Singapore Telecom (SGAPY.PK) Needs Sale to Unlock SE Asia

With the deployment of the Australian National Broadband Network, competition is expected to increase as new entrants enter the market. Optus is the only telco company that owns and operates a fleet of five satellites in Australia, while a sixth is scheduled to be launched this year, used by broadcasters and government organizations, including the Australian Broadcasting Corp. and the Australian Department of Defense. But, Australia and Singapore are mostly saturated markets, and margins there are slipping on the need to upgrade to 4G/LTE while data rates are likely to drop.

In the last six months, Telstra, the number on telco in Australia, added around 600,000 new customers of which half are for 4G service, while Optus only added 53,000 new customers. In Q4 2012, its operating revenue and net profit were down to 5.4%, to A$ 2.7 billion (US$2.59 billion), and 6.9%, A$249 million (US$239.2 billion) respectively. For this reason and the potential growth offered by the developing ASEAN countries and India, SingTel is looking to sell its stake in Optus, offering a financing package at around seven times Optus’ EBITDA. That low-growth capital can then be shifted to its higher growth potential markets.

The Data Plan

Right now Singapore Telecom (NASDAQOTH:SGAPY.PK) needs a strategic shift in its priorities to push back towards a growth model versus its current value one. Any large cap producing a 4+% yield is nothing to sneer at, but it is positioned perfectly to build on its current base by fostering growth of its partners around the region. Investors can and should look at SingTel as less of a service provider and more of a private equity firm at this point. Its structure is like that of a REIT that rents digital real estate. Selling the satellite division of Optus would put it in a better position to pivot towards Thailand and the Philippines, which have not begun to show their promise as mobile computing powerhouses.

Net margins improved to 19.3% in Q1, reversing four quarters of margin erosion. With the recent correction in price and the potential of unlocking significant value from the Optus sale value investors are looking at a good opportunity to grab yield from a firm where the dividend payout is not threatened by current or future cash flows.

The article SingTel Needs Sale to Unlock SE Asia originally appeared on Fool.com and is written by Peter Pham.

Peter Pham has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Peter is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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