Singapore Telecommunications Limited (SGX: Z74), or commonly known as Singtel, is the second largest listed company by market capitalisation in Singapore. It is also the largest mobile network operator in Singapore. Besides Singapore, the company also has major operations in Australia and other regions around South East Asia. In fact, more than 70% of the group’s total underlying net profit in 2018 came from outside of Singapore.
Recently, Singtel released its 2018 annual report. Here are three things investors should know about the telco.
Where does Singtel make its money from?
As mentioned above, Singapore contributed just under a third of the group’s total underlying profit for 2018. So where else does the group make its money from?
The chart below shows the group’s underlying net profit earned from the different geographies it operates in:
Source: Singtel 2018 annual report
Singtel earns its keep in Australia through its wholly owned subsidiary, Optus, which is the second largest Australian telecommunication company. Besides Optus, Singtel also owns stakes in other regional telecommunications company such as Airtel in India and Telkomsel in Indonesia.
What are Singtel’s business segments?
Singtel has undergone multiple transformations in the past. The group has perhaps been one of the more adaptable companies, positioning and pivoting itself for the future. From a pure telecommunications company, Singtel has grown to include other sources of revenue to include cloud, cybersecurity, consumer content, and even data analytics and digital marketing.
The chart below shows the revenue breakdown from its various business segments:
Source: Singtel 2018 annual report
How is Singtel navigating the challenges?
Traditional telecommunications company have had to adapt quickly to the changing landscape. The emergence of a fourth mobile operator in Singapore and Australia have heightened competition. Even in India, Airtel is having to fight a price war led by the new entrant that has resulted in a number of other operators exiting the scene.
To position itself against increased competition, Singtel has been investing in content, network and spectrum, which it believes are the keys to providing better customer experience. It is also hoping to roll out 4.5G and is in the midst of trialling 5G, which could potentially be a game changer.
In addition, new revenue streams have helped Singtel to mitigate some of the loss of income from “over the top” competition. Over the top competition refers to content providers that distribute streaming media directly to viewers, bypassing traditional telcos.
The Foolish bottom line
Singtel has done well in an extremely harsh operating environment. This is the sixth year since the group started its journey to transform digitally. The group has maintained a healthy net operating profit and has continuously rewarded shareholders through dividends.
While many challenges lie ahead, Singtel has shown remarkable adaptability, and in my view, its management has been prudent in investing for the future.
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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 Jeremy Chia doesn’t own shares in any companies mentioned.