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Three Facts SingTel’s Investors Need To Know

SingTelLogoSingTel (SGX: Z74) will likely be a familiar name for those of us who live in Singapore due to the wide range of telecom services that it offers.

Besides its commercial reach, the telecommunications giant is an integral part of Singapore’s stock market. It is the largest company by market capitalisation (around S$60b), and accounts for more than 10% of the benchmark Straits Times Index (SGX: ^STI).

As a corporate entity, SingTel dwarfs its peers, StarHub (SGX: CC3) and M1 Limited (SGX: B2F), in terms of market size. The former is valued around S$7.4b while the latter is currently worth S$3b).

Given SingTel’s importance in Singapore’s financial markets, it is perhaps worthwhile for investors to know more about the company to find out what makes it tick. And happily for us, the telecom company recently released an informative presentation for the CLSA Investors’ Forum 2013 that allows us to do just that.

Here’s some information that I found noteworthy:

1) SingTel’s formidable international presence

It is not really a secret that SingTel has substantial operations overseas. But, its presentation slides showed how dominant the company’s associates and joint ventures are in their respective markets. The table below highlights some important numbers:

Company Country   of Operation Rank in   Country SingTel’s   Ownership Stake No. of   Customers Market   Share
Bharti Airtel India 1 32% 191m mobile 22%
Africa 72m
AIS Thailand 1 23% 38m mobile 44%
Globe Philippines 2 47% 36m mobile 33%
Telkomsel Indonesia 1 35% 125m mobile 43%
Optus Australia 2 100% 9.5m mobile
1m fixed on-net
30.5%
SingTel Singapore 1 100% 3.8m mobile
1.7m land-line
47% & 84%

Source: SingTel’s CLSA Investors’ Forum 2013 Presentation

2) Heavy contribution of free cash flow from overseas-associates

In SingTel’s latest first quarter, it reported free cash flow of S$893m, but 75% of that (S$663m) came from dividends distributed by its associates.

For the whole of last year, the telecom operator generated free cash flow of S$3.76b with S$993m of that from its associates.

Besides their dominance in their respective home markets, Bharti Airtel, Globe, AIS, etc. have been increasing in importance to SingTel’s overall corporate performance.

This would mean that investors interested in Singapore’s telecom giant would not only have to be aware of the telecommunications industry in Singapore, but they should also be familiar with what is happening in the other countries where SingTel’s associates are based.

3) Heavy spending to capture digital growth

SingTel underwent an organisational restructure in April last year where its businesses now belong to one of three segments: Group Consumer, Group Enterprise, or Group Digital Life.

In particular, the company wants to capture growth in the digital business and has “allocated up to S$2b over the next 3 years for strategic digital investments.”

While it is admirable to create new avenues for growth, investors should keep a watchful eye for improvements in the operational results of the company’s digital businesses.

For the 12 months ended 31 March 2013, the Group Digital Life segment brought in S$111m in revenue but contributed a negative S$104m in earnings before interest, taxes, depreciation & amortisation (EBITDA).

SingTel’s most recent quarter did not see any improvements in the segment’s results, as its EBITDA contribution worsened.

Investors should watch the digital segment closely to ensure that the management is allocating capital efficiently and not throwing good money after bad.

Foolish Bottom Line

At the Motley Fool Singapore, we simply cannot overstate how important it is for investors to understand the businesses behind the share that they are either invested in or interested in.

Locally-listed companies often release informative reports and presentations that allow us to know more about them. It pays to at least browse through these from time to time.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.