8 things I learned from the 2019 Singtel AGM

Shares of Singapore telcos have taken a beating over the past few years. Due to the continued liberalisation of the industry and the heightened competition, profit margins have been squeezed and profits steadily eroded.

For Singtel, its net profit fell 43.5% year-on-year to $3.1 billion in FY2019 while many of its regional associates also recorded negative growth in pre-tax profit contributions. It seems that the telco industry has become extremely tough to operate in.

To mitigate this, Singtel has looked to diversify into ‘digital businesses’, namely cybersecurity and digital marketing which the chairman highlighted in his latest annual message to shareholders. I decided to attend this year’s AGM to gain new insights from the management about the telco industry and their plans for the company’s digital business.

Here are eight things I learned from the 2019 Singtel AGM:

1. EBIT from the Group Enterprise segment decreased 14% y-o-y from $1.26 billion to $1.08 billion. This was due to a few cybersecurity incidents that caused the Singapore government to delay their procurement and contracting while Singtel sorted out those issues. The cybersecurity industry is facing a shortage of skilled manpower as cities become smarter and the threats of cyber-attack increase. Globally, the global cybersecurity workforce shortage has 1.5 million unfilled positions and growing. Despite the fall in profit, Group CEO Chua Sock Koong reassured shareholders that Singtel continues to do well in this sgement.

2. Singtel’s largest associate, Telkomsel, experienced some speed bumps as pre-tax profit decreased 17.8% y-o-y to S$1.13 billion. From October 2017, Indonesia had introduced a rule in which requires prepaid mobile users to register their SIM cards. The registration exercise drove telcos to reduce prices in a bid to win customers which caused downward pressure on profits. Chua said that prices have started to revert as the registration exercise nears its completion and she expects Telkomsel’s profit to improve this year.

3. There is intense competition for Singtel’s associate, Bharti Airtel, in India since the entry of Reliance Jio in 2016. Due to price cutting, the Indian telco industry has consolidated from 10 players to just three. Chua believes that the consolidation has improved the Indian telco industry structure and revenues should improve. Bharti Airtel improved its financial position when it raised US$3.5 billion via a rights issue in May 2019. The company also listed its African subsidiary, Airtel Africa, on the London Stock Exchange in June 2019.

4. All of Singtel’s associates recorded a drop in pretax profit except for Filipino telco, Globe, which recorded growth of 27.2%. A shareholder wanted to know how Globe was able to achieve its results or whether it was due to a lack of competition in the Philippines. The management replied that competition is just as intense, but Globe was able achieve growth by upgrading its network to improve performance in the metro areas and outskirts of the country.

5. A shareholder asked about the capital expenditure needed to build Singtel’s 5G network. The management said that the Singapore government plans to award 5G spectrum to winning telcos in early 2020 if the schedule goes according to plan. At the moment, it is too early for Singtel to know how much the total capital expenditure will be as it needs to wait for the government to announce more details.

6. A shareholder asked for more clarity about the chairman’s statement about unlocking value from Singtel’s digital businesses ‘at the appropriate time’. Chairman Simon Israel explained that digital businesses are valued differently from traditional telecommunication companies — telcos are usually valued based on cash flow while digital businesses are valued based on revenue and growth potential. The chairman views that Singtel’s digital businesses are not yet fully valued as the market still values Singtel as a whole based on cash flow. Unlocking the value of the digital businesses would mean a round of private investment or an initial public offering in the future, which would ‘crystallise’ the value of those assets.

7. The management’s vision for Amobee is for it to be one of the world’s largest independent digital marketing platforms outside of Google, Facebook, and Amazon. CEO of Group Digital Life, Samba Natarajan, mentioned that there is still a big market for digital marketing that independent players like Amobee can address because there are many advertisers who do not want to rely solely on Google, Facebook or Amazon. According to the Natarajab, the addressable market share is about 30% to 40%after removing the big three. At the same time, Amobee continues to work with Google, Facebook and Amazon to publish ads on their online properties. Amobee’s 2019 profit was dampened by the acquisition of Videology, which will add digital television to Amobee’s omni-channel offering.

8. Hooq is currently the leading OTT service provider in Indonesia and top three largest in ASEAN. The management mentioned that more capital investment is required for Hooq as it scales and pays for more video content. The management said that Netflix targets the top end of the OTT market where customers pay $10 per month to primarily watch Western content. Hooq, on the other hand, charges $4 per month and largely focuses on local and regional programming.

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