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What does the company do?

Singtel is a telecom operator that has strong market positions in its core markets of Singapore and Australia, and in selective Southeast Asian and Asian emerging markets via its regional investments. Why do we like the investment? Singtel operates in a competitive industry, but it is well positioned across all of its markets, where it is often among the top players. We believe it has sustainable competitive advantage. Aside from technical operational know-how and astute financial management, Singtel has a premium brand, economies of scale and a healthy balance sheet. The group is seeing growth from monetising data demand, as its revenue mix migrates from traditional sources to data. We are impressed by the new management, which has been strong in executing strategy, with a focus on profitability and return on invested capital. Management has also been effective at funding capex and investment by re-cycling capital from its balance sheet. Despite a challenging macroeconomic backdrop, Singtel’s share price has matched the steady recovery of its core operations where earnings have been resilient and dividend payouts have been improving. We remain positive on Singtel’s prospects as it capitalises on new growth opportunities and unlocks value from assets, amid a recovery of demand in the post-Covid economic re-opening. What is our key area of engagement? Capital allocation and management because we see a lot of value in the recycling of assets and reallocating capital more effectively towards more productive uses. What is the result? Singtel’s management has responded positively to our engagement. Broadly, the group has actively recycled its capital by monetising assets that do not align to its vision, and re-investing the proceeds into higher growth areas. With this, Singtel aims to deliver earnings growth and narrow its significant holding company discount. Through 2022, the group has been rebalancing and optimising its portfolio of associate companies, unlocking S$6 billion in capital that will fund mainly 5G capex and growth initiatives. These transactions included the divestment of partial stakes in Australia Tower Network and Airtel Africa; the full disposal of subsidiary Amobee; the sale of a 3.3% direct stake in Bharti Airtel to Bharti Telecom, a JV between Bharti Enterprises and Singtel; and the transfer of 6,000 towers from its Indonesian associate Telkomsel to Mitratel. Singtel also appointed Lendlease to jointly redevelop its Comcentre headquarters into a S$3 billion sustainable workplace. Singtel will hold 51% after a jointventure company is formed with Lendlease.

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