MAINBOARD-LISTED Singtel : Z74 -1.1% has charted an ambitious course with its &ldquo strategic reset&rdquo &ndash a business revamp that management continued to emphasise in a briefing on Friday (May 27).

 

Infocomm technology arm NCS, ongoing regional data centre expansion, and a digital bank joint venture have all been touted as areas for &ldquo return on invested capital-driven growth&rdquo .

 

But, already burned by the revenue slump in core telecom services, some investors might ask how soon &ldquo growth engines&rdquo like the Singtel-Grab digital bank venture will deliver returns.

 

Singtel and ride-hailing giant Grab have jointly clinched banking licences on both sides of the Causeway, with the Malaysian deal done as part of a consortium alongside other parties. Both companies have also taken separate stakes in Indonesia&rsquo s Bank Fama International.

 

But profitable digital banks are a minority globally. Analysts expect Singapore&rsquo s digital banking newcomers &ndash including the Singtel-Grab tie-up &ndash to burn cash at the outset.

 

Singtel chief financial officer Arthur Lang said in a morning briefing that the Singapore digital bank project, which was confirmed in 2020, is &ldquo launching in the second half (of 2022), so hopefully that will start bringing in some returns &ndash but we will be slow and small&rdquo .

 

Singtel&rsquo s data centre investments, meanwhile, include both greenfield and brownfield acquisitions &ndash a mix that could lengthen the runway to bottom-line uplift.

 

The ignoble fate of Singtel&rsquo s digital life business may also be fresh in watchers&rsquo memories.

 

The segment was set up in 2012 under former chief executive Chua Sock Koong but has since been restructured out of existence. Video streaming service Hooq went into liquidation in 2020, advertising technology subsidiary Amobee is now classified as a subsidiary held for sale, and parts of cybersecurity unit Trustwave have been carved out after a strategic review in 2021.

 

Trustwave and Amobee &ndash which were both loss-making in the 12 months to Mar 31, 2022 &ndash tell a cautionary tale of exuberant digital projects fizzling out. On these 2 units, Lang said: &ldquo We don&rsquo t see it as our core business anymore&rdquo .

 

Replying to a question from The Business Times about Singtel leadership&rsquo s takeaways from the digital life investments, group chief executive Yuen Kuan Moon noted &ldquo lessons learned in the past&rdquo .

 

&ldquo Some of the new investments, firstly, are in areas that we truly understand and know. It is not an area that is totally new, that we have got no expertise in&hellip

 

&ldquo The second thing is we are also looking at investments in new areas that are around our region &ndash in South-east Asia, in Australia, in countries that we&rsquo re familiar with,&rdquo he said, while adding that Singtel is also entering each market &ldquo with a partner who understands the local landscape&rdquo .

 

For example, Singtel&rsquo s data centre expansion in Thailand will be done with regional telco associate Advanced Info Services (AIS), as well as energy supplier Gulf Energy. The latter &ndash like Singtel &ndash is an investor in AIS&rsquo controlling shareholder, Intouch Holdings.

 

And NCS &ndash known for serving the Singapore public sector &ndash has been making acquisitions in Australia, which is already a core market for Singtel through its wholly owned Optus subsidiary.

 

Amid Singtel&rsquo s business expansion, management also offered some reassurance on immediate returns for shareholders. Dividends have most recently fallen to 9.3 cents per share for the full year &ndash compared with 7.5 cents in the previous year, 12.25 cents in FY2020 and 17.5 cents in FY2019.

 

And Singtel has announced that growth investments &ndash which Yuen said would include 5G, digital banking and data centres &ndash will be funded by &ldquo asset recycling, capital partners and some debt&rdquo .

 

The group has already recycled S$2.1 billion of capital in the 12 months to Mar 31, 2022, and identified a pipeline of S$3 billion more for the next 2 to 4 years.

 

Yet Lang noted that Singtel still has returns from its core business, and watchers should not think &ldquo our returns will be sapped away with our growth engines&rdquo .

 

He also told the press that &ldquo I don&rsquo t want to give the wrong impression that we are using that cash that we&rsquo ve recycled and are not paying a dividend&rdquo .

 

The improvements in Singtel&rsquo s core businesses will be funnelled towards day-to-day operations and interest payments, &ldquo and whatever is left behind, we have set that aside for dividend&rdquo , he said.

SINGTEL : Z74 -2.56% is banking on a travel recovery, as well as easing competition in regional markets, to shore up its top line in the year ahead, the telco&rsquo s management has said.

 

&ldquo Notwithstanding the headwinds we&rsquo re seeing, we do see the operations from the core (business) coming back quite convincingly,&rdquo chief financial officer Arthur Lang told a briefing.

 

The latest outlook was delivered as mainboard-listed Singtel on Friday (May 27) reported a 4.9 per cent year-on-year increase in second-half underlying net profit, to S$941 million, for the 6 months to Mar 31, 2022.

 

Earnings swelled to S$995 million, from S$88 million previously, when including exceptional gains from the divestment of a stake in Australian tower assets.

 

Operating revenue slipped by 6.5 per cent year on year to S$7.69 billion, though the decline was a smaller 5.5 per cent when the impact of National Broadband Network (NBN) migration revenue in Australia and Jobs Support Scheme subsidies in Singapore was excluded.

 

Lang said Singtel is &ldquo cautiously optimistic about the year because, while we have a lot of headwinds coming from the macro issues, we are seeing good secular trends&rdquo for the industry, such as income from digitalisation and the return of roaming revenue.

The group noted in a press release that it is expected to benefit from a recovery in international travel as borders reopen. It added that Singtel will press on with an ongoing business transformation &ndash a so-called &ldquo strategic reset&rdquo &ndash on the back of the developing 5G market, new growth areas in infocomm technology (ICT) and digital services, and data centre expansion.

 

That&rsquo s as Singtel noted in its statements that Singapore consumer mobile service revenue was already up by 1.7 per cent in the second half, to S$382 million, &ldquo with gradual recovery of roaming revenue from the easing of Covid-19 travel restrictions and increased 5G adoption&rdquo .

 

&ldquo The growth was despite a decline in prepaid from a smaller population of foreign workers and intense competition,&rdquo it said. Singapore prepaid lines shrank 4.6 per cent to 1.28 million as at end-March, though postpaid numbers grew 2.3 per cent to 2.85 million. Blended average revenue per user (ARPU) rose 3.1 per cent to S$24 a month, on an uptick in postpaid ARPU.

 

Similarly, group chief executive officer Yuen Kuan Moon fingered the fall in the foreign workforce for a drop in Singapore mobile market share, but added: &ldquo Hopefully, with the return of foreign workers, especially in the construction industry, we will recapture some of the lost share.&rdquo

 

Singtel recently launched a postpaid SIM-only mobile sub-brand named heya, which The Business Times understands is aimed at foreign workers. This market niche is also served by dormitory WiFi provider Geenet, a mobile virtual network operator (MVNO) with Keppel-owned telco M1, and RedOne &ndash an MVNO with mainboard-listed rival StarHub &ndash which targets users who commute between Singapore and Malaysia.

 

Meanwhile, growth in underlying net profit was attributed to a turnaround at Bharti Airtel, where a return to profitability offset revenue declines at Telkomsel, AIS, Intouch and Globe. Post-tax contributions from regional associates grew 19.1 per cent in the second half, to S$749 million.

 

Bharti has seen &ldquo very strong momentum in improving ARPU&rdquo in India &ndash where the hypercompetitive price war plaguing telcos has eased, according to Yuen.

 

He also noted that &ldquo we&rsquo ve also seen some improvements in the regulatory environment&rdquo in India. Bharti&rsquo s contributions had previously been crimped by provisions for network-related fees owed to the Indian government, which fuelled a shock S$668 million loss at Singtel in 2019.

 

Yuen called Singtel &ldquo cautiously optimistic that the Indian market will continue to grow&rdquo , and added that &ldquo we do see some positive momentum&rdquo in the other telco associates&rsquo operating markets as economic conditions pick up post-pandemic.

 

The Economic Times recently reported Singtel has initiated talks with Bharti Airtel chairman Sunil Mittal, to potentially sell a &ldquo small&rdquo part of its holding in the Indian telco to the Mittal family.

 

When asked, Lang referred reporters to a separate bourse filing issued by Singtel on Friday morning, in which the group reiterated its longtime strategic investment in Airtel.

 

&ldquo As for the media hearsay, we do not comment on market speculation and abide by market disclosure rules pertaining to material transactions,&rdquo said Singtel in its statement.

 

But Lang reiterated the group&rsquo s position that its investment in Bharti &ndash described as &ldquo a very core part&rdquo of the international portfolio &ndash also represents &ldquo latent value of our balance sheet&rdquo .

 

&ldquo One of our key objectives is to really focus on the big holding company discount which Singtel suffers from,&rdquo he said, adding that such assets are &ldquo not being reflected in our share price&rdquo .

 

On a full-year basis, group net profit was up to S$1.95 billion for the 12 months, from S$554 million before, while operating revenue slipped 1.9 per cent year on year to S$15.3 billion.

 

Earnings per share was 6.02 cents for the half-year, up from 0.53 cent before, and 11.80 cents for the 12 months, up from 3.38 cents previously. Net asset value rose to S$1.70 a share as at Mar 31, 2022, against S$1.60 as at Mar 31, 2021.

 

The board has proposed a final dividend of 4.8 cents per share, taking the annual payout to 9.3 cents per share. The latest full-year dividend is up from 7.5 cents per share in the previous year, but lower than 12.25 cents per share in FY2020 and 17.5 cents in FY2019.

 

Singtel has committed to paying out between 60 and 80 per cent of underlying net profit in the coming financial year, although Yuen told reporters that &ldquo we do not provide net profit guidance&rdquo when asked for more specific figures on dividend expectations.