Transcription
I think what investors need to realize that Singtel today is not just a dividend stock. Where we are spending more is what we call our growth engine.
One of the initiative that caught my eye was a potential IPO of a REIT.
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So, over the course of the past few months, one of the names that's been talked about very much in the Singapore market is Singtel. Over the past few months, we've seen quite a lot of developments relating to Singapore's blue chip company. And with me today, I'm very pleased to have with us the group CFO of Singtel, Mr. Arthur, to be able to share some of the recent developments after your recent FY26 earnings.
Yes. No, thank you, Gerald. Thanks for having me. Nice to see everyone. And yeah, let's have our discussion.
If I were to look at your most recent FY26 results, which would be for the 12 months ending March 2026, we continue to see underlying profit growth. You managed to deliver on your FY26 targets. Can you maybe share some of the key highlights from the earnings?
So, I think I think you're right. I'm quite happy with the results. I think we did quite well for fiscal year 26, if I may say so myself. We have underlying profits growing by about 12% and and related to that, our dividends have actually grown by about 9% delivering about 18 and a half cents on a full year basis for the year, you know, fiscal year 26. This is actually the highest dividend that Singtel has ever declared in our history. So, definitely very pleased with the results. Our OpCo EBIT, we have guided high to high single digit to low double. We achieved a 10% growth on OpCo EBIT year-on-year. Again, you know, another great result. And uh I think another point that I'm very happy about was when um you know, when the new management team came in 2021, 22 around that period, uh both Moon and I actually indicated to the market that we would look to move our return on invested capital up to the low double-digits area, and people asked, "How long would you take?" And my response was actually in the medium term, which is about 3 to 5 years. Um after 4 years, we have actually achieved an 11.1% return on invested capital, which is again uh an achievement because we we started from somewhere around 7%, and to move up to 11-plus percent, I think has been achievement. So, a lot of good work has been done by the team, and uh and we're very pleased that the investors have uh rewarded us for that. Uh so, hopefully we'll see more good years ahead.
So, with that as a backdrop, can you help us understand what are some of the key drivers of the improvement in your OpCo profit, and what is driving the ROIC up to 11%?
Okay, sure. I- If you look at our OpCos, right, there are four of them: Singtel Singapore, Optus, Digital InfraCo as well as NCS. Putting aside STS G for a while, I will talk about that later. Our three OpCos actually achieved very stellar type of EBIT growth. Uh in fact, many of them achieved double-digit year-on-year EBIT growth. So, that really contributed to the overall growth of the business. If you look at Optus, uh they continue to execute well. Uh there is a focus on investments to making sure that our network continues to be resilient, but at the same time, there is simplification in the business. Uh you know, we had too many complicated products and services. We're streamlining everything so that we focus on what really matters, and that is really on customers as well as network resilience. And in this simplification, you can actually see the the business doing better. Um on the digital infra core site, we just opened uh the Tuas data center early this year. And uh and that really results in basically revenues revenue contributions from the Tuas data center. Uh even uh for the other existing data centers, we're actually seeing when the new contracts come in, we're actually seeing an improvement in the fees that we can charge. And uh and despite the the higher energy cost, uh we are able to actually pass through most of this energy cost to our customers. So, we we actually expect to do uh continue to see the digital infra core business uh do well. And then NCS. NCS was uh a little bit of a surprise, to be frank. Uh surprise on the positive because of AI. You've seen globally a lot of the systems integrator the the NCS equivalent type of stocks actually got hammered by 30 40 over percent because of AI. All the of software companies actually got really hit because of the arrival of AI. But I think what the NCS team did very well was to pivot the business very quickly to make sure that we use AI as an enabler and to help our customers accelerate their growth. Because a lot of our NCS customers actually need uh to to to to to use AI in their business, but many of them have a lot of systems and current processes that you need help to integrate AI into their process. And that's where NCS pivoted itself very quickly and you'll see actually the EBIT growth actually did quite well um during this past fiscal year. Uh the one that um that I mentioned ST Engineering, which is our fourth of core our Singtel Singapore business, uh didn't do uh didn't register that EBIT growth as high as the other three of cores. And it's really because of the local scene here in Singapore. Uh it has been very tough competitively. We have, as you know, four major players here in Singapore, and that has contributed to a lot of price wars and a lot of price erosion in the market, and that has affected our consumer business to some extent. But again, bear in mind for Singtel Singapore, half of its business comes from the consumer side, the other half comes from the enterprise side. So, I would say overall, I would say the four of course have done very respectably.
Now, the improvement in ROIC is uh
If I may just summarize it, it's very simple. Focus on growing revenues, reducing costs, and watch your capex. Just focusing on these three things will help your numerator in your ROIC and your denominator in your ROIC. When I talk about improving revenues, it is, of course, in certain markets, we are able to improve on our pricing, but at the same time, acquiring more value-added type of customers who who really see the value that we provide in our services, and hence revenues can improve. On the cost side, we need to consistently be very disciplined and be able to simplify the business such that it makes sense and we deliver the right customer experience. Only then, I think, by simplifi- simplification, we are able to reduce the cost. And then, on capex, we have to continue watching. We are in very capital-intensive businesses. We need to make sure that we spend right and be able to really build up our networks for our telco businesses, as well as build data centers that actually generate good returns.
Maybe I will dive a bit deeper into the OpCo business that most investors are very familiar with, which is Singtel Singapore.
Singtel Singapore, yes.
Yes, I think you mentioned some of the headwinds that we face because of the competition in the consumer business in Singapore.
Right. I think recently we've also seen some of the news around the expected consolidation that was supposed to take place.
That was a surprise.
May not seem so apparent at this point in time.
So, how do we think about how the landscape might potentially evolve and how is Singtel actually looking to be able to cope with some of the competition in this market?
Okay. I I think um not to be too philosophical about things, um but you know, we should be focusing on what we can control. And then at the same time prepare for things that happen that are beyond our control. So, in terms of what we can control, um there is a price war. We see a lot of price erosion in our consumer business. So, the question is what can we do? I think the first point to call out, as I mentioned earlier, half of our business is a consumer business in Singapore. The other half is actually enterprise. And actually uh enterprise contributes to slightly more than 50% of total revenues for Singtel Singapore. Uh you know, enterprise business is a bit like the child that we parents don't really talk about, but the child is actually doing very well. Uh there are a lot of uh drivers and a lot of tailwinds that contribute to the enterprise business growing. I'll talk more about it later, but focus on the more problematic child at this point in time. Uh it is the the consumer business. Now, we there's competition out there, right? And I thing in Singtel we need to be able to execute well despite the competition. And what we have done is leveraging on our network uh our the strength of our network. What we are doing is we are coming up with three brand strategy. We have the high brand which uh the high end brand or really the premium brand, which really provides, you know, very superior and very differentiated network uh capabilities. That's our Singtel brand. Then we have the GOMO brand, which is really focused on digital seniors, the digital youths, and all that. And then we have what we call the uh hi! card, which is the the value segment, right? And that's the prepaid segment where we focus on more value-conscious customers. And in these three brands, we're able to segment and focus on different customers and really showing what Singtel is all about. I think across all three brands, if you look at our pricing, you look at what we offer, I think we stand shoulder to shoulder against the competition, and this is what we want to really portray to to our customers that we can provide basically three different types of services to any type of customer, and whatever you're looking for. So, you don't need to go and look for other alternatives. Because from a pricing standpoint, from what we offer, we are very comparable, and this is how we're going to go out and and and kind of compete against the market. Um now, what can we not control, right? What we cannot control is clearly the number of players out there, right? I think you have seen a few months ago there was talk about, you know, a number three and number four player coming together, and then suddenly two years two weeks ago, you hear that it may not happen anymore, and then there's a lot of speculation is what happens next. Well, you know, next year at this time where we announce our fiscal year 2017 results, will there be four players? Will there be three players? Now, unfortunately, we always are of the view that consolidation in a crowded market like Singapore makes sense. It makes sense for our customers because then players will be able to have the balance sheets to reinvest into the network. I think if you look today, network services is not just providing your 4G, 5G data. You have to think about investing to protect the network. Cybersecurity is of utmost importance today. That requires capital, that requires a strong partner operator like Singtel to be able to invest and protect the network and keep it resilient. There's also AI. There's AI elements that we need to introduce to the network. That requires, I think, fair bit of capital to invest as well. So, not only the network today where people see us as providing a critical service, critical infrastructure, there is cyber needs to make sure we protect our network and make it resilient. And number three, we have to introduce artificial intelligence into our network. So, we feel that it is very important for the industry and for the landscape to realize this. And as a result, we have three or four players, right, who are strong. So, despite, you know, how many players end up, it could be two if the regulators allow it, but at the end of the day, that's something Singtel cannot control. So, we just focus on making sure we provide whatever our customers want and focusing on doing the best in each segment that I talked about.
So, we can move to the other more than 50% which is your enterprise
Yes.
I think for many of the investors that I speak to, they may not be as familiar with what you do in the enterprise space. What is driving the growth that you see within the business? Can you maybe help us understand more about the enterprise business?
Sure. Okay, other than providing, you know, mobile data services, broadband services to our enterprise customers, that means companies, small and medium enterprises, large banks, large corporations, we also provide a lot of connectivity services. So, for example, um data centers, which is a very big uh segment today. Uh you know, between what between two data centers there needs to be connectivity. And that's where they will come to us and say, "Oh, we need some of the fiber lying under your ground, what we call dark fiber." Right? Where we will lease it out to them because what they need is very fast connectivity between two data centers. And guess what? Some of the data that the data centers compute and and store and and and and and and and you know, develop, they actually need data to be transmitted to another country. And that's where we use submarine cables. And guess who's the largest owner of submarine cables in this part of the world? It's us, right? Again, we are leveraging on that because we have this network of subsea cables as well as terrestrial domestic fiber that we can provide to our customers, our enterprise customers who require more connectivity. I think the second thing is as we mentioned, if you look at our 5G network, right, and the spectrum that we have, and the spectrum that we own, by the way, and it's a spectrum that we have and the network that we own that allows us to actually provide very differentiated, what we call 5G plus service. Because in Singapore, the 5G network is what we call a standalone network. And we have provided 5G plus to our consumer customers, but we're also providing ability to slice that network to our enterprise companies, enterprise customers. So that for example, if they want to do autonomous vehicles, they want to do autonomous manufacturing, we will be able to provide that. And we're starting to see a lot of demand coming up. And this is before even robotics and physical AI come in. Once physical AI comes in, you actually need a very differentiated 5G plus network in order for fast speeds and low latency. Because when you instruct the robot to do something, you don't want 2 seconds for the robot to react. You want instantaneous reaction. You need a good network for that. And this is where Singtel comes in to be able to provide. And I think the final thing that I'm really excited about is really, you know, we we we we have been There's a lot of talk about smart nation initiatives, you know, the the country being going into smart nation across the board, whether it's hospitals, whether it's banks, whether it's a lot of different industries, and the government is leading that. Guess what? Singtel is there to support all these initiatives and I think we will be a one of the big beneficiaries of the smart nation initiative that we are seeing. So, all this I'm actually very excited. As as we said, historically we've really crossed the 50% mark for enterprise, but we continue to see growth there as as a lot of companies, uh government agencies continue to expand and leverage on this AI and digitalization wave.
Since we're on the topic of consolidation, I think we've seen that in some of the regional markets that you operate in.
That's right.
That's also led to the growth in your contribution from some of these associates or subsidiaries.
Yeah.
Particularly in India as well as in Thailand.
Yes.
Uh can you maybe share a bit more about what is happening in those markets and how that actually led to the 1.1 billion of dividends that you've been collecting from these companies?
Uh our regional associates doing well. I I uh I think they had another great year. Um and to your earlier point, in many of these markets the industry is uh is is quite benign and allows for investments to go back to the to the network by the operator. So, for example, in India you have three, if you include a government operator it's four players. It used to have 12, 13 operators just about 6, 7 years ago. Uh in Thailand you have two operators, in the Philippines you have three operators. So, all this even for very large countries, even in China we don't operate there, but there are three major players. So, in very large countries you're seeing two or three operators and that seems to be the the right number to strike that balance between providing competitive price competitive services to customers as well as allowing the operators to earn a certain return to invest back into the markets. I mean, you look at all these the data prices in all these markets, they're they're pretty competitive. They're quite low, but yet the operators are doing well. So, I think the first thing is of course the industry structure that we are seeing. But second, I think credit to our associates, they have executed very well despite the very difficult environment out there, right? Whether it's Airtel, whether it's AIS, Telkomsel, or Globe, you're seeing that all of them have really focused on producing good margins, EBITDA margins. And it's not just about increasing prices. It is really about cutting costs and being very lean. So, that's the first point. I think you look at EBITDA margins, all four of them have actually improved quite significantly for some their EBITDA margins. I think the other area that I see that they are also doing very well is they're broadening their their revenue contributions. It is not maybe about 5 years ago, many of them are predominantly mobile customers. Today, they have really moved on everyone actually was number one or number two in the mobile space. Today, they have gone into fixed broadband. And let me think, ah, yes. I think all of them are number one or number two in the fixed broadband space again, right now after 5-6 years of investment. And then now they're going into things like data centers, IT services, some one or two are going to digital financial services. Globe is an example where they went in there many many years ago and today is GCash. There is talk about a potential IPO. Ah, you can check the check Google or check the public media to show what the valuations are. Airtel, our India associate, is also doing very well in the financial services side. So, so I would say broadly you have seen a very disciplined execution in terms of improving EBITDA across all these companies. And at the same time, they are continuing to execute and diversifying their revenues to actually embark on greater growth in other segments.
Yeah.
So, after we have talked a bit about your Singapore Telco business,
Yes.
we have talked about your regional associates, we have talked about some of your growth initiatives. Putting that all together, what does that actually mean for your outlook in the upcoming fiscal year?
Okay, very very good question. For many of you who have read the public reports about our fiscal year 2017 guidance, would know that our EBIT OpCo EBIT growth guidance that we came out with was mid to low single digits. Now, to give you a some comparison, right? Last year at this time, right, when we announced for our fiscal year 2016 guidance, we started off with high single digits. Then over the year, we revised it upwards to high single to low double. And then for fiscal year 2016, we achieved a 10% EBIT growth, which meant a low double digit. This year, we're a bit lower, mid to single uh mid to low single digit. Uh so, everybody, you know, thought, "Oh, wow, what's happening to Singtel?" I think my my my view is don't panic. It's still too early in the year. Um our our view is that there is no point being too optimistic or too gung-ho in the beginning of this fiscal year. And the reason is because we are facing a lot of challenges. Now, I'm not saying that we are facing these challenges and we're closing our eyes and we're just waiting for things to hit us. We are definitely proactively addressing the potential challenges that we are seeing. So, for example, right, uh if you look at our four of those, the one the challenge that we are seeing is in the consumer business in Singapore, which is Singtel Singapore. And the reason is because uh unfortunately, the consolidation is not going to happen anytime soon with the recent announcement 2 weeks ago that the Simba M1 merger is off. Um but we do believe it still makes sense for consolidation to happen, but it's going to take a bit more time. So, as a result, we assume I would say maybe a worst-case scenario that this this continued price war will happen. I As I mentioned earlier, we have a plan to address that. So, there is some softness in the EBIT coming from Singtel Singapore. And then the second bit there is what's happening in the Middle East. Now, it depends on what day that you're hearing this. It could be good news. It could be bad news. In fact, in one day it changes two or three times as well sometimes. Um, but I think for us, I think it is important that we are responsible and make sure that we we hope for the best, but we need to prepare for the worst. And the worst is basically if the Hormuz crisis really goes to a full-blown conflict, right? That would have second-order implications on our businesses. And it's not just us. I would say many other companies as well. Now, we are not uh we do not have presence in the Middle East. So, it's not going to hit us directly, but indirectly there will be inflation, there will be perhaps a slowdown in the economies. And as a result of that, it might impact some of our business in our opcos. So, as a result, we we decided to start the year a bit more conservatively, but I would say that at this time we are all quietly confident that we will be able to over-deliver on the guidance. And hopefully by mid-year, if things are looking better, then we of course we can revise the guidance, but it's too early in the year to say.
I think one of the points you mentioned is how if we see inflation or slowdown in the economy, that can have a second-order impact on your businesses.
Correct.
Can you help us understand a bit more about what are some of the businesses that may then be impacted?
Okay. So, first I think we need to think is telco services, connectivity services a essential good or not, right? Personally, right now we're seeing that it is an essential good. So, as a result of that, um you know, it is less price sensitive, right? That's number one. Number two, if you look at the total wallet spend on connectivity services, for like if I were to ask you, "Every month you earn this much money, how much of your salary goes to spending on your data?" I would say it's a small fraction, right? It's not like, you know, buying a car, right? Or or spending on food, which is a lot, right? So, so or going on a holiday. So, I would say because it a small bit of a person's wallet or person's expenditure, we think that you'll be less affected. However, right? With the price war that we're seeing in Singapore, right? There could be There could be, you know, you know, continue price erosion, and as a result, our margins will get affected. So, that could happen. That's why we're being a little bit more careful and conservative here. Um the other things that could happen is uh you know, energy prices going up uh does impact our data center business. But, as of now, almost all the energy costs get passed through to our customers. Our customers still demand data centers. In fact, I would say for our business, demand far exceeds supply today, and that's because of the digitalization wave and the AI wave. Of course, if suddenly the world decides that we have to put a stop to AI growth and development, then suddenly our data center business will be affected. But, at this point in time, I think the probability is very remote. Um I talked a lot about enterprise, right? There might be a situation where enterprises that we serve, whether it's through ST Singapore, Singtel Singapore, or through NCS, might decide, "You know what? I want to slow down spending in terms of the services that I get from NCS or the services I get from Singtel Singapore, or or slow down and say maybe I don't spend this year because I need to tighten my belt. I spend it next year." So, as a result of that, revenues will get deferred, right? For us. So, these are the potential areas where we will see some downside. Uh but again, as of now, we are not seeing it, but we're just starting the year. Uh but, you know, I always believe we continue to uh plan for all types of scenarios. And if the rosy or the base case scenario comes out, then I think we can always revise our guidance uh later on in the year.
Going back to your formula on ROIC or return on invested capital, I think you mentioned that the ways to increase it would be higher revenue, lower cost, as well as controlling your CapEx.
Yes.
Yes, The other thing I noticed about your FY27 guidance is that your CapEx expectation is higher than the previous fiscal year.
Correct.
Uh can you also help us understand why the expectation for CapEx should be going up?
Uh okay. So, yes, you're right. The CapEx has gone up by about 500 million uh versus last year. But, you must see where are we spending that CapEx? Okay? If you look at our core CapEx, which is the CapEx that we are spending uh for our Telco business, Optus and Singtel, it has remained flat. So, we're not spending more. Where we are spending more is what we call our growth engines. We are spending more by building more data centers, and we are spending more in our GPU as a service business, which is branded REACh, and we're also kind of building a subsea cable uh outside Singapore. So, all this is putting capital into our digital infrastructure business. But, despite the fact that we are growing the CapEx, bear in mind that a lot of that CapEx is fully funded already. Meaning, the money is not going to come from us, Singtel, right? So, an example would be our data center business, NexGen. NexGen, as you know, many years ago, we got KKR to make an investment. We have structured the investment such that basically up to a certain amount, any additional CapEx that we put in, Singtel doesn't need to put a single dollar. It will come from KKR. So, it's it's in many ways the NexGen growth right now is still fully funded by KKR's money. So, we don't have to worry in terms of that. So, yes, the CapEx has grown, but the funding of the CapEx is coming from a different source, right? On top of that, right, the additional CapEx, right now we assume that the banks will lend us $0, right? Now, of course, that you all know is not only conservative, it is quite unrealistic. In any projects, we will borrow a bit from the banks. Now, I we're not going to borrow everything, right? We want to be conservative, but we want to borrow a fair mix. So, the amount of money that you see the CapEx, it's not all coming from us. So, I would I would leave it at that. Ah, the third thing is REAI. We're putting money into REAI, but the way we look at REAI versus GPU as a service, and we probably need a separate session just talk about the GPU as a service business. We we spent uh the last 2 years looking at this business and seeing whether this is something that can make money. Everybody was talking about going in, going in, and all that, but we were not 100% sure. Right? So, we spent we told the markets 2 years ago, "We're going to put aside 120 million to see whether this can make money or not." Now, the 120 million, we only spent 60 million, and we used 1 MW of uh of capacity for GPU as a service. That has generated about $25 million. We have realized that it does make money. So, we have we are putting aside about 300 million, right, of capital. We already have secured customers for this 300 million of capex. And the way we have funded it in the sense that we are able to generate revenues 6 months to 12 months after we put in the capex. So, if you look at data center, it's like a construction project. You say, "Okay, today I decide to build a data center." Only 3 years later, when the construction project is completed, you will actually see a return. GPU as a service, instead of 3 years, it's basically 6 to 12 months, or be conservative, 9 to 12 months. You actually see revenues coming in. And we have entered into contracts only if we've got more than 80% contracted. So, so we think the GPU as a service business, yes, it's a bit more capex, but you actually get the returns faster.
So, as we're discussing this initiative to grow various businesses, I think one of the key ideas is to be able to do so without putting in all the capex by yourself.
That's right. Capital management has also been a very key part of your overall strategy, and I read in your most recent earnings some of the initiatives you want to be taking on to be recycling your capital and being able to unlock these different pools of capital.
Correct.
Uh one of the initiative that caught my eye was a potential IPO of a REIT of your assets. Uh can you maybe tell us what are your initial thoughts around how this has been framed?
Sure. I I think this capital management program is something I would say quite unique to Singtel. I think a few years ago we talked about it. Uh many companies thereafter have also talked about it, but they have named it differently. But, I would say the objective of the capital management program for Singtel is to ensure that there is no doubt that the company will be able to fund this business and the growth of Singtel without needing to go to investors and say, "Sorry, ah, we're going to cut dividend this year because because we need to fund the growth." It happened in the past, but I would say the focus is to make sure that we do not do this again. Right? So, to make sure that we'll be able to have all types of levers to leverage upon, to draw upon, to actually grow our business because we operate in a very capital-intensive industry. So, there are four levers that we used to do, and then you're right, uh Gerald, there was a fifth lever that we just announced. The I'll be very quick. I think we I need to talk about the four before I can talk about the fifth one. The first one is to make sure the operations of the company continue to generate free cash flow. That's very, very important. So, either it's reduced cost, improve revenues, uh manage your capex well. So, that's first and foremost, operationally we need to do well. Number two, we need to make sure we have a rock-solid balance sheet, and we continue to get the support from all the top-tier banks. We will continue to remain as a strong investment-grade company. Number three is what we call this asset recycling program, right? We have indicated to the market, I think about last year, where we have $9 billion to recycle. We've already done about five over billion, close to six billion, and we've got a few uh a few more billion to go, but that's up to 2030 that we talked about. And number four is to actually uh ensure rely on private capital. That's why we brought KKR in to fund our data center business, despite the fact that they only own they will own a minority stake, but we continue to rely on private capital because for some businesses, we need private capital is used to fund the growth of certain businesses instead of public capital. And then finally, right, to your point, we are open to relying on public pools of capital. When I say public, it could is the form of a listed company. Now, it could be a listed REIT, it could be a listed company, but the good thing about having a listing is that there is always the availability of capital out there because it is a listed entity. If we rely on private capital, right? Some of them they say, you know, 7 years, 10 years, I need my money back. But the public capital, you you don't have such a thing, right? It's there, it's listed, it's listed perpetually, and you can always rely on that, like a REIT, right? We can rely on that to tap capital. So, it is something that we are exploring. No guarantees yet. I'm not even saying which entity we're going to list as an IPO company IPO or REIT IPO, but it is something we are exploring very very seriously.
So, from many of the investors that we speak to, especially those looking for a dividend income, I think they're definitely welcome another REIT in Singapore's market.
Okay, I hope so. Yes, if we if we do it, huh? No guarantees we'll do it, yeah. But but I to your point, I think if we decide to do a REIT IPO, I I you know, I think Singtel has assets that are very well positioned uh for a very successful REIT IPO. We've got very strong, high-quality, high-margin Singapore data center assets. And uh okay, I I should not be using this as a marketing tool, but we feel confident that, you know, whatever we do, right? It has to be a successful IPO. If we do anything.
So, I think we have covered quite a lot of ground.
Yes.
I wanted to go back to where you were when you became the
CFO.
I think at the point in time you mentioned that oh, uh the ROIC was probably at a single-digit level.
Yes.
Yep.
Now you've brought it to 11%.
Yes.
If I were to take a step back and evaluate where you are relative to your ST28 targets, okay, where do you think we are now, and what does this mean for what we need to do for the next 2 years?
Okay, good good question. I think for ST28, we have I think a few things about ST28. We did say that number one, we want to continuously grow dividends on a sustainable basis. And I think you will see that that we will continue to do that, right? You know, I know some people when we announced 18 and 1/2 cents, they say, "Hey, why not more? Singtel can easily pay more." I agree. Singtel could definitely pay more. The question is that the right question is is not whether Singtel could have paid more, it's whether Singtel can continuously grow this dividend for you, the shareholder, in the years to come. And that's what we are doing. We want to make sure we grow on a sustainable basis. Number two, our return on capital. Return on capital is a very important metric for Telco. And we want to continuously grow that. I mean, we were at 7-plus percent a few years ago, I think about 4 years ago. Now, we're about 11% and hopefully we will do better despite, you know, all the headwinds that we are seeing. So, this is very much part of the ST28 plan. Now, we are already thinking about our plan beyond ST28. And what we are doing is thinking about our growth engines. What can we do to really pivot the business from predominantly Telco business. Nothing wrong with being Telco because it generates good margins, but we need to grow into new businesses that give us that growth. Right? So, digital infrastructure and digital services through NCS is what we have identified. And we want to continue to put capital to work there and and make sure we invest so that once fiscal year 28 comes, we'll be able to share what is the plan beyond that.
Yeah.
So, overall, it seems like there's quite a lot that is going on.
Yes.
And I think for many of the retail investors that we speak to
Yeah.
and trying to understand what Singtel is today, I think the key thing is to be able to track where you are in terms of a towards ST28.
That's right.
Can you maybe share what are some of the key measures that you yourself look at to understand your progress, whether is it in terms of your NetLink Trust capacity, whether is it NCS bookings, what are just like some of the two or three key things that us as a retail investor can also observe ourselves to understand how you're progressing towards ST28?
Okay, sure. I I think first look at what we guide. So, we always guide on OpCo performance, which is really a good indication will be our EBIT. Um and I would say not only look at our EBIT growth from the four OpCos, but also look at the mix of EBIT. You will see that our growth engines, which is our digital infra core, which includes NetLink Trust as well as REA I and others, as well as NCS, you will see the mix of this EBIT coming more and more from these growth engines. Not that Singtel and Optus will come down, right? But it is it will grow not as fast as the growth engine. So, number one is really our EBIT growth, but also the mix of our EBIT. Number two is return on our capital. I think return on capital, as mentioned earlier, is still a very important metric. So, continuously to focus on the return on capital. And number three, it is really um just dividends that we pay out, right? Um this year, if you look at our dividend, our core payout is 80% of underlying profits. Right? We are able to grow We we actually have a headroom of up to 90%, but we decided not to. We're going to keep and then because we keep it for the future years. And there's a value realization dividend of 3 to 6 cents. We paid, I think, 5.1 cents this year. So, again, got more headroom. We've already raised enough capital to fund the VRD in the coming years. So, also look at total dividends declared. Always remember our ST28. Very, very simple. Number one, it is to lift our operating performance. So, opco EBIT, the mix of the EBIT, is very important. And of course, our underlying profits. Number two is manage our capital well, right? So, that can be seen through our dividends, as well as our return on capital.
So, we have covered quite a lot of ground today. Uh we looked at your recent results. We look at what is coming up ahead in terms of your ST28 targets. But, I cannot finish today's recording without going into the discussion around your ST
Yes. Oh, yes.
Uh I think it's been a few weeks since we have made the announcement of your plans regarding the SDS. Um while the exercise is only expected to be completed in November, it is now the end of May. Can you maybe share where are we in terms of the progress around the SDS?
Okay, good. Um well, first, I'm very encouraged by the the response that we got from the SDS cuz before that, to be frank, I was quite concerned. I'm not sure how uh investors or the retail public will will will will take the news. But, it has been actually much better than expected in terms of response. We've gotten very good cooperation from a lot of the stakeholders, like from CPF, from SingPost, from MAS, from CDP, from SGX. And I think there's a focus on doing what is right for the Singapore public. The good news is that the Singapore public you're seeing so far, about 20% of the SDS holders have sold. And I think many of them, given their entry price about 30 years ago, given all the dividends that they have collected, they have made money a few times, right? So, congratulations to the folks. But, it's also heartwarming to see that many people, many of the SDS holders have decided, "You know what? I'm not selling." Why? Because maybe they think Singtel is a good dividend stock. There's more growth to come. So, many of them have given a feedback that they are keeping it and they are just waiting for their shares to be automatically transferred to their CDP account or their designated account. So, so I would say it has been a success so far, right? In terms of people who have sold, they made money. Those who have decided to sell, which is which is really and a personal decision. Then there are people who have decided they want to keep it and that's going to happen automatically in November. Um I I think also what's important is to always be very mindful about scams. Okay? I I have to call this out again. Um we need to Nobody will ever ask you for a fee to advise you on SDS and the and nobody you should not give your bank account or any details to anybody and whenever in doubt, just go to the SingPost office. There will be SingPost and SingTel staff there to support you and help you. Or you go to sds.singtel.com, which is the official site, no other site. Or you go into any CPF branch. So, we will be able to advise you, but so far it's been actually very encouraging.
Yeah.
Maybe I can add to that in that on the Bean Sprout website, we also offer free insights relating to your SDS shares and what different investors can do under different scenarios.
That's right. So, Bean Sprout is another one, not a scam, very legit site. Uh and I should also mention uh we have actually seen the volumes uh in terms of sale. Every day now we're seeing about two to two and a half million of shares uh that are getting sold. So, that is a fraction or maybe less than how many percent? About 5 to 10% of the average volume that we're seeing. So, it's a very manageable number. Uh so, I think overall it was a very good result for everyone.
To round up today's discussion, I wanted to go back to where we were this time last year.
Okay.
I think your share price at that point in time was at about $4 per share. We have seen it actually since then going up to a new all-time high.
Yes.
I think earlier you also spoke about some of the encouraging signs that we have seen from your SDS holders who continue to want to hold on to your shares. Over the course of the past 12 months, what do you think investors are starting to truly understand about what Singtel is today that might not be the case 12 months ago?
I think what investors need to realize that Singtel today is not just a dividend stock. We pay healthy dividends. But actually there's some growth in the business. And the growth is coming, you know, from new businesses that come out of our Telco services. I talked some I I talked a bit about, you know, how the rise in data centers would basically give us more business in terms of connectivity, whether it's terrestrial fiber or subsea cables. The fact that we have a a solid 5G network allows us opportunities to really leverage on the smart nation initiative and a lot of new initiatives that we're seeing in Singapore. So so there is growth in the business. At the same time, we are also pivoting away to what we call digital infrastructure and digital services. It is a business that we have been involved in and we continue to execute. And it is actually very exciting because actually if you look at Singapore, there's no player that can say that number one, I use AI because our Telco businesses are using AI. There's no one who can say that I enable AI, meaning I help the development of AI. And that's really from our data center business. And then after And there's another segment where we also allow we provide AI services. And that is through NCS. Any company, big or small or government agency, want to accelerate the use of AI, they come to NCS. So So one thing that is quite exciting is really how Singtel as a group leverage on this growth in AI. We're not just one segment, we're not a hyper scalar, we're not just a data center player, but we can really play AI across three segments as an enabler, as a provider, and also an adopter of AI.
Yes. Thank you so much Arthur for your time today in allowing us to understand more about how Singtel is today not just a dividend or income stock, yes, but also potentially offering growth drivers in terms of how AI is being adopted and your move towards being able to provide more of the digital infrastructure around that.
Thank you. Thank you, Gerald. Always good to be on this. Thank you.