Singtel Special Discounted Shares (SDS): Sell or Hold? transcript

Welcome back everyone. My name is Adam Rusman. >> Hello. Victor. Hi everyone. Thanks for joining us today. We're going to talk about the Singtel special discounted shares SDS. All right. And the new recent update is that for those uh old-timers, if I put it that way. 50 plus. 50 plus. All right. We're going to go into the history of that, all right? How certain Singaporeans have Singtel SDS shares. All right. The update now is that you can actually sell these shares.

And there are a lot of people are asking us basically Yeah. uh what you should do with these shares. All right. So, uh we're going to look at the valuation, what the business of Singtel is. We've had a lot of questions from members, from email uh people just sending us emails and all that. What should we do with this new information? Uh and we thought we should just do a video, cover everything, and answer that question.

All right. So, before we jump into what we should do and all that, maybe just a very quick explanation what this whole thing is. I think uh so, okay. Let's start off with like long, long time ago. So, that was in 1993 when Singtel went IPO. I think the government introduced a scheme for a lot of Singaporeans at the point of time, if you're above 21 years old, you are allowed to subscribe to this special discounted share at a very good price.

And I remember the time that this was uh introduced when I did a read about it. Um the discount was like as much as like 30 over percent. >> Mhm. Okay. So, uh the time when it was uh the share offering for Singtel was about 190, right? And it was um the discounted price is about 118. That was for the special uh A share, all right? The first batch. And it was given to those uh Singaporean. Mhm. All right. Uh back then, It wasn't given.

You had to opt in and then use your CPF money to >> money to subscribe to subscribe. >> Yes. Yeah. So, and then uh if those who subscribe to the shares, if they hold it for the next 4 years, each year they were entitled to the additional 10%. uh shares. Okay. >> Right, this is a loyalty, okay? And this scheme, the idea is that they want to encourage Singaporeans for share ownership. Mhm. Right, invest in stocks, right?

And Singtel was the first batch to do that, okay? And in 1996, they also came up with uh so-called SD2, the second tranche. And the same arrangement, it's just that this time around the discount is slightly less, but it's still a good good discount. Yeah, I kind of remember this one more clearly. >> More clearly, okay. >> More lucid than really. Uh Yeah. Back then I was still playing marble. >> You still Oh, yeah. Okay.

All right, 1996. So, I think you have to be By the time you watch this, uh you must be at least 50 years old uh to be entitled to this. So, that means you opted Yeah, you will have of age at that time you'll be 50 or older here. >> Yeah, because when you are 21 years old in like 1993 or 1996, yeah, by then by now you are already like 50 plus, okay? Yeah, at least. So, uh on average, I think most um SD S holder, okay, they have about 1,000, 3,000, 4,000 shares, okay?

So, according to Singtel, I think they have about uh 1,360 Singtel SDS share, okay? And these shares were bought at a cost price of around $2,000. Mhm. Okay, at that point of time, okay? So, fast forward to today, um I think Singtel they calculated the dividends that they have accumulated accumulated over the years. I think dividend alone is 25,000. Mhm. Okay, so that is actually more than uh covered more than enough to cover their initial $2,000.

So, those are like more than the dividend alone have have given us significant return. On top of that, now the share that they are owning base base on at the time of this recording, Singtel share is about five four $4.80, okay? So, the value is going to come out to be about 6,000 five thereabouts, okay? So, basically above 6,000. So, if you add up together, I think the total value is about 11,000 based on the initial cost price of about 2,000.

That's the investment cost. Very good return. I mean, if you compare you just leave your money in the CPF even if you were at like 4% a year. Yeah, so definitely this is this will be Yeah. Okay. And of course, Singtel it's has recovered quite a lot. I think the turnaround I think we can talk about it later. Okay, so last time in the past CPF were appointed as a trustee to hold those shares for SDS holder, okay? And now, if the bill is passed, okay, in the parliament, all right, which is they're going to discuss in May, all right, effectively it will pass then by November 21st of November 2026, all right, all the SDS shares will be transferred to your own CDP account if you have one.

Mhm. Okay, if you don't know what a CDP account most likely you don't have one. You probably wouldn't be watching this. You should have a CDP >> you you you should do you might Yeah. You could be watching, okay? And it's time to get one. Time to get one. They will actually don't need all right, they will create a designated CDP account to hold the share for you. And it's just linked to your SingPass. It's very straightforward. >> Yeah, so this designated CDP account you cannot again it's only for the purpose of that share.

You cannot buy and sell other shares. >> Oh, okay. Yeah, so you still need to go and create a CDP account if you want to hold share on your own CDP account. For those who already have it, then of course it will automatically transfer in to your share. Okay. So, before this transfer, in the past you you already can sell the Singtel SDS shares to CPF portal, all right, or Simpler's or designated brokers, all right? So, even until today you can sell it.

And then in the past before this transfer announced most of the shares that you sell for Singtel will go back to your CPF because you use CPF money to do it. But after the April announcement I think you can now still sell, all right, but you can choose to withdraw the sales proceed. As cash. As cash. Okay. So this is the big difference right now. So last time money goes back to CPF, now you can actually take it out and do whatever you want with it.

Yeah. Right? But >> Cuz there's a lot of people asking so what should I do now? Cuz when it's like ah it's good goes back to CPF. It It's still money. Maybe I'll just hold on to it. I don't know what I'm going to do with it. It's go it goes back to CPF. But now people are like hmm maybe I want to take that trip to Bali, you know. You never know. So that's the difference. Yeah. Yes. Yeah. And of course after the transfer 21st of November, then the share will be owned under your CDP account for those of you who have.

Okay. So in this case, you get to decide how you want to sell the share, who you want to sell it, which platform you want to sell it through, right? And those of you who don't have a CDP account, then obviously you would have a designated CDP account. You still can sell it through either POEMS, all right, which is their designated broker where you can just log in with your SingPass and then you can choose whether you want to uh you know, after the sales proceed you want to transfer it back to your CPF or you want to transfer back to your bank account.

Mhm. Okay. So most people probably will go back to their bank account if they want to go for holidays. >> it's still it's it's still your money but now you have more flexibility >> Flexibility. of how do you want to use it, right? >> Yeah. Okay. Makes sense. So uh yeah, or you can for those who are not as tech-savvy, they might not be watching this but they can actually do it through SingPass. They go to the SingPass, they tell them they want to sell their SGX share.

I think they probably need their IC. Mhm. Um and then the brokerage fees will be slightly higher, I think two dollars about that. But okay. So if you sell it online through for POEMS, I think their fee is about 19 39. Okay. So that's based on what they give, right? And then uh SingPass is about 21 uh dollars. Okay. So I want to come back to those who have share will be transferred to the CDP account. Mhm. Because in this scenario, you might end up owning odd shares.

Mhm. Okay. So once you own it the share through your CDP account, then you have to ask yourself whether are you comfortable with the odd share. Okay, because based on the average number is about 1 uh 360, right? So, you have like 60 share, which is considered odd share. Odd share are basically like any share that's less than 100. So, typical lot size in Singapore is about 100 shares per lot. >> Yep. Okay, so now this 60 shares, all right, it'll be odd share, which is usually you have to go to the odd lot market market to clear.

And usually the commission is also doesn't really justify that. Okay, so that's something that you need to consider whether you would want to continue to hold to your uh Singtel share. >> Mhm. But if you still believe that Singtel has a future, all these odd share may not be as significant. Because ultimately if you're holding it, you just want to collect dividend. As you can see from the last 30 over years, I think they have paid out very good dividends.

Okay, and after a bit of talk about Singtel business and transformation, then you have to decide whether you want to continue to hold to the uh Singtel shares. So now, what would you do with the shares? Cuz now there's an option to actually take cash out of it. What would you do with that? Yeah. Yeah, I think the important thing is to really understand uh the business. Yeah. How yes, the business of how he has transformed, right?

So, I mean, we have followed Singtel since back in 2011 days until now. Right. So, if let's say you go back to the uh the old management back in 2015, 2016, right? So, at the point of time if you were to look at Singtel, right? Their business model is basically the the two main telco that the Singapore and the Australia telco that they own 100%, right? So, it's the Singtel and also the Optus. Mhm. Then they own uh regional associates, where they own less than 50%.

Uh associates usually less than 30%, sorry. Right? So, it's like uh the Thailand AIS, Indonesia uh Telkomsel, is it? I don't know how to pronounce it. Then the uh Bharti Airtel, with the India one, and the Globe. Then you have like NCS at the point of time, but they don't really talk about NCS. If you went to the AGM, they don't really talk about it, right? Then they talk about uh Singtel Dash, right? The wallet, the remittance.

Then along the way, right? They go on a acquisition spree, right? Which are At the point of time when I attend the AGM, right? Uh I can I can I'm First, I'm quite confused because there's many business. So, when I go to the AGM, my feeling is that Actually, what is Singtel doing? >> business anymore. >> Yeah, it's like uh they are going everywhere. What What What I'm What I What I felt at the point of time was uh the time video streaming is coming up.

When was this again? 20 >> 2015, 2016. So, the video streaming coming up, then they have this uh HOOQ, I think. H O O Q. HOOQ, right? So, at the point of time This one I remember accurately. They said this one is going to be the Netflix of like Indonesia or or Singapore or something like that. Okay. Then they they Then mobile advertising at the point of time suddenly turn a bit more uh in trend, so they went into uh buying mobile advertising business, Amobee.

Mhm. Right? And this HOOQ and Amobee that they bought, right? Is loss-making. It's burning cash. Because at the point of time buy is like uh buying two loss-making business, growing, it's all about user revenue growth. Market share. >> Right? Uh so, that time the strategy was that, right? So, and it was not profitable. So, a lot of people were questioning, is it the right move for Singtel at the point of time? Because in the AGM, they said this is loss-making thing and you are diversifying away from your core business.

Then came the wave where cybersecurity was very important. Then they bought into Trustwave. Mhm. Mhm. Right? But that Trustwave is profitable at the point of time, right? So, this was uh the Singtel at the point of time and they also increased their stake in their regional telcos, like uh like the Bharti Airtel and all this. So, this was Singtel back in 2015-2016, which I I felt that it's a bit messy at the point of time and acquisition that they acquire uh make losing in millions.

Okay? Then, you fast forward back to uh come to uh Singtel now, right? Which is uh the new management took over in 2021, right? And they start to clear whatever non-core business, right? So, if you look at now, the Singtel is your basically is your Singtel, Optus is still there, right? Your regional telcos are all there. NCS is still there, right? And they created another one is called uh NCSera, right? Which is actually a business that's always there, but nobody talk about it.

This is their data center. And and if you watch one of the videos by uh our interview with the Singtel CFO, he says that they are the biggest data center player in Singapore, but nobody talks about it. And actually, a lot of people also don't know about it. Quietly make money. Yeah. So, they they they make it visible for people. >> Okay. And they start to clear off the Amobee, Mhm. the Hook went bankrupt, liquidation.

Okay. Okay? Trustwave, they also sold at loss. So, all those acquisition that was bought in during the 2015-2016 era are all cleared. And if you look at currently, right? They actually seems to focus back into the core business. So, now the if their acquisitions or or subsidiaries, they're more synergistic Yeah. with the core. Yeah. Whereas we felt maybe 10 years ago, they were like buying things that were a little bit off tangent.

Yeah. From what the core business was. >> Yeah. So, so what I feel about this management, what are they doing is they trying to be more efficient. Like for instance, huh? Uh if you watch the past video that we we the CFO mentioned, he did say that like for instance, the uh Singtel business, they got the consumer, they got the enterprise. Enterprise report to enterprise head. Consumer report to consumer head. Why you need to have two?

They combine both, you report to one person. They efficient the thing, they cut a lot of cost. >> So, someone got retrenched. So, they they make the whole organization very efficient. Okay. Okay, and a lot of their money are stuck in physical hard assets, the buildings that they own. Okay. So, that they unlock it. They work with they they partner with like Lendlease Mhm. to rebuild the whole uh Singtel headquarters. They partner with KKR to to inject money into the data center, and they're going to do more data center.

Right? So, that they use less capital, but they can grow even more because other people join in to fund them. Right? So, and they also start to trim the regional telcos like Airtel, they trim it. Okay? To to give uh a benefit of doubt for the previous management because at that part of time right, when 2015, 2016, right, was the start of the telco war. Yeah. Right? The Singapore government introduced the fourth telco.

TPG, yeah. Yeah. At that part of time it's called TPG, now it's Simba, right? And instead of three, now you got four. So, there's a price war out there. And not only that the Singapore got the price war, the regional telcos all got the price war. >> Mhm. It's like a partly Airtel, the India side, huh? Initially got I I remember from the video what he said, got I think three. Then it moved to 12, and now move back to three.

And then at the time, remember they were giving out free SIM cards. >> Yes, correct. Yeah, yeah, yeah, yeah, yeah. So, now all the the telcos in that region are all consolidated already. And if you see Singapore market is also starting to consolidate with the Simba of uh going to offer to acquire the M1, which uh not approved yet, right? But it's on the way, waiting for the approval, right? If this were to consolidate, then the Telco regions in around here is going to consolidate already.

Okay. Right. >> Okay. So basically you're sharing all of this cuz I think viewers need to some may or may not know that Singtel not really a Telco business. >> Yes, correct. >> A lot of other um business models that they have revenue models. But it's again more synergistic with the core. Correct. Uh it's not just a Telco basically. And if you actually check out the interview we did with Arthur Lang this year for he he gives a really good uh explanation overview of what the business is all about.

Do check it out. Maybe we'll link it somewhere in the description. >> Yeah. It's a very good interview. >> Correct. I think the the main key for Singtel why the share price have improved significantly is because of capital allocation. Mhm. They really lead by example in terms of when they unlock the asset, right? Part of the uh the underlying profits, right? They they maintain the payout. Then on top of that any assets they unlock, right?

They will take and they will pay what we call the value realization dividends. To back to the shareholder. That means sort of like a special dividend, but they paid back to shareholder. And they've been doing it uh for 2024, 2025, and 2026, okay? And in the video that we talked they they think that it's they are able to maintain for 5 years. Okay. Okay? And recently they announced the value realization share buyback.

Mhm. So they're going to also when they unlock they're not only going to give dividend, they're going to do share buyback on that on that, okay? And if you see in terms of the diversification of Singapore markets, uh they the new management really just keep diversifying out of Singapore. You can see that um Singapore market was 25% back in 2017. Mhm. Of the EBITDA. Right? Right now in 2025, right? Uh it's 16% only. Mhm.

Right? And 84% is outside of Singapore, the EBITDA. So Singtel is no longer Singtel. >> Singapore. Singapore. Yeah. All right. Yeah. And and and the thing is in the past when you look at Singtel, you will feel there's no growth because you don't know Cuz Singtel has a limited market, right? >> limited and they just that and that's why the the previous management do acquisition. Yeah. But now the Singtel, you can see is the the main business, the Telco business is stable, right?

The growth comes from the NCS and the next next era, right? So, if you look in terms of the to make it simpler, you look at the operating income, which is before all those fair value and all this. Singtel before this management, uh they're either uh the op- EBITDA is actually dropping or yearly growth is less than 5% or less than 10%. But after this management took in 2021, they clear a bit. After they took on in 2021, uh there's still a negative growth because they need to clean up.

From 2023 onwards, right, the EBIT growth is about 5.8%. Then 2024 is 3.5% and 2025 uh 19% growth. Then uh the latest TTM is about 11.4%. It's a double-digit growth. I would say it's maybe low, but you look previously all the way back to 2007, there's only one case in 2008 that is 10% growth and that comes from the when the thing bottomed and come up, Yep. right? So, most of the time this is I would say so in so many years they they sort of like get double-digit EBIT growth.

Yeah. Okay. So, so I think it comes from the NCS and the because as a lot of digitalization happening right now and also the data center. All right. So, this is like seems to be like where it's heading. Yep. Where Singtel is heading. Uh and for those who are still holding the shares, I mean, whether regularly or through this SDS scheme, this is what you own. And basically this is a business. So, then the question is so what should I do?

And I think you shared all of that cuz you need to if you You something, you want to know where it's heading. Correct. What's the value of it? You believe in the growth story. You're comfortable with the risks, doing all these things. And then that gives you more information about what your decision you should make. So, I thought that was a really really good breakdown of Singtel. So, what will you do with your shares uh Y E S D S?

He doesn't own one. I mean he you I know you know you know oh But someone who's looking at all of that how would you what would they I mean put aside personal financial considerations. Some people may just want to take out the money for whatever reason. But let's say someone was coming from investing point of view. They want to make a a decision based on investing principles. So, how would you do this? Okay. So, I think if you look in terms of the valuation uh they already surpassed all their previous peak uh uh Oh.

Wow. Okay. So, the current EV EBITDA because uh telcos they they they look in terms of EV EBITDA is about 13 13 times. Okay. And their previous peak in 2015 before the the things The price war or or the price war comes is about 12 11.84 times here. Okay. Then back in 2007 before the crash was 11.62. So, they are above the previous two peaks. Okay. This is the first thing. The second thing you you know right even though now they are slightly higher back in 2015 a lot of their business are loss-making and there's not much of growth and they are traded at this valuation.

Mhm. Right now you are traded at 13. But there's growth to the company. The growth story looks better. >> Yeah, there's growth correct. >> And they are more focused now. Mhm. Right? And there's no loss-making divisions uh inside like the previous time where where they have all those loss-making >> So, you're not really comparing apples to apples cuz it's it's a different business now. Okay. It's very different now I would say. >> Okay.

So, even though it's like it's historically high a historically high valuation based on EV EBITDA Yeah. They are just slightly above one or two time. Okay. >> I I think 11 then 13 about one or two yeah difference. >> Okay. So, essentially what what we are saying right now I probably tell you saying right now is that the valuation looks stretched. Yes, historically. But, in investing there's always a potential re-rating if the growth profile of the company change Mhm. and the business looks more lucrative.

Mhm. Right? And then we might see the next uh multiple expansion. >> So, there's a re-rating of Yeah. the EV without EV without multiple. Whether that will happen is anyone's guess. We don't know. Yeah, we don't know. But, if you just look at it historically Sorry, it looks expensive. >> Yeah. Yeah. Yeah, but then you got to understand it's a different business today. So, I think if you look back in um Singtel back in 2015 the like I said the EBIT was about 11.84.

Okay. So, but at that point of time uh the back in 2015 and 2016 the EV EBIT growth during that period was uh either negative growth or low low five uh low single digit. Mhm. Right? Mhm. But, right now you you look at the EBIT growth is a EBITDA growth, sorry, is about 5.7 5.4. So, there's growth to the thing. Mhm. But, EBIT is higher. Mhm. Okay? Because there's they have to invest in the capex and all this. That's why the EBITDA has been uh lower in terms of the growth.

Okay. So, so right now is they are in the same region, but there's growth to that. Okay. Okay. So, it may justify for the higher valuation. for the higher valuation. Yeah. >> Okay. So, what about dividend yield? Because I think uh a lot of investors who pick investment like Singtel look at the dividends. So, what based on yield, how would you look at that? So, historically again if you look at the yield, right? I'm not I'm not going to go back to the like early 2000 or 1990s, right?

So, I just look at the last 20 years. Uh 2007 2008, right? Singtel was trading at a yield below 4%. Mhm. At one stage it went to as low as below 3% Mhm. okay so that was based on regular dividend that was in when it picked at about $4 right and then after that we went the company went into the I mean the whole economy went into recession global financial crisis after that right and then in 2015 2016 that was before pre Telco war broke out in Singapore and the year at the time was about also between 4 to 5% So this is when it's historically Yeah it hit below 4% at one stage in 2015 but that was just a brief moment at a point of time and after that the share price just tanked throughout because of the competition not just in Singapore but around the business the country that they are in again and after that we had covid and that's where when the new management came in that's the the whole transformation started to take place and now we are looking at a Singtel at a at one stage record high at about $5 Mhm Right and now I think at the time of this recording is about $4.80 right so the unit has also fallen back to below 4% so like what Peter said if the growth they can maintain it and you know they you might see dividend growing even higher okay or could potentially exceed their pre Telco war level okay so right now of course you will combine their so called special dividend right we are almost at the level where they are at a pre Telco war So it's changed now with the new special dividend that they're doing if you add it on to the regular dividend it's more or less the same as the pre liberalization of the Telco industry in Singapore it's about the same Yeah because the management can kind of like confident to maintain that special dividend for the next 5 years or rather since 2023 or 2024 right this year and then another two more years then you might see that the current dividends if you add it all together it's still we're to sustain at this level.

Okay. Yeah. Then of course the rest of the growth will have to come from the business. Okay. >> Yeah. So the yield at this point historically would be considered historically Lower. on the lower side. >> lower side. So that means the the stock is a bit expensive. Yeah. >> Yeah. Yeah. But again, there's the growth story to this >> Correct. to Singtel now. And you can see actually profits rising. >> Yeah. Yeah. And then of course your dividend rate.

I mean if the company got no growth, then it it does really make sense to >> Yeah. So ultimately it boils down whether if someone is looking to sell or not. It really depends on the the their portfolio situation right now, right? So if they are planning to um give up cash, I think right now the valuation it looks looks uh good all right to to realize some of this value. But if someone is like they have a lot already have a lot of cash, and then they also have this like SDH share.

Now they can choose to sell. And if you have no intention to sell, they just want to collect dividend, they can continue to hold it. And hopefully the management uh transform the business further and then the growth continue to drive and there will be a growth in the dividend per share over time. Okay. Yeah. I think it's really depends on whether you're comfortable with this current valuation and the the state of the business is.

I say uh this business now there's growth compared to 2015. There's no not much of a growth, right? So you have about the same valuation, but one with growth. Yeah. Right? So if you're uncomfortable with the valuation compared to historically, then again investing is not about all in or all out. You you don't need to cut both up. You don't need to cut your hair both right? Shave your hair or something like that. You just trim it only.

Go for a trim. Yeah. So it's it's up to you, right? You don't need to be all in or out, right? Because there's still there's the end the story is very intact. The management is doing a lot of capital allocation. The segments are all stabilized already, Mhm. right? Sing Regional telcos consolidated. Singapore telcos is going to consolidate. All right, if the approval go through. Then you got your NCS that they're going to focus because a lot digitalization and the the data centers that they are expanding on that.

All right, which is very key for future digitalization also. All right, so it is a very different Singtel, right? It is it is different for everyone. Someone who is watching this will say, "Ah, I think it I want to, you know, trim my shares or sell." Someone who to watch and go, "Yeah, I like the prospects of Singtel. I think it can, you know, do much better, grow some more." You know, all of this is really up to you.

So, the reason why we do this is because we want you to we hear a lot of questions Yeah, a lot of questions. And to basically keep you informed so you can make your own informed decision rather than based on your own circumstances. >> Correct. So, we don't we're not going to tell you what to do with your shares. And we can't do it anyway. So, we're not there's no recommendation to buy or sell or whatever, uh, you know, during this presentation.

We don't own the share by We don't want to share this as well. Uh, but we want you to understand the landscape so that you can go, "Okay, if I like that, I'm going to stay. If I don't really like it, maybe I'll go out." But then you know that you know the what's happening and then you can make your choice. Yeah, but if someone's going to sell because he want the money to spend something, that's fine. It is up to you as well.

It's up to you. Yeah, but we want to approach this from an investment perspective. All right. So, I think, uh, want to share that and, uh, I think is there anything else you want to share about that? I used to we used to monitor Singtel right in our watch list and then at one point I just eliminated it after the telco war. It was we didn't like the competition that we are seeing. Uh, and it's like cutthroat. We had StarHub on the watch list as well, I remember Yeah.

So, only recently after that interview with the CFO and then we get a better picture that, "Oh, Singtel it's has been, uh, transformed transformed quite a lot." All right, and then now we are actually adding it back to the watch list again. Mhm. Yeah. So, hopefully, yeah. Okay, so we see what happens. All right, so again, no recommendation to buy or sell or Uh I just wanted to share what we think about Singtel and the valuation as well, so you can make your own decisions.

Okay? Yep. Uh I think that's pretty much it. Yep. >> Okay, so my name is Adam, Rusmin, and Victor. Thank you for joining us. Any questions about this, we're happy to answer them in the comment section. Do check out the interview that we did with the Singtel CFO, Arthur Lang. It was very, very enlightening. Yeah, very good. >> The link in the description. And of course, if you like the round table, please hit the like button and subscribe to our channel.

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