SingTel reported their FY2019 full year results yesterday. With it being my largest holding in my portfolio, I obviously have a vested interest in SingTel’s performance. Here are some highlights.
A Mixed Bag
Year on year
Operating Revenue is flat-ish year on year. Unfortunately, EBITDA margins have been falling and associates pre-tax earnings continue to be under pressure. Underlying net profit drops 21%. Nothing too unexpected, very much in line with guidance and past few quarter’s expectations.
Quarterly trends
As investors in SingTel, we have to be on the constant lookout for signs of a turnaround. Share of Associates’ Profits are on the rise in the past 3 quarters, but is still down year on year. Underlying profit, EBITDA and Net Profit is slightly trending down to flattish.
We’ll have to see if associate profits continue their upward trend in FY2020 or reverse the trend downwards.
Dividend remains sustainable
While dividend payout exceeds net profit by a bit, Free Cash Flow is atill able to cover the dividend for FY2019. Balance Sheet remains strong with limited debt.
Based on guidance, Free Cash Flow plus Dividends from regional associates of $3.3b will barely cover the 17.5 cent dividend.
Do note that FY2020 will be the last year SingTel will commit to a 17.5 cent dividend. If conditions do not improve, do expect a dividend cut in FY2021. This is because their traditional dividend policy is based on a 60 -75% payout of underlying earnings and it is currently paying out much more than that. Fingers crossed things at least stabilise by then.
Soundbites from Analyst call
I listened to the hour long conference call recording with analysts and here some interesting soundbites.
Potential Axiata – Telenor merger impact on regional associates
The analyst from Goldman Sachs was interested in the potential Axiata – Telenor merger impact on regional associate performance.
Management was relatively non-committal, saying that it is too early to tell and that the merger will take a few quarters to clear regulatory approvals. Management did highlight that markets that will potentially have direct impact is Thailand (AIS) and Indonesia (Telkomsel).
5G Strategy
The analyst from HSBC was interested in the company’s 5G strategy in Singapore. CEO Chua mentioned that it is still relatively early as the regulator had just released a consultation paper on this. They are primarily more focused on developing commercial use cases for 5G like autonomous driving. With regards to consumer applications of 5G, the world is still trying to figure out use cases for consumers.
Impact of GOMO
The analyst from Maybank was interested in the impact of the launch of GOMO and if the company was stealing market share from MVNOs.
Management mentioned that GOMO is a digital only product that was launched in late March as such it is still early days. That said, numbers are encouraging and SingTel saw huge take up that was way beyond internal expectations. At the same time, they are currently seeing limited cannibalisation on SingTel’s postpaid plans, probably due to different target market segment.
MVNO market share and pricing
An analyst was interested MVNO market share and pricing impact on the market. Management made an interesting comment that based on their experience in other markets where MVNOs had entered the market with aggressive pricing. They mentioned that this is unsustainable and there comes a point where further price decreases do not affect market share. Management commented that in the past 6 months, despite strong price competition, there is minimal market share movement among the key MVNO players.
Final Thoughts
Overall nothing surprising in the quarter. With dividends likely remaining sustainable for FY2020, GOMO having indications of good uptake and MVNO market share stabilisation, I am hopeful of a SingTel recovery by FY2021. Will have to keep a close watch on this though.
Resources
SingTel FY2019 results and conference call
Past Telco related articles
SingTel Q3 results
Why I won’t invest in Starhub at the moment
Market insights from my travels – India
In case you missed my previous article
REIT Spotlight: AIMS APAC REIT (2019)
Happy Hunting,
KK
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