Singtel (SGX: Z74) has had a busy year.
Back in May, the telecommunication (telco) group announced a strategic review while reporting non-cash impairments of around S$1.2 billion.
The pivot was necessary as its core business is facing headwinds from pandemic-induced movement restrictions and border closures.
A key growth initiative was to build up its 5G network infrastructure and connectivity to increase both usage and the number of use cases.
Another target is to build a digital infrastructure platform by focusing on capital management and partnerships with capital providers.
The telco recently announced two major transactions aimed at achieving this objective.
The first was the sale of its 70% stake in Australia Tower Network (ATN) to AustralianSuper, Australia’s largest pension fund, which will raise around A$1.9 billion.
The second is to form a regional data centre platform to act as a growth catalyst for the group.
Here are five things that investors need to know about these announcements.
1. Unlocking value from its towers
ATN is a wholly-owned subsidiary that operates Optus’ passive telecommunications tower infrastructure.
The sale of a majority stake in ATN involves 2,312 mobile network towers that will be leased back by Optus through an initial 20-year lease agreement.
As part of the deal, Optus has also committed to a minimum of 565 new sites for ATN.
This transaction helps to unlock significant value from Singtel’s towers as they were sold at a valuation multiple above the typical telco valuation.
The proceeds will help to improve the group’s cash flow, while capital recycling can help to support a sustainable level of dividends for the telco.
As part of the transaction, Singtel will recognise a net divestment gain of around S$400 million.
2. Funding its Australian 5G rollout
With the cash released from this divestment, Optus intends to fund its 5G rollout in Australia.
The future tower newbuilds will help to accelerate its 5G strategy.
The deal will also enable Optus to partner with AustralianSuper, the largest pension fund in Australia with 2.4 million members and 364,000 contributing businesses.
The proceeds will also be used to expand the group’s B2B digital services business in both Singapore and Australia through Singtel’s NCS unit.
Completion is set to take place in October.
3. Partnering to build a data centre platform
Singtel will be partnering with regional companies to build out its data network.
The group has signed a memorandum of understanding (MOU) with Gulf Energy Development PCL (BKK: GULF), a Thai power and infrastructure company, to build and develop data centres in the country.
Both parties will form a partnership to pursue opportunities for data centres.
Gulf had recently acquired a stake in an associate of Singtel, Intouch Holdings PCL (BKK: INTUCH).
Separately, Singtel is also in advanced talks with Telkom Indonesia (IDX: TLKM), a leading telco player in Indonesia and long-term partner, to explore the building of data centres within the country.
Singtel currently owns seven data centres with more than 70 MW of capacity. These properties generate more than S$250 million in annual revenue and have a diverse set of customers with an average tenure of 10+ years.
The group aims to become one of the leading regional data centre players in the next three to five years.
4. Healthy growth in data centre demand
The ASEAN data centre market is set to grow at an annual rate of 18% from US$2.5 billion in 2020 to US$5.7 billion by 2025.
By the end of the period, Singapore, Thailand and Indonesia are expected to contribute slightly more than three-quarters of this pie.
This surge in demand will be driven by a growing population of youths that are heavy data users, along with the explosion in online media as well as augmented and virtual reality.
COVID-19 has also accelerated the digital transformation for companies, while analytics is increasingly being used to derive insights into consumer behaviour, thus contributing to the demand for data storage.
5. Working towards a regional digital infrastructure platform
Singtel’s move at unlocking the value of Optus’ towers is just the first step of its infrastructure growth strategy.
The building of data centres and subsequent scaling up through acquisitions and partnerships is the next pillar of growth.
The group’s eventual aim is to develop a regional digital infrastructure platform across multiple asset classes such as data centres, subsea cables, and satellites.
Get Smart: The right direction
Singtel’s plan sounds ambitious and will take many years to bear fruit.
However, it’s clear that the telco is headed in the right direction as this data trend is here to stay.
By building its capabilities early on, the group can deliver enduring long-term value to its shareholders.
If you want more stock ideas, start looking out for these 5 unique traits in the stock market. Companies with these traits can possibly pay you dividends for life. Discover what these traits are in your FREE special report “Dividend Stocks That Can Pay You For Life”. Click here to download now.
Follow us on Facebook and Telegram for the latest investing news and analyses!
Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
