Good morning and welcome to Singtel Investor Day. It is always very exciting for me to see everyone in the room and in anticipation of all your difficult questions to come. Today we are very happy because we have Budi, the Telkom CEO, also with us. I think this is the first time that you will see Pak Nugi and Budi and Angelo in the same room. All the questions that you have for Telkomsel, you can ask them and do not have to ask me. Let me start by giving a quick update on where we are on our Singtel28 plan. I must say, since the announcement of Singtel28, which was in May 2024, we have been executing to that plan.
So far, at the one-year mark last year, you have seen our OpCo EBIT have been improving, and last year we reported a 20% growth in EBIT. This first quarter, which we just announced, we continue the momentum with another 11% improvement in the EBIT. From that momentum of the OpCos, the four OpCos, who are delivering the profits and the EBIT, it is right on track, and I do not think this is going to deviate. We have given the guidance this year on EBIT growth of a high- single digit. I think we are on track to hit that number. Of course, the cost-out program is also, as we reported end of last year, is on track and this is the third year of a three-year plan where we are taking out SGD 600 million of cost, both from Singtel Singapore and Optus.
Moving on to the capital recycling target, we also announced that we have upped our capital recycle target from SGD 6 billion- SGD 9 billion. So far, about SGD 4 billion have been realized and we have also announced a SGD 2 billion of value realization share buyback for the next three years, all the way till 2028 as well. Finally, of course, in terms of dividend, I think we have been growing our dividend, the percentage of payout since the last four years, and we are on track to delivering that as well. Overall, I would say it is still on track. We will update again on a regular basis whenever we announce our results and how far we are tracking on this. Of course, this is as of yesterday.
Since the announcement of the Singtel28, which is May 2024, I think the market has given us the confidence that we are executing to the plan and responded accordingly. We have a 78% increase. I think we are not so particular about whether it is going up or down on a daily basis, but we are quite confident that on a consistent basis it is moving in the right trend and it is appreciating because we are actually delivering the profits that we have promised. We have also been seeking feedback. We have done an investor survey and through our interaction with all of you with perception study and broker conferences, these are the messages that we are hearing back from you. These are not our messages.
What they are saying is they like what they are seeing in terms of the momentum in Optus, the green shoots that happened last year, a positive rebound, strong Airtel performance. The growth engines are executing well and now we have actually very clearly stated what is our capital return strategy. But you are also telling us that this is what you are expecting from us. You are expecting us, we have been talking about the Singtel Singapore market consolidating and finally has come through. What is next? What is Singtel Singapore going to do? Is the expectation of Singtel Singapore going to continue to lead in a consolidated market? You are going to hear from Tian Chong later in the afternoon. What is his position and how is he going to take the market forward and continue to show leadership in the market.
Obviously, Optus focus on ROIC, being very clear that Stephen and I have been very clear about how we are going to lift the ROIC of Optus over the medium term. It is not going to be overnight, but it is over the next few years, but in a very consistent manner, executing to the plan. Of course, in Optus, we are also seeing that in Australia, the market is actually turning a bit more, I would say, healthy in terms of competition and how we compete on value, on service, and on quality, which is something that I am sure Optus can deliver. Finally, we look at the growth engines. It is scaling. Data centers is scaling very nicely. You will hear from Bill in the afternoon, the capacity that we are turning on later this year and into early next year.
Effectively, our current capacity will double very quickly, and therefore, we expect the EBITDA to also double very quickly. The drivers for the associates, I think you will hear directly from all of them. I will go through a slide, what are some of the drivers and what to expect from them. Moving into the four OpCos, I am just going to cover it briefly in the next few slides. In Singtel Singapore, you see we have launched a 5G+ network, which is really, I would say, a world first tiering of the network. Carving out a slice of our 5G network for consumers and for the premium segment. This is something that will differentiate us from the rest of our competition and really give a differentiated experience to our premium customers. It is early days, but the early signs are good and showing that our customers are responding.
That will continue to happen. The second area is really on enterprise, and the momentum on the enterprise business is actually very strong. We are seeing a lot of new global customers taking on international circuits, and this is on the backdrop of the Empower Platform and the CUBΣ software-defined platforms that we have created. We will continue to see this growth momentum to win global accounts. Finally, embedding and scaling AI. This will be a theme that you will see and hear throughout the whole day. At a group level, we are embracing AI at scale. What does that mean? I will talk more about that in terms of how all the different OpCos are looking at this area. But it is not just about reducing costs and improving productivity.
It is also about delivering differentiated experience, also about looking at targeted revenue growth and customization of the offers to each of our segment of customers. It is a lot more on that later. On Optus, I said the momentum on mobile ARPU growth is there. The recent rounds of price rises have actually lifted the revenue. We see that continuing to work through. Also sharpening our B2B enterprise offering. We have reduced costs in the first few years, and now it is really about growing some of the revenue in that space. Efficiency and driving resilience and efficiency. I think this is something that we were badly hit two years ago when we had a network incident. We have to rebuild that confidence and trust from our customers.
We are investing a lot in the area of building resilience, network resilience, security to ensure that we are regaining the trust of our customers in Australia. To that end, I think as we start to move on that, we will also have to simplify our operations to make sure that things are easier to manage. Finally, turning on the MOCN solution with TPG will not just reduce our cost of deployment and CapEx because we are sharing the network, but also turn on a revenue stream where we are receiving revenue from TPG. That is actually been turned on, and as we roll out our 5G network in the region, we will see that effect coming through in Optus. You see embedding AI and automating some of our processes is also embedded in Stephen's strategy.
On the two growth engines, you see NCS is doubling down on AI and Intelligentization. The three Is, Intelligentization, Internationalization, and Inspiration. You see that NCS continue to ride on this whole push of companies adopting AI and leveraging on its strength of helping companies turn on AI to drive that growth momentum. Digital InfraCo data centers that we are building will all be AI-ready. This is really something that we are looking forward to. More than 400 MW of AI-ready DC in the pipeline with about 200 MW operational by December 2026. As we last reported, a lot of our data centers are pre-sold. That means before they turn on, we are already selling 50%, 60%, 70% of it. That will assure us that once it is turned on, the revenue will flow through and the corresponding EBITDA will come through.
On RE:AI, which is our sovereign AI champion, this is really about getting GPUs and building it and assembling it and offering it as a service to government agencies and enterprise clients. I tested this last year, and I recall explaining to many of you that this is really about us getting the business model right, because there is a lot of CapEx investment upfront, and your revenue may be short-term because it is rental on a six months, one- year, two- year basis. You need to get that model right, the business model right. So it took us one- year to fine-tune and start to offer services.
I think from now, second half of this year, we believe that we've gotten fine-tuned the business model, and there are anchor clients will be coming on board, and we'll be able to scale this in a manner that is matching the revenue and cost. We are not taking on too much risk in terms of liability of building big GPUs and empty GPUs without people coming in. This is going to be more. We are going to be very careful in terms of building capacity, and we'll only do it when we have got a sure offtake of customers at the back end. Finally, Paragon, enabling the 5G Edge and the AI. This is really the glue that stitch the whole Digital InfraCo together from building the base station, the connectivity, and all the way up to offering services.
As you see, all the OpCos are focused on AI. I want to share this approach of how Singtel look at AI and what we are doing in the various units, as we embark on this AI journey. Many companies are adopting AI and going through experiments and pilots of different functions. We have also done that in the last two, three years, and I'm sure every OpCo have done it. More recently, we have taken a holistic approach at a group level and say, "How do we really embrace AI and make an impact by deploying AI at scale?" This is the approach that we're going to take. First, the two operating company of Singtel and Optus as a operating company, starting with Singtel first. We're going to look at how we adopt AI at scale across all functions within a telco.
Essentially looking at how a telco can operate hand-in-hand with AI beside us. It cut across every functions from marketing, sales, customer service, network, IT, corporate functions. If you then deploy AI across, you will get the benefit of sharing a lot of the investments, when you're building it, as opposed to building it in silo that I'm only doing it for call center, I'm only doing it for sales, I'm only doing it for network or IT. When you embrace AI at scale, you get a benefit of sharing the foundation that you have built. As you bring the AI models to your data, then you can actually scale in terms of applications a lot faster. Of course, the outcome is improved productivity, increasing revenue and improved customer experience.
As a telco, we say this is how we're going to run a telco with AI. To support that, of course, NCS is really the builder and the provider of AI. As I shown earlier on NCS Intelligentization, the first I is really about helping companies and agencies to adopt AI. NCS in this case will be one of the partners, a strong partner for Singtel and for Optus to build its AI capabilities and solution. Finally, Digital InfraCo, Nxera, RE:AI is an enabler of AI. Besides enabling other companies, providing GPUs, providing data center, it will also provide the same foundation for Singtel and for Optus to scale AI. If you look at it, every unit is actually part of embracing AI, and we will be deploying our resources and investing in this area.
You will not see a big outcome in this FY, but in the following one year, two years, you will see the benefits of AI coming through. Across the four associates, I will not go through every one of them because again, you can ask, but these are some of the focus areas that they will be zooming in on. They will be looking at improving, of course, mobile ARPU, looking at driving up adoption of fixed broadband, penetrating deeper in terms of enterprise revenue. Many of them have also co-invested with us on data center, and that is something that they will continue to push, whether it is in AIS or Telkomsel or even in Globe. That is one of their focus in driving growth. Some are quite basic and fundamental, but getting back to basic is good.
Going back to core, executing, at a core level to simplify our operations, simplify our process. These are equally important than driving new innovation and services because, especially when you are competing on cost, or lower cost structure, having a simplified network, simplified process, simplified operations will put you at a position of strength as you compete in a very aggressive marketplace. The good news is we are seeing market repair almost across all the four markets, and these are positive signs. There is a trend that we are seeing in the region that we are operating in. Somebody asked me for outlook. We are not changing our outlook. This is the outlook we have given for the coming year. On the EBIT on the OpCo, high- single digits. The first quarter, we delivered 10%- 11% on the constant currency.
Cost out, SGD 200 million a year, and we are on track for this FY. Regional associates dividend, SGD 1 billion for the year, and we have collected SGD 600 million in the first quarter. Finally, CapEx, in total SGD 2.5 billion. I think these are on track. We will do a refresh in the midyear term, but it is all looking on track. In the medium term, ROIC in double digit. I think last year, if you recall, we ended at 9.8%. I think if delivering this consistently, we will hit our medium target pretty soon. This is about all. I will hand over to Arthur to talk about it and then come back for Q&A later.
Thank you, Moon. Hi. Good morning, everyone. Nice to see all of you. Just to pick up from where Moon left off on the previous slide with regards to our first quarter numbers. I think at this point in time as I think some of you were expecting some form of revision of guidance, it is way too early in the financial year, right? The amount of uncertainty there is out there is, I think, as Moon said in our first half numbers, we will relook at that more carefully. It is still very important to really send a message out to the market is are we on track towards the ST28 plan that we have shared with you last year? Just to recap, I think you all are very well aware of this ST28. The essence of the strategy is really a two-pronged strategy.
Just to remind everyone, it is just fundamental operating performance. We are not going to kid ourselves. No shiny new toy or anything that we want to focus on. It is really just pure execution for our performance from our four OpCos and our four regional associates. The second bit is we are operating in a very capital-intensive industry, whether it is data centers or whether it is the telco business. Active capital management, including returning capital to our shareholders, is something that is still very important as the second pillar of our strategy. So where are we on this? I think Moon touched upon the operations. I think you will hear from a lot of our colleagues across the course of today. We are seeing improving operational performance. That will continue, and if all goes well, I think ST28 is definitely on track.
The key ones that really move the needle that will help us over the years continue this path of dividend growth is really, well, I think you all know we have to look at it in terms of our capital committed to the individual businesses as well as the improvements in EBIT, which lend to improvement in ROIC. Focus is also on free cash flows, not just ROIC, in order to actually generate and be able to pay more dividends to our shareholders. So if you look at what takes us to the ST28 vision. It is really the very large businesses, Optus. Optus, as you know, as Moon talked about, is starting its turnaround. That has to continue, and I think you will talk a lot with Stephen and Michael later today at the Optus session. The other large entity is Airtel. Gopal is here today with the team.
You will talk to him about India and the India turnaround. We still strongly believe in the Airtel story and the digital India and all that, and we will continue to grow and contribute to our EBIT and to our ROIC and to our underlying NPAT. I think the other bits that are also very important is Singapore. I think with potential market consolidation. When I say potential, because it is announced but not approved yet. There will be continues to be, hopefully, a market repair. Tian Chong will talk a lot more about what is the plan for Singtel going forward in the new market environment. These are the very big telcos that move the needle. Then we have our associates, Telkomsel. I think we are emerging from a difficult period, and I think the next few years, Bang Nugi and the team will share more with you.
At the same time, if you look, AIS is actually coming up very quickly. In terms of, I think we are seeing tremendous market repair in Thailand. So at this point, and of course, like all good management and responsible management, notwithstanding any unforeseen circumstances, we always need a caveat. I think we are well on track on ST28 in terms of fundamental operational execution. So it is always our intention to actually grow dividends on a very sustainable basis. When I say sustainable, we do not borrow to fund dividends. It has to be driven from our two fundamental pillars, operational performance, as well as active capital management. So I think you are very familiar with this. This is the breakdown of how we pay out our dividends, our ordinary dividends, or rather, how do we return capital to shareholders. The first one is our core operating profits.
This is really underlying profits. If underlying profits grow, even at the same payout, we will be able to increase the DPS out of the core dividend. I mentioned earlier, if the operations, all the various OpCos and associates continue to improve, I think we are quite optimistic about the growth of the core dividend bit. The question, of course, is what is next? Post-ST28. Today we are going to spend a bit of time to give you a glimpse of what could be post-ST28. The other point is, of course, the value realization dividend. Value realization dividend, as you know, is SGD 0.03-SGD 0.03 per year, and we have actually committed to pay out in the medium term. The question is, how many years is the medium term? What happens if the VRD finishes up? For us, our view is the core dividend needs to grow.
It has to take over one day. We need to wean our investors away from the VRD. Rest assured, the VRD will stay for a few more years, and we will talk about it later. In the next few slides, we will talk about the direction and the amount of the VRD. Finally, the value realization buyback. This will fundamentally improve DPS. It is not a one-time return on capital. The reason is because we buy back the shares, we are going to cancel the shares. That reduces the denominator, which helps EPS and DPS going forward. We do expect every year, if we just buy back, I think there was a research report that talked about it. It is about 1% improvement every year if we do this buyback quite consistently.
That is really our breakdown of our three aspects of capital return, which leads to a healthy DPS CAGR. I would like to talk about the first one, which is the core dividend. This is the core dividend, which is based on underlying net profit. We typically look, of course, at underlying net profit. That is where our core dividend 70%-90% payout policy is based off. A good proxy of that will, of course, be EBITDA. The reason we use EBITDA, because there are differences in depreciation and all the tax and everything, but we just focus on core ability to produce cash flows. We actually have a sense. I talked about from now to ST28. I think operationally, we are on track as we have talked about.
Post-ST28. In the next five to seven years, we have a sense with the momentum that we are seeing in our core businesses, meaning the telcos. We actually do see the red portion going up. We have always talked about growth engines. I think one of the key feedback from investors is, "Yes, I like your growth engines, but how fast or how much are they growing?" I think you will hear, we have spoken before that Nxera, after the Tuas data center is stabilized, after a few more builds in Thailand and in JB and in Batam, we will be able to double EBITDA in the next few years. That is something in the pipeline. In addition to that, I think there is a focus to actually grow our growth engines more.
The reason is because our core businesses one day, with all the momentum we are seeing, one day many of our businesses are in mature markets. There will come a time, five, six, seven years from now that it will stabilize at, call it a mid to high- single digit type of growth. The growth engines will be able to come in, and that is where all the things like our data centers will kick in and will start contributing EBITDA. That is the directionality and the path that we are seeing to continue to improve underlying profits, which helps the core dividend. Inorganic growth is something that we are focused on, particularly for our two growth engines. Singtel in Singapore is continued price rationalization in this new market.
Tian Chong will share more about some of the new revenue streams that he is exploring, especially given the superiority and the strength that we have in our network against our competitors. Optus, as we said, we are targeting a high- single digit ROIC. I think you all know where Optus' ROIC was in the past. Moving it to high- single digit actually moves the needle for the entire group, given the size and scale of the company. This is really how we are looking to target the improvement in our core. As the core grows, underlying NPAT will grow, which means at a certain rate, we will be able to grow dividend. All this I would say is a directionality that we are moving. It will depend on accounting policy, it will depend on the situation at that point in time, but we are actively looking.
One more point I should also call out is we do believe in capital partnerships. That means leveraging on private capital. For certain asset classes, it makes sense to actually work together with private capital to fund the growth of our business, because at certain points in time, public capital doesn't make sense. For example, today, we built the Tuas data center using public capital. We issue a rights issue or we cut dividends. I don't think the public investors would like that. So we rely on private. Of course, it has to come at a good cost to us. At the appropriate time, we flip that over, and when its cash flow stabilize and its cash flow generating, that is where public capital can step in. So that is how we look at it. The other area is our VRD. Is it sustainable?
How long more can we sustain this? You know it is SGD 0.03-SGD 0.06 . Just to remind people that SGD 9 billion asset pipeline that we have came out, I think we came out the last time we announced our full year earnings. It is SGD 9 billion. SGD 4 billion is already in the bag. We did some asset recycling last year, including a sale of a small stake in Intouch. In May, we sold 1.2% in Airtel. That was about SGD 2 billion. So SGD 4 billion out of the SGD 9 billion has been achieved. Of course, we are targeting to reach that SGD 9 billion target, I would say, in the next few years. I rest assured that pipeline is something that is much larger than SGD 9 billion.
I think we have publicly said a few things on where this SGD 9 billion will come from. We have said publicly that in the medium term, that means a few years, both us and our Indian partners, Sunil Mittal or Bharti Enterprises, will look to equalize our stake in Airtel. Today, that difference is about 6.5%- 7%. You can do the math. If the price continues to move up, it is probably about SGD 12 billion-SGD 13 billion. We will do it in a very, very measured way. We are in no hurry to exit Airtel or to equalize that stake anytime soon. It has to always be driven by what is the best alternate use of that capital. In addition to Airtel, this is not just Airtel that will solve for the SGD 9 billion. We have potentially stakes in Optus or regional associates.
We have non-core assets, we have infrastructure assets. This is something I can tell you, the universe of assets that we could recycle is more than SGD 9 billion. We will actively look to see where we can get the best value for the recycling. We have got a strong cash balance of SGD 4 billion. At the same time, don't forget, we have our regional associates who are doing very well. Each of them is starting to improve on the dividends. AIS, Airtel, Globe. They are all improving in terms of their dividends, and this is something where we could have additional capital and additional cash from our associates. This gives you a breakdown of that SGD 9 billion. We talked about the VRD. It is up to SGD 5 billion. If you do the math, we said SGD 0.03-SGD 0.06 .
That is about SGD 450 million- SGD 900 million in cash. Or thereabout. Rounded up, SGD 500 million- SGD 1 billion. We have capped the psych at SGD 5 billion, which means that if we, for some reason, decide to pay SGD 0.06 every year. Last year we paid SGD 0.05. Or around SGD 0.05. If we pay SGD 0.06 every year, that is SGD 1 billion a year. We actually can sustain this for another five years in terms of our VRD. Based on that, it could go up to theoretically fiscal year 2030. That is just the VRD. We are looking at a share buyback of SGD 2 billion as we have announced. The remaining part is we need to use some capital to fund growth initiatives, particularly in the growth engine space.
We will do this based on, of course, a very disciplined fashion and really leveraging on the future view of how we can actually change the mix of Singtel Group and the complexion of Singtel. This is something I think it is worth calling out, that the VRD can sustain for a much longer period of time if we want to. There is an equal emphasis on improving our core performance and our underlying profits over the next few years, such that the core dividend can also grow. This is the share buyback. I would not spend too much time. I think we have shared it before. We do intend to leverage on the buyback in the next, I think we have committed to three years, right? Over SGD 2 billion over three years, and we will look to cancel the shares. That will improve EPS and DPS.
Finally, this is my final slide before we go into. Okay, there is another item that we want to show later. Maybe to summarize Singtel, I think we are operating in a very tumultuous, uncertain environment. At the same time, you see a lot of trends that are coming. One is, broadly speaking, the telco world, I think, is moving into a good space. There seems to be market repair coming back almost globally. The capital intensity in the industry has fallen, right before, hopefully, the 6G cycle will come many years from now. I think also equally important for Singapore, the de-dollarization trend is really helping a lot of Singapore dollar assets. At the same time, if you look operationally, we have very resilient cash flows. Our business is not impacted directly by any of the tariff wars.
We could suffer a bit of second-order implications, but definitely not first order. Cost efficiencies, the company is trying to get leaner, trying to improve free cash flows and ROIC. With disciplined CapEx, I would say our cash flows will continue to be disciplined and sustained, and we will continue to see that being resilient. On the balance sheet front, our balance sheet is probably or the amount of debt is probably one of the lowest that we have seen for quite a while. Our interest coverage ratios, our fixed rate debt continues to be very strong, and we continue to want to maintain a strong investment-grade rating. I should also call out that despite FX volatility, the Singapore dollar , as you know, has been very strong in the past two years. That has impacted us on the P&L.
I think all of you know it is very hard or it is not possible at all to hedge the P&L bit, but what we do is we hedge all the dividends that come in from our associates. This is something we do very actively to hedge it, so we try to minimize the impact on our earnings with regards to the FX. Dividend, we continue to be committed to growing dividend on a sustainable basis through our VRD, through the improvement on core, through the buyback program. Finally, I think if you look, it is as Moon started the day, if you look at our OpCos and associates, we are at this stage where actually we see multiple engines firing up. I think things are finally turning around, and I think we are quite confident that we can continue this momentum.
Of course, there will always be certain speed bumps that we will face. If you meet our colleagues today for the rest of the day, I think you will see that there is a laser focus on improving cash flows and return on capital.