Singapore Telecommunication Limited (SGX: Z74), or Singtel, is Asia’s leading telecommunications group, and provides a range of services from mobile and pay TV to technology services and infotainment to both consumers and businesses. Singtel has a presence in Singapore, Indonesia, Australia, Africa, as well as India.
Singtel’s share price has soared 21% year-to-date, from S$2.88 to S$3.50. For a large blue-chip conglomerate, this is very impressive as the Straits Times Index (SGX: ^STI) has only risen by around 9.1% year-to-date. However, does this mean Singtel’s growth has been priced in? Is there more room for the business to improve?
Here are two aspects of the business that I feel will continue to drive growth ahead.
1. Reducing costs through digitalisation and automation
Digitalisation and automation are being harnessed to improve the customer experience and to achieve a leaner cost structure for Singtel. The group estimates that cost savings of around S$490 million can be delivered in the fiscal year 2020 (Singtel has a 31 March fiscal year-end). It seems that Singtel is making a concerted and coordinated effort to reduce its operating cost base, and the benefits could come through as soon as next year.
2. The planned monetisation of digital life division
Singtel’s latest annual report has management confirming that it plans to monetise some of its loss-making digital investments. These include its cybersecurity business, its digital life division, and also the Amobee advertising arm, all of which have been bleeding thus far. The idea now is for digital units such as Amobee and Hooq to “realise value” through bringing in additional partners (as stakeholders in the entity), or through an initial public offering.
It should be noted that as these are early-stage growth businesses, traditional valuation metrics would not work and metrics which are more appropriate for these industries should instead be used. This means that Singtel may start to disclose different methods to value each of these loss-making units to give investors a better sense of what they are worth.
Room for further growth
The initiatives that Singtel is undertaking would help to stabilise the business and prevent it from declining further. Although its key markets are still going through challenging and competitive conditions, it appears that the worst is over for Singtel, and investors can now look forward to some semblance of growth. The growth may have been priced in for the year thus far. However, I believe there is room for the group to do even better as it has diversified operations outside of Singapore, and would not fall victim to the liberalisation of the telecommunications market like its more locally-entrenched competitors have.
Worried about the overall state of the market? Do you know the 1 thing you should never do in the stock market? The Motley Fool Singapore’s new e-book lays out a plan to handle market crashes, details the greatest advantage you have as an investor, and looks at decades worth of market data to bring you the smartest insights on investing. You can download the full e-book FREE of charge—Simply click here now to claim your copy
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.