Thursday, August 25, 2016

Singtel's odd but patient long term strategy - Part 1

Preamble

SingTel is an odd organisation, halfway between a telecom assets holding company and a real operational hands-on telco. It fully controls only two telcos, namely Singtel Singapore and Optus of Australia, which are consolidated into its financial reports, but holds very substantial financially unconsolidated minority positions in key operators in several major Asian countries and through its share of Bharti Airtel affiliate relationships with operators in 16 African countries as well. Singtel claims the core company and its regional mobile associates, all 'leading players' in their respective markets,
reach over 600 million mobile subscribers across the region.

The company's long term strategy is not completely clear, but it is assumed, other things being equal, that in the longer term Singtel hopes to build up its holdings in some or all of the telcos in which it is invested. Singapore is an extremely rich, very technology-based society and telecommunications is a core platform for broad-based, knowledge-centred social innovations in such societies. Continued success in developing and implementing such innovations will probably be crucial to Singapore's future and ensuring it maintains its position as one of the world's leading economies. Ownership of a broad
range of quality Asia and Asia-Pacific telecommunication assets is not only a potentially good investment in its own right due to high economic growth rates, but also with time and increased investment offers a scale of operations commensurate with operators in countries like China and Japan, which can be used as a platform whereby those social and technical innovations can be fanned out economically worldwide and give Singapore a new source of quality exports.

The argument for already having full operational control of operations in Singapore and Australia is obviously because these are the most sophisticated countries in the Singtel portfolio, and markets in which those innovations are most likely to be generated or be piloted.

Singtel telecom assets portfolio

SingTel's holdings include the following:

Singapore: Singtel, the incumbent operator in the city state.
India: Singtel currently owns 32.9% of Bharti Telecom, the No. 1 Indian operator, and is in process of raising that to 36.2%.
Australia: Singtel owns 100% of Optus, the No. 2 operator in Australia.
Philippines: Singtel has an effective interest in Globe Telecom via a mix of directly held common shares and indirectly held preferred shares held by Asiacom, a 50/50 JV with Ayala Corporation.
Thailand : it holds a 23.3% direct stake and is in process of raising that to 31.8% through an additional indirect holding.
Indonesia: Singtel has a 35% stake in Telkomsel, the No. 1 mobile operator.
Bangladesh: it owns 45% of Citycell, a rapidly declining operator that looks likely to close.

Singtel relationship to Temasek Holdings

It is impossible to discuss Singtel without referring to the company's controlling shareholder Temasek Holdings (otherwise known as Singapore's Sovereign Wealth Fund), which is an investment company owned by the government of Singapore. Incorporated in 1974, Temasek owns and manages a net portfolio of S$242 billion ($180 billion), mainly in Singapore and Asia. It is an active shareholder and investor, and its portfolio covers a
broad spectrum of sectors including financial services, telecommunications, media and technology, transportation and industrial, life sciences, consumer, real estate, as well as energy and resources.

Temasek revenue for the financial year ended March 31, 2016 was S$101.5 billion, up from S$74,6 billion in 2007 with a CAGR of 3.5%. Temasek net profit in FY 2016 was S$15.6 billion and over the same nine-year period has been rather flat, averaging about S$14.6 billion within the range S$6.8 billion to $22.5 billion.

As of the end of the company's last financial 2015/16 year in March 2016, Temasek held a 51.0% stake in the company (and together with five other local investors owned over 90% of Singtel). Apart from holding a majority of Singtel's stock, Temasek Holdings also has a huge range of equity positions in a very wide range of other businesses in Singapore and elsewhere, some of which could be of immediate or longer term interest to Singtel as it leverages its telecommunications assets to encompass all other sectors of a fully smart society.


Singtel five year financial history
For years ending March 31st, in S$ billions, it reported:

                                     2016;        2015;           2014;           2013;          2012.
Group revenue:         16.961;        17.223;        16.848;        18.183;       18.825.
Singtel:                         7.663;         7.348;          6.912;          6.732;         6.551.
Optus:                           9.298;        9.875;           9.936;        11.451;       12.275.
EBITDA:                        5.013;        5.091;           5.155;          5.200;        5,219.

Share of associate PTP: 2.791;       2.579;               2.201;          2.106;        2.005.
Underlying net profit:     3.805;        3.779;               3.610;;         3.611;        3.676.
Group FCF:                      2.718;        3.549;               3.249;          3.759;       3,462.
Cash capex:                      1.930;       2.238;               2.102;          2.059;       2.249.

Comments by Group CEO Ms. Chua Sook Kong

Telkomsel was the standout performer, with pre-tax earnings for the year jumping 15% to S$1.1 billion on the back of increased voice and data usage. It also saw a significant increase in 3G and 4G subscribers, which now make up 42% of its total customer base.

In Thailand, AIS continued with its migration of 2G customers to 3G or 4G networks, against an accelerated network rollout with the 1800 MHz spectrum acquired last year. Airtel has secured pan-Indian spectrum for its 4G services, allowing it to provide seamless data services across the country. Globe in the Philippines continues to take share, thanks to increased network investment and innovative offerings.

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