Singtel: Is It a Good Time to Buy?

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Things may be looking up for the telcos as economies start to reopen.

Earlier this month,StarHub Limited($(CC3)$) reportedhigher underlying core net profitfor its fiscal 2021 (FY2021) earnings while boosting its finaldividend.

Singtel($SINGTEL(Z74.SI)$ ) could also be poised for more good news as its share price heads towards S$2.63.

Theblue-chiptelco recently released its business update for the third quarter and first nine months of its fiscal 2022 (3Q2022 and 9M2022).

Singtel reported higher profits that hinted at progress at executing its strategy to capture growth due to the surge in digitalisation.

Should investors start to consider Singtel as a potential investment?

Stronger underlyingearnings for Singtel

For 9M2022, Singtel reported a slight 0.8% year on year dip in operating revenue.

However, underlying operating revenue, after excluding next-generation broadband network (NBN) migration revenue and the government’s jobs support scheme, inched up 1% year on year to S$11.5 billion.

Underlying operating profit surged by 50.4% year on year to S$823 million, while underlying net profit improved by 10.8% year on year to S$1.46 billion.

Singapore enjoyed strong take-up rates for 5G and higher roaming revenue that helped to offset declines in voice and prepaid services revenue.

Singtel’s NCS unit also benefitted from increased demand for digital services, posting a 3% year on year increase in revenue to S$1.67 billion.

Higher contributions from its associates

The telco’s associates also delivered an overall better performance for 9M2022.

In constant currency terms, Singtel’s Thai associated InTouch and its Philippines associate Globe Telecom reported higher year on year after-tax contributions for the period.

This performance was offset by slightly lower year on year contributions from its Indonesian associate Telkomsel and its other Thai associate AIS.

The standout performer, however, was its Indian associate Bharti Airtel, which turned in an after-tax profit of S$94 million for 9M2022 compared to a loss of S$117 million in the prior year.

Airtel benefitted from price hikes and also saw growth in the African region, thereby posting a strong turnaround.

Unlocking more value

Singtel has also advanced on its objective to unlock more value for investors.

This objective was part of itsstrategic reviewthat was announced in May last year.

In October 2021, the telcosold offa 70% stake in its Australian Tower Network to raise around A$1.9 billion, while also forming a regional data centre.

And just last week, it announced the sale and leaseback of its headquarters at Comcentre in Orchard Road, along with a redevelopment plan that will cost S$2 billion.

Singtel intends to hold a majority stake in a joint venture company formed together with the appointed developer.

These moves should free up capital that will be recycled to other growth initiatives for the group.

Meanwhile, Singtel is also on its way to turning NCS into a digital B2B services champion, with 9M2022 digital revenue up 27% year on year, forming close to half of the total revenue for this division.

Its data centre business, part of its goal of building a digital infrastructure platform, is also gaining traction with a year to date growth of 17% year on year, garnering revenue above S$250 million.

Partnerships to aid digitalisation

Singtel is also leveraging its partners to further its digital objectives.

It is pursuing digital bank opportunities through its investment in Bank Fama of Indonesia, while its partnership withGrab(NASDAQ: GRAB) has seen it secure a Singaporedigital bank licencein 2020.

In India, Singtel is working with Google to grow the country’s digital ecosystem.

Get Smart: Initiatives require time

These business development efforts sound promising for the telco as it seeks to pivot towards digital services and reduce its reliance on its core mobile business.

This plan to diversify its revenue sources should bear fruit in time and make the telco moreresilientin future economic cycles.

However, these initiatives require a gestation period and investors need to be patient to see them bear fruit.

The telco is not out of the woods yet as there are still headwinds arising from the new Omicron variant that may crimp consumer demand for its services.

For now, it’s better to take a cautious stance and continue to monitor the telco to see if its strategies continue to gain traction.