Singapore Telecommunications Limited (SGX: Z74) is the largest listed company in Singapore and one of the largest telecommunications companies in Asia. It is also abbreviated as (Singtel) which controls significant market share in Singapore, with 82% of the fixed-line market, 47% of the mobile market and 43% of the broadband market in Singapore.
From the past two years, SINGTEL and two other companies StarHub Ltd (SGX: CC3) and M1 Ltd (SGX: B2F) – have seen their businesses come under pressure due to competition from communication apps and streaming services.
In December 2016, the Australia-based TPG Telecom won the bid for Singapore’s fourth telco license. TPG Telecom is expected to launch its mobile service in Singapore in the second half of this year. As a result, the present stock prices of the company falls by 13.6%.
From my point of view, three reasons why investors might want to consider investing in Singtel now.
1. Diversified business
2. Track record of stable dividends
3. A low valuation
Diversified Business: Singtel is a Singapore-focused company which derives most of its income from overseas. In its financial year ended 31 March 2018 (FY2018), Singtel generated free cash flow of S$3.61 billion, of which only 31.2% came from Singapore. Australia accounted for 27.4% (this comes from Singtel’s wholly-owned Australian telco, Optus). These regional associates include Telkomsel from Indonesia, Airtel from India, AIS and Intouch from Thailand, and Globe from the Philippines.
Singtel’s wide geographic reach means that it is crucial that investors have a more holistic view when analyzing the company’s near- as well as for long-term prospects.
Track Record Of Stable Dividends: Singtel pays a stable dividend along with its expectation of maintaining its dividend over the years, provides assurance for investors about its payouts. In FY2013 and FY2014, the telco paid an annual ordinary dividend of S$0.168 per share. It then raised its ordinary dividend to S$0.175 per share in FY2015 and maintained the ordinary dividend till FY2018. For FY2019 and FY2020 at S$0.175 per share, before it reverts to paying a dividend that comes in at 60% to 75% of its underlying net profit.
Moreover, Singtel’s ordinary dividend of S$0.175 per share in FY2018 is just 79.5% of its free cash flow per share of S$0.22 in the same year (this is based on its free cash flow of S$3.61 billion in FY2018). This ratio suggests that the telco’s dividend is well-protected.
A Low Valuation: The decline in Singtel’s stock price has resulted in the telco trading at its current stock price of S$3.23, Singtel has a price-to-book ratio, price-to-earnings ratio, and dividend yield of 1.77, 14.9, and 5.4%, respectively. For context, the PB ratio, PE ratio, and dividend yield for the SPDR STI ETF (SGX: ES3) are 1.21, 11.23, and 2.86%, respectively. Although Singtel’s PB and PE ratios are higher than the market’s, they are not much higher – furthermore, the telco has a significantly more attractive dividend yield.