Shareholders of Singtel (SGX: Z74) must be feeling worried this year.
Shares of the blue-chip telco have tumbled more than 11% year to date to hit a 52-week low of S$2.25.
From the group’s 52-week high of S$2.74, the plunge was even sharper at 17.5%.
Investors may be wondering what is causing this bearishness even as the telco enjoys better prospects as economies reopen.
More importantly, are these troubles over for Singtel to allow it to stage a meaningful rebound in 2024?
A mixed set of results
Singtel released its fiscal 2024’s first half (1H FY2024) earnings for the period ending 3- September 2023 earlier this month.
Investors may have been disappointed to note that the telco’s operating revenue dipped by 3.2% year on year to S$7 billion.
The business was buffeted by currency headwinds with the constant currency year-on-year increase in revenue coming in at 1.5%.
Operating profit increased by a mere 2.2% year on year to S$1.8 billion and could have been up 6.5% if not for currency effects.
The good news was that underlying net profit was 11.6% higher year on year with Singtel’s net finance expense slashed by more than a third.
Despite the higher underlying profit, there were worrying signs for the telco.
Its free cash flow for 1H FY2024 plummeted 30.5% year on year from S$1.5 billion to S$1 billion.
Its Australian subsidiary, Optus, saw its operating profit for the period fall by nearly 14% year on year to A$141 million even as revenue inched up 1.4% year on year.
Although Singtel’s Singapore customer base rose 3.4% year on year to 4.4 million, the average revenue per user (ARPU) continued to slide, dipping by 2.7% year on year at S$25.
Moreover, the group’s Pay TV division also experienced continued attrition with an 11.4% year-on-year fall in revenue and a 4.8% year on year decline in ARPU.
Some bright spots included a slightly higher contribution from Singtel’s associates’ pre-tax profits along with higher operating profit from its Digital InfraCo segment which provides regional data centre and satellite carrier services.
Still, investors could be hoping for much better numbers as economies have reopened with more people using Singtel’s services.
Optus also faced a spate of issues in recent weeks that may have added to the bearishness.
On 8 November, the Australian telco experienced a severe outage that affected broadband and mobile services across the country.
The disruption was so bad that some trains stopped in Melbourne and stranded customers could not even call for ride-hailing services as the mobile network was down.
CEO Kelly Bayer Rosmarin resigned from Optus following the fiasco.
Her background was in banking and she had been in the top job since April 2020.
The cause of the disruption was blamed on changes in routing information in a peer network that was later identified as Singtel’s Internet Exchange, but Singtel denied that its upgrade of this network represented the root cause.
Whatever the reasons for the disruption, the resignation of Rosmarin left a vacuum at the top seat and Singtel will conduct a global search for a replacement.
Ambitious Investor Day plans
Apart from its results and Optus’ troubles, Singtel also released its latest Investor Day slides where it outlined plans to grow its core business.
The telco has big plans to ride on tailwinds for further growth and is targeting a double-digit return on invested capital in the mid-term.
The group sees opportunities to increase its market share in countries such as India and Indonesia where the penetration rate stood at just 10% and 17%, respectively.
Singtel also has ambitious plans for building a green regional data centre platform for its Digital InfraCo division to scale up its capacity to more than 200 MW.
Ride-hailing super app Grab (NASDAQ: GRAB) also partnered with Singtel on its digital bank GXS Bank.
This bank will launch in both Malaysia and Indonesia by year-end and targets to break even on an EBITDA (earnings before interest, taxes, depreciation and amortisation) basis by FY2026.
These initiatives sound promising but investors need to know that they require time and a gestation period.
Hence, patience is needed before positive results can be seen.
Get Smart: Optimism may seep in from 2024
Singtel is facing a host of issues on several fronts now, having to grapple with weaker overall revenue, lower ARPUs and a massive outage in Australia.
These issues could explain why its shares have been depressed and are down year to date.
However, as the group executes its Investor Day initiatives and investors start seeing positive traction, optimism could creep into Singtel’s shares next year.
Patience is needed for these initiatives to bear fruit, and investors could be looking at better numbers and possibly a higher dividend in 2024.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.