5 things I learned from the 2018 Singtel AGM

Three years ago, I attended Singtel’s 2015 annual meeting to find out more about the management’s response to the possible entry of a forth telco in Singapore. Since then, Australia’s TPG has been confirmed as the newest telco and the local telco industry has changed drastically with competition intensifying among current players. But it’s not just Singapore — Singtel’s regional associate, Bharti Airtel, is also facing increasing competition in its home market in India.

With this, I decided to attend Singtel’s AGM this year to glean new insights from the management about the company and the telco industry.

Here are five things I learned from the 2018 Singtel AGM:

1. A shareholder wanted to know about Singtel’s progress on its 5G network in Singapore. The management explained that consumer application for the 5G network is still not ready yet and is expected to roll out only after 2020. As for enterprise applications, it is in the process of being finalised and expected to launch next year.

2. Singtel has one of the strongest credit ratings and institutional investors have mentioned that its debt level is too low compared to regional telcos. The management explained that to maximize return on equity, a prudent debt level is appropriate for the company.

3. Profit contribution from Bharti Airtel has decreased from S$735.7 million (in 2015 when I last attended the AGM) to S$199.3 million in 2018. Chairman Simon Israel shared that Singtel views India as a long-term growth story and Bharti Airtel is still a hugely successful company with a leading position in the market. As an early investor, Singtel has already made a good return on its investment. However, he added that the Indian telco industry has changed since its chaotic early days when the government freely handed out licenses which resulted in a highly competitive space in the beginning.

  • One change is the higher cost of acquiring additional spectrum. Costs have grown by three to five times which has put huge cost pressure on the industry and caused many smaller players to fall away.
  • Another change is the entry of new telco operator, Reliance Jio, which is backed by a US$30 billion investment from Reliance Industries – a conglomerate controlled by India’s richest man, Mukesh Ambani. Reliance Jio shook up India’s telco market by offering free trials and the world’s cheapest internet data rates, which caused massive disruption for a price-sensitive market like India.

As a result, the industry has gone through a consolidation from fifteen players to just four. Israel said that telcos will continue to grab market share and have to become profitable, because at the end of the day ‘you can’t invest 30 billion dollars and not make any money.’ In the long term, however, if you believe that the industry will reach an equilibrium, then Bharti Airtel will continue to be an attractive investment as long as it remains a market leader.

4. Singtel’s group enterprise business comprises two segments: Information and Communications Technology (ICT) and Core Telecom Services (CTS). The ICT segment is growing at 8% annually and contributes 46% of group enterprise revenue. The CTS segment contributes the rest of the revenue and faces intense competition despite Singtel’s leading market position. The management shared that the ICT segment has lower operating margins but has lower capital requirements, while the CTS segment is higher margin but capital intensive. Therefore, the management’s strategy is to defend the CTS segment’s market share while maximising ICT segment’s growth.

5. Singtel’s acquisition of Trustwave, a cybersecurity provider, brings many capabilities to the group. CEO Chua Sock Koong said that the key challenge in cybersecurity is the lack of personnel with knowledge in cybersecurity. The acquisition of Trustwave brought in 1,500 cybersecurity personnel, new products, and a global cyber-centre that allows Singtel to monitor cybersecurity threats around the globe. It is a very strategic investment as it brings Singtel’s entire cybersecurity business under one integrated organization.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Victor Chng is an equity investor and co-founder of The Fifth Person. His investment articles have been published on The Business Times BTInvest section and Business Insider. He has also been featured multiple times on national radio on 938LIVE for his views and opinions on how to invest successfully in the stock market. Victor is also the co-author of Value Investing in Growth Companies published by Wiley, Inc. The book can be found in all major book stores worldwide and on Amazon.com, Barnes & Noble and Apple's iBooks. On a personal note, Victor represented Singapore in the 2008 TAFISA World Games in Busan, South Korea and was the 2008 IFMA World Muay Thai Championships bronze medalist, kicking some serious ass along the way.

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