Excluding adverse currency effects and the absence of revenue from network migration in Australia and digital marketing unit Amobee which has been sold, operating revenue rose 5% y-o-y to $14.62 billion, largely driven by mobile and ICT services growth.

Ebitda and ebit also increased 3% and 8% y-o-y respectively, thanks to better margins as costs were held down. As a result, underlying net profit was 7% higher at $2.05 billion, and would have risen 11% on a constant currency basis.

At the briefing on the same day, group CEO Yuen Kuan Moon attributed Singtel’s improved earnings to the “tangible progress” of its ongoing strategic reset efforts underpinned by a broader asset recycling plan to rechannel resources to new growth areas. The reset, kickstarted after Yuen took over the top job, is in its second year.

One interesting growth sector is the company’s growing regional data centre business. Singtel now has a total of 12 data centres in the region: seven in Singapore, two in Thailand and three in Indonesia. It aims to expand its business in these existing markets plus Vietnam and more than double the total capacity in three years.

“Our mission for the regional data centres is to be the leading green and most sustainable DC provider with the richest interconnectivity in this region,” says Bill Chang, who heads Singtel’s group enterprise unit. From June 1, Chang will assume leadership of Digital InfraCo, a new standalone infrastructure unit that includes the company’s regional data centre business, subsea cable and satellite carrier businesses as well as Paragon, Singtel’s all-in-one platform for 5G MEC and cloud orchestration.

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After lifting the data centre moratorium earlier this year, the Singapore government has drawn up specific measures to make the growth of data centres in the city-state sustainable. Singtel intends to “recycle” five data centres and then develop a larger and greener data centre in Tuas. While this brings the total number of Singtel’s data centres in Singapore down to three, the total capacity is expected to increase from 60MW to 120MW, while power utilisation efficiency (PUE) is expected to decrease.

To fund this asset-heavy regional data centre will require significant capex but group CFO Arthur Lang says the business carries no debt. However, with plans to scale up the business and expand into Malaysia and Vietnam to add 100MW capacity over the next three years, there remains a possibility of fundraising by the company via debt.

But Lang is not concerned about fundraising at the moment. He says: “Of course, as we build up, we will consider raising some project financing at the asset level, you would expect given the strong ebitda and cash flows. And not to sound too blasé, but we’ve had initial discussions with banks and they are literally lining up to provide us financing for these data centres because the cash flows are very strong.”

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When asked if these data centres might be spun off into a REIT, Yuen says the focus now is for Chang to scale the business. “At the appropriate time, we will look at capital structure and the most appropriate time to unlock value. This is a strategic reset and data centres are one of our new growth engines, which we will be looking forward to scaling and growing.”

Reorganising for faster growth

Meanwhile, to capture growth more quickly, Singtel has recently reorganised itself. On April 27, along with the announcement of Digital InfraCo, the company said it will be consolidating its consumer and enterprise businesses in Singapore — similar to what its Australian unit Optus had done in July 2022.

While the consumer and enterprise segments may seem to operate differently, Yuen believes they are rather quite complementary as a somewhat similar structure was previously deployed between 2005 and 2012. “[The decision for this] depends on the phase of business growth. This is not anything we have not done before. The segmented structure we had was because we were focused on individual segmented growth,” explains Yuen.

“So, this new phase of ‘market development’ will require us to focus on creating synergies at the individual country level operating for the telco business,” he says, adding that the mobile segment growth has somewhat tapered and stabilised as the penetration rate has grown to over 100% in most markets.

CEO of Optus Kelly Bayer Rosmarin agrees: “Our experience is helpful for what Singapore is about to go through.” She adds that there are three main benefits arising from the consolidation. Firstly, cost synergies, as many functions were built but not fully integrated, such as legal procurement and market.

Secondly, the combined entity can leverage all the resources and assets of the company. “For example, we’re all sharing a network doing network planning together and can optimise across multiple divisions simultaneously,” she adds.

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Thirdly, there are revenue synergies too. “There are a lot of upsides such as cross-selling opportunities, leveraging features we’ve developed for the consumer sector into the business sector, and even selling large enterprises consumer plans,” she says, adding that the idea is to pursue all those synergies and fuel performance growth for both Australia and Singapore.

As Singtel’s Singapore consumer and enterprise business merge, Chang will see himself in a new role, while Anna Yip, CEO of the Singapore consumer business, and Lim Seng Kong, managing director of the Singapore enterprise business, will both report to Ng Tian Chong, who will head the newly combined entity from June 1.

Yip will be redesignated deputy CEO of the combined entity. In addition, she will assume the new role of CEO, business development, and report to Yuen in this capacity. This will see her drive Singtel’s digital finance portfolio which includes GXS Bank and Dash, accelerate the regional growth of the digital GOMO brand and develop new business-to-business-to-any end-user (B2B2X) ventures that are value-accretive to the group’s core.

Unlocking value

Since Singtel embarked on its strategic reset journey, it has been on a mission to constantly unlock value and recycle $6 billion worth of assets in the coming two years.

In FY2023 alone, Singtel recorded about $2.8 billion from capital recycling. Part of the proceeds has been distributed back to shareholders via an additional dividend payout of 5 cents per share, which was distributed in 1HFY2023 along with an interim dividend of 4.6 cents.

Singtel plans to pay a final dividend of 5.3 cents, bringing the total FY2023 payout to 14.9 cents, up 60% over FY2022. This level of payout represents 80% of Singtel’s underlying net profit, the top end of its 60%–80% payout policy. This also represents a dividend yield of 5.8%, based on Singtel’s closing share price of $2.65 on May 24.

Singtel’s improved dividend payout comes after a rough patch where the combination of stiff competition all-round caused the telco’s earnings to drop. Even for developing markets, mobile penetration rates have become relatively high and with that marginal dollar of profit increasingly difficult to earn, as telcos go into “hyper-competition” mode. If sustained over a prolonged period, that will become a problem for both operators and their customers, says Yuen.

When asked to indicate his potential interest, Yuen notes that Singapore is indeed in a highly competitive state and that certain market segments are already loss-making. He says Singtel wants to make sure that the industry is in a healthy state, although there are complexities.

“We have to work together with our regulator to see how we can continue to invest in infrastructure,” says Yuen, who will be watching this space closely.

Singtel reports 14% higher earnings for FY2023; to focus on data centre growth

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