said Singtel : Z74 -0.35% in a press statement on Monday (Jul 8).

 

SKT&rsquo s head of ICT Infra Kang Jong-ryeol viewed the partnership as a &ldquo significant first step in shaping the future of the global telecommunications industry&rdquo .

 

Under the MOU, both parties intend to explore the use of artificial intelligence (AI) and orchestration tools while furthering their domain knowledge of network virtualisation and other technologies.

 

Areas of collaboration include developing more network slicing capabilities as well as standardised telco application programming interfaces.

 

These were highlighted by Singtel as &ldquo central to laying the necessary building blocks for progressing to 6G&rdquo .

&ldquo With SKT, we&rsquo re looking to not only enhance the experience of our customers but to also drive industry innovation and help us prepare for the evolution to 6G,&rdquo said Anna Yip, deputy chief executive and CEO for business development at Singtel Singapore. 

 

Singtel and SKT also intend to work on developing differentiated innovative solutions including Edge-AI infrastructure, which performs AI inference and uses edge computing to reduce the computational burden concentrated on the cloud.

 

&ldquo This initiative is expected to not only enhance connectivity but also provide customers with unique AI service offerings and enable the operators to restore services faster, thus improving the customer experience,&rdquo the telco said.

 

Additionally, both telcos will release a white paper on their advancements in areas such as virtualisation, slicing, and network evolution.

 

The white paper can help other telcos globally to capitalise on the capabilities of 5G, and to prepare for 6G, said Singtel.

Singtel is revitalising its core businesses and unlocking value while SIA has made the most of the pandemic-era shareholder support it received

 

THE chief executives of Singtel and Singapore Airlines (SIA) made headlines this past week when their multi-million-dollar pay packages were revealed in the latest annual reports of their companies &ndash both of which have Mar 31 financial year-ends.

 

As the two reports were published within days of each other, it was hard to not compare what each of them had been paid versus the performance of their respective companies and the management challenges they might have faced.

 

Goh Choon Phong, the CEO of SIA, was paid a total of S$8.1 million for FY2024. This was 20.6 per cent more than the S$6.7 million he earned for FY2023 and 47.4 per cent more than the S$5.5 million he pocketed for FY2019, before the Covid-19 pandemic.

 

Yuen Kuan Moon, the CEO of Singtel &ndash a company with market capitalisation more than twice that of SIA &ndash was paid almost S$3.28 million for FY2024. This was 2.9 per cent less than the S$3.38 million he was paid for FY2023 and 4.7 per cent less than the S$3.44 million he earned for FY2022, his first full financial year as CEO.

 

On the face of it, Goh&rsquo s elevated pay for FY2023 and FY2024 was in line with SIA&rsquo s financial performance. Riding the strong recovery in demand for air travel following the pandemic, the group delivered two consecutive years of record revenue and earnings.

 

SIA clocked revenue of more than S$19 billion in FY2024, up from S$17.8 billion in FY2023 and S$7.6 billion for FY2022. Earnings came in at S$2.7 billion for FY2024, up from S$2.2 billion of FY2023 and a loss of S$962 million for FY2022.

In pre-pandemic FY2019, SIA achieved earnings of S$682.7 million on revenue of S$16.3 billion.

 

Yuen&rsquo s lower pay for FY2024 also seemed to correspond with Singtel&rsquo s performance. The group&rsquo s revenue of S$14.1 billion was slightly lower than the S$14.6 billion it reported for FY2023 and the S$15.3 billion reported for FY2022.

 

Singtel&rsquo s earnings for FY2024 of S$795 million was sharply lower than the S$2.2 billion reported for FY2023 and the S$2 billion reported for FY2022. This was due to large exceptional items, the most significant of which were impairment charges related to Optus.

 

Singtel&rsquo s turnaround

Looking past these headline numbers, however, Singtel is arguably now in far better shape than it was when Yuen was appointed CEO on Jan 1, 2021.

 

This column said in August 2020 that Singtel&rsquo s net debt had nearly doubled over the preceding decade while its earnings had weakened and its free cash flow had barely budged.

 

As the pandemic took its toll, Singtel cut its dividend from 17.5 Singapore cents per share for FY2019 to 12.25 cents per share for FY2020, to 7.5 cents per share for FY2021.

 

Since taking the helm, Yuen has focused on revitalising Singtel&rsquo s core businesses, developing new growth drivers, selling underperforming assets and lightening its balance sheet.

 

Notably, Singtel said in July 2022 that it would sell its US digital media and advertising unit Amobee for US$239 million. In October 2023, it announced the sale of its cybersecurity business Trustwave for US$205 million.

 

Singtel also said in October 2021 that it would raise A$1.9 billion (S$1.9 billion) through the sale of a 70 per cent stake in an entity that operates telecommunications towers for Optus.

 

On top of that, value is being unlocked from Singtel&rsquo s Comcentre headquarters. In June 2022, Singtel said it would form a 51:49 joint venture with Lendlease to redevelop the property. The joint venture company will pay Singtel S$1.6 billion for the cost of the land for the development.

 

Singtel has also been selling down its stake in its regional associate Airtel. So far, it has raised more than S$3 billion through two sales, one in 2022 and another earlier this year.

 

In another interesting move, Singtel is forging partnerships and tapping private equity funds to support its growth. In September last year, it said KKR would acquire a 20 per cent stake in its regional data centre business for S$1.1 billion.

 

The deal puts the enterprise value of the business at S$5.5 billion. KKR has the option to increase its stake to 25 per cent by 2027 at the pre-agreed valuation.

 

Separately, ST Telemedia said last month that a KKR-Singtel consortium will invest S$1.8 billion in its global data centre business.

 

Singtel said in March that its capital recycling programme had raised S$8 billion in three years. As at end-FY2024, the group&rsquo s net debt stood at S$7.8 billion &ndash down from S$8.3 billion at end-FY2023, and nearly S$12.5 billion at end-FY2020.

 

It has now identified a further S$6 billion of assets that could be monetised. The group has also said it will pay a &ldquo value realisation&rdquo dividend of three to six Singapore cents per share every year, in addition to a core dividend of between 70 and 90 per cent of its underlying net profit.

 

The telco&rsquo s total dividend for FY2024 was 15 Singapore cents per share, comprising an interim dividend of 5.2 cents per share, a core final dividend of six cents per share, and a value realisation dividend of 3.8 cents per share.

 

The group paid a total dividend of 14.9 Singapore cents per share for FY2023, and 9.3 cents per share for FY2022.

 

Shareholders supported SIA

In contrast, SIA&rsquo s robust post-pandemic performance was enabled by the massive financial support provided by its shareholders.

 

In 2020, SIA said it would tap its shareholders for a total of S$15 billion &ndash comprising S$5.3 billion through the issue of 1.8 billion new shares, and S$9.7 billion through the issue of mandatory convertible bonds (MCBs).

 

The terms of the MCBs did not appeal to many of SIA&rsquo s shareholders, and ended up being largely mopped up by Temasek.

 

Having all this capital enabled SIA to retain pilots and crew, and capture the surge in demand for air travel when international borders reopened, and achieve the record revenue and earnings that it reported for FY2023 and FY2024.

 

After a two-year hiatus, SIA paid dividends of 38 Singapore cents per share for FY2023 and 48 cents per share for FY2024. The group fully redeemed its MCBs last month, and its shares are now trading at more than twice the rights issue price of S$3 per share.

 

For many investors, the big question is how long SIA&rsquo s Goh will be able to maintain the group&rsquo s elevated financial performance. While SIA is investing in more efficient aircraft, enhancing its cabin offerings and expanding its connectivity, its profitability will almost certainly moderate as other carriers increase capacity.

 

The turnaround unfolding at Singtel could be more durable, in my view. Following its earnings report for FY2024, a number of analysts have turned more bullish on Singtel&rsquo s shares on the expectation of improving profitability and further value unlocking initiatives.

 

If Singtel&rsquo s Yuen and his team manage to meet those expectations, they might soon receive higher pay packages.

DBS Stock Pulse: (1) Sectors to watch if the US labour market continues to cool  (2) Equity picks &ndash Reduce SingTel

Singapore Equity Picks

SingTel: Reduce by 1,800 shares @ SGD2.89

We lower our tactical exposure with the stock&rsquo s recent strong run as it approaches a major multi-year 38.2% upward retracement level at SGD2.91. Nonetheless, the stock&rsquo s momentum looks intact and we will monitor whether it can rise further towards SGD3.11 (based on Fibonacci projection). The stock trades at yield of 5.75% for FY25F and 6% for FY26F. Pullback support at SGD2.75-2.78. The shares removed have returned 18.5%. There remains 5,000 SingTel shares in equity picks post reduction.