Your 60-Second Guide To Singapore Telecommunications Limited (Singtel) (SGX: Z74) Shares
In this new series, we will feature one Singapore-listed company each time as a quick guide to everything you should know about it in 60 seconds.
In this instalment, we have Singapore Telecommunications Limited (SGX: Z74), more commonly known as Singtel. Previously, we featured Thai Beverage Public Company Limited (SGX: Y92), a food and beverage company based in Thailand.
What Business Is Singtel Involved In?
Singtel doesn’t need much introduction.
It’s the largest telco in Singapore with 4.2 million mobile customers here.
Other than Singapore, Singtel has investments in regional telcos such as AIS in Thailand, Airtel in India, Globe in Malaysia, and Telkomsel in Indonesia. It also fully owns Optus, the number two telco in Australia, with an overall market share at around 20% to 25% range.
Singtel has three main business segments — Group Consumer, Group Consumer, and Group Digital Life. For its financial year ended 31 March 2019 (FY2019), Group Consumer contributed to the bulk of total revenue at 57%. The Group Consumer business segment consists of its consumer businesses across Singapore and Australia, as well as its investments in the other telcos.
Singtel’s Financial Highlights
The following table shows some key financial highlights from Singtel for the past five financial years:
|Revenue (S$' million)||17,223||16,961||16,711||17,268||17,372|
|Net profit (S$' million)||3,782||3,871||3,853||5,473||3,095|
|Underlying net profit (S$' million)||3,779||3,805||3,871||3,593||2,825|
|Free cash flow (S$' million)||3,549||2,718||3,054||3,606||3,650|
Revenue has barely budged from FY2015 to FY2019 while underlying net profit (which is net profit excluding one-off items) has fallen from S$3.8 billion to S$2.8 billion.
I know I’m being Captain Obvious here, but the lack of revenue and underlying net profit growth shows that Singtel’s core business is struggling to scale to new heights. In fact, FY2019 net profit of S$3.1 billion hit a 16-year low.
Last month, Singtel posted its first quarterly loss of S$668 million for its second quarter, reversing a net profit of S$667 million in the same quarter one year back. The loss was largely due to Airtel’s exceptional items in the tune of S$1.93 billion. Excluding Airtel, net profit would have risen by 4%.
Singtel’s Dividend History
Singtel has been a dividend darling for investors. It has maintained its total ordinary dividend (excluding any special dividend) for the past five years, as shown below:
|Year||Total dividend per share (Singapore cents)|
(includes special dividend of 3.0 cents)
In its FY2018 annual report, Singtel noted that it “expects to maintain its ordinary dividends at 17.5 cents per share for the next two financial years and thereafter revert to the payout ratio of between 60% to 75% of its underlying net profit”.
Accordingly, Singtel’s dividend-fate lies in how well the business does from FY2021 and thereon.
Major Risk For Singtel To Take Note Of
The main business risk for Singtel is stiff competition in the telco sector, be it in Singapore, Australia or the regional markets. In its FY2019 annual report, Singtel’s chief executive, Chua Sock Koong, commented:
“We have executed well and gained mobile share in our core markets in Singapore and Australia against intense competition. However, the past year was far from business as usual. Our results were affected by carriage pricing erosion in the enterprise segment and challenging conditions in India and Indonesia. Competition intensified across virtually all our markets as operators jostled for market share while advances in technology continued to disrupt the telco industry, putting more pressure on prices and return on investment.”
Investors should keep a close eye on how Singtel plans to grow in the years ahead.
Singtel’s Share Price And Valuation
Singtel’s shares have been punished in the last five years:
At the time of writing, Singtel’s share price is at S$3.46. At that price, Singtel has a price-to-earnings ratio of 39 and a dividend yield of 5.1%. The telco’s dividend yield looks enticing, but investors have to analyse whether its dividend is sustainable going forward, especially given the keen competition in the telco space.
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer does not have a vested interest in the companies mentioned.
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