Wednesday, September 14, 2016

Recent Action - Singtel

The market continues to wobble down today as it hits a level of 2,800 before bouncing back a little.

I took a chance to nibble some shares of Singtel which I bought at $3.85 for 3,000 shares.




My plan was to stock up some purchases when the index hits a level of 2,800 as part of my nibbling strategy and Singtel quickly came to my attention because of the various decent factors which I met my criteria.

Keppel, SCI and Banks are all strong contenders which I would like to add at some point but thought I’d wait out a bit more to get a better valuation than what they are offering now.

I've never previously owned any telcos in my portfolio so this will be the first time I did that.

The nature of the telcos business generally allow them to generate strong cash flow ability and predictable hence valuation doesn't come cheap as compared to the other industry.

For a diversified company like Singtel where they have a geographical presence everywhere with many different divisions, it gets even more difficult to analyze because you really have to consider the many different aspects of their division and the growth/risk they might be exposed to.

Based on my knowledge of the industry, I am not equipped with skills to do that.

My purchase is based on my understanding that the dividend yields and payout will be sustainable while the company is growing their network and overseas operations through their associates and recent acquisitions they've made which will hopefully boost the company's valuation higher than they are now. 

The recent news surrounding the industry regarding the submission of MyRepublic, AirYotta and TPG to operate as the 4th mobile operator will no doubt hurt the market share of the three telcos. 

While this final outcome is still subject to IDA’s approval and the funding still in question, this will almost certainly be bad news for local telco players who will have some sort of market share taken away at some point.

Amongst the 3 telcos, M1 will stand to lose out the most given its dependency on pure Singapore earnings. Starhub followed closely behind with earnings forming around 70% coming in from Singapore. Singtel on the other hand, will be the least likely affected due to its diversified nature of the business, both locally and regionally. Singtel’s mobile earnings from Singapore makes up around 11%. 

Post balance sheet after acquiring stakes in Bharti and Intouch deals stand at 1.1x net gearing and P/OCF at 18.5x which I think still offers very decent value play.

The mobile network division has been in a lot of spotlight recently as the telcos are ramping up their capex to improve on their network. Last we've heard is they are fighting it out to become the first operator to operate on a 4.5G network.

The spin-off of the Netlink Trust next year is also a catalyst which I’m looking for since Singtel has a habit of paying out special dividends to shareholders when the right time comes.

Let's hope this works out.

9 comments:

  1. I went in with M1 instead to take the risk that it will rise back up stronger. In terms of a 4th telco, it's going to be rather difficult. The newcomer will need to have huge outlay of capital, office rent, manpower costs, rental of equipment and still enter the market with lower prices to eat into the market.

    If they are only doing mobile services, they need to figure out how long they can withstand the losses in our current wobbly economic situation.

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    Replies
    1. Hi Scopion

      Ah yes M1 may worth the risk and reward as well if you have considered all aspects. Even if there is a cut in dividend, perhaps it wont be as drastic as what the news mught appear. My only preference to singtel is its the big boys proxy to the STI. If singtel goes down, then the STI wont breach higher almost for sure.

      Delete
    2. Hi Scopion

      Ah yes M1 may worth the risk and reward as well if you have considered all aspects. Even if there is a cut in dividend, perhaps it wont be as drastic as what the news mught appear. My only preference to singtel is its the big boys proxy to the STI. If singtel goes down, then the STI wont breach higher almost for sure.

      Delete
  2. I got Singtel at 3.85 too! It went down further to 3.81 on Thursday! Cheers!

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    Replies
    1. Hi Cheryl

      High 5!!!

      And it went up to 3.91 now hahaha

      Delete
  3. Hi B,

    Noticed one of your post in 2012 December show a Singtel Transaction and you mentioned in this post that this is the first time you had vested in Telco. Contradicting?

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    Replies
    1. Hi LCL

      Ah yes you are right. I recall about it now.

      It slipped off my mind as it was a sometime back but back then it was all about just trading in and out only then.

      Thanks for pointing out.

      Delete
  4. Thank you for the analysis!
    Singtel prices have declined to $3.65. Took a small bite.
    May I know if you added any more shares or is this price weakness due to a fundamental shift?

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