Can Singapore Telecommunications Limited Be A Growth Stock?

Ask any investor you know for their impression of the aptly-named telecommunications giant Singapore Telecommunications Limited (SGX: Z74).

I think most would see it as a stable dividend-paying company with prospects of slow growth at best. They may be right. After all, Singtel’s revenue of S$17.2 billion in fiscal 2015 (year ended 31 March 2015) is merely 2% higher than what it was five years ago in fiscal 2010.

But, I think there is also another side to Singtel – the growth angle – that many tend to overlook.

Although Singtel currently derives most of its profit from mature markets such as Singapore and Australia, the company actually has huge stakes in multiple telcos in many emerging markets.

For example, Singtel has investments in leading telcos in India, Thailand, the Philippines, Indonesia and many African nations.  Most of these emerging markets still have relatively low penetration rates for telecommunication services as compared to Singapore and Australia.

A look at Singtel’s history will show that the profit contributions from its emerging market associates have grown at an annual rate of 6% from fiscal 2005 to fiscal 2015. This has helped the associates’ contributions to Singtel’s total net profit to grow from 29% to 46% over the same time frame.

Comparatively, Singtel’s revenue (mainly from Singapore and Australia) only grew at 3% per year from fiscal 2005 to 2015. Thus, as the emerging markets continue to grow, their income contributions may become more and more important for Singtel.

There are other growth avenues. With its Digital Life segment, the company is betting on the growth of the digital age and has invested heavily in multiple companies in the space in areas like digital payments, e-commerce, infotainment, and media content. Currently, Singtel has 48 investments in 9 countries.

All these new investments are still in their early growth stage, therefore their contributions to the whole of Singtel are negligible.

But, the advantage of Singtel is that it already has a global network available through its traditional telco businesses. If and when any of its investments in the Digital Life segment is ready to scale up, Singtel can easily give any of the investments access to multiple geographical markets through its existing network.

Foolish Summary

Even though the predominant view of Singtel is that of a slow-growing company, there are still intriguing growth opportunities for the company. Of course, it is still too early to know if Singtel’s Digital Life segment can be successful given the intense competitive forces. But, it is an area that investors may find worthy of watching.

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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 writer Stanley Lim doesn’t own shares in any companies mentioned.