Saturday, 7 January 2017

Potential Munchies? - Singapore Telecommunications (Singtel)

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Even though stocks have been generally recovering the past year (after the scare of China's slower growth, with Brexit, the Italian referendum and the US elections along the way), surprisingly telcos have not been doing well.

Of course this may be due to the nature of the telco stocks, which mainly suit the appetites of dividend seeking consumers. With rising interest rates, yield seekers would be attracted towards deposits and bonds, as the difference in yields between dividend paying stocks and deposits/bonds is now lowered, resulting in dividend paying stocks becoming less palatable due to the risks involved as well.

In addition, mobile penetrance is so high in Singapore at the moment, with the Infocomm Media Development Authority reporting that it currently stands approximately between 140-150%. What this means is that on average one singaporean has 1.5 mobile Subscriptions (of course this is not true in reality, with some having 0, 1 or 2 or more subscriptions). Furthermore, this figure has declined very slightly in the past few years. What this suggests to me is that, the industry is already fully saturated.

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Most of you already probably know that TPG Telecom, a listed Australian Telco has won the rights to be the 4th Telco in Singapore. TPG, a lower cost provider in Australia is led by Malaysia-born David Teoh, a prominent businessman. If you take a little look at TPG's history, its' earnings has rocketed (and I do mean rocketed), from 100M to nearly 800M in the past 7 years, inclusive of both organic and inorganic growth (from mergers and acquisitions).

Although this says nothing about whether or not it will perform well in Singapore, but it certainly does worry me and probably the other local investors who are vested in local telco stocks to a certain extent. If TPG was able to achieve such phenomenal growth in a similarly competitive industry in Australia, it is somewhat arguable that to a certain extent, significant market share can also be potentially captured by them in Singapore, if they do things right.

(Please note that in Singapore, Telcos;. Singtel, Starhub, M1, provide both mobile and broadband services, this is unlike in Australia, where there are several companies which only provide either)

With all this hype about a 4th telco (note that it was only revealed in December 2016 that TPG won the bid, but they were believed to have a good chance due to their finances), its no wonder that M1's share price has fallen from a high of $2.89 to a low of $1.90 in the past year, whereas Starhub's share price has fallen from $3.97 to $2.73. Singtels share price on the other hand, has fallen from a high of $4.36 to a a low of $3.60. 

I am less worried about the performance of TPG affecting Singtel though, as some of you may already have known, Singtel derives only a small proportion of revenue from Singapore. It is the parent company of Optus in Australia, and has significant investments in other telcos in the region.  Furthermore, I also like the fact that Temasek Holdings currently hold 52.3% of the available shares in Singtel.

Singtel having a strong backer, highly diversified revenue, a good management track record, is evidenced by the relatively smaller fall in share prices as compared to the other locally listed telcos recently, even though the P/E of Singtel and it's dividend yield is significantly greater and smaller respectively, to a significant extent! (I would also like to add that the dividend yield Singtel currently sports is greater than their historical average, excluding special dividends).

This is why at current prices, Singtel is currently on my radar.  I will definitely be looking into buying more Singtel shares if prices start to fall further.

I hope that you have enjoyed reading this post, as much as I did writing it.

Best Regards,
- A 😁


  1. Hi A,
    Good overview of the local telco sector!
    Just wondering, what is your target price for Singtel to enter your position? Thanks

    1. Hi EzHuat,

      Firstly, good to see a fellow blogger here :).

      To be honest I do not have an exact share price target, and even if i were to name one it will be pretty arbitrary. However, personally I will be comfortable with entering when the P/E is below 15, which historically (in the past 5 years), is slightly below the average.

      Also, in the past 3 and a half years, it seems that there was only two periods of time whereby P/E is below 15, possibly a result of the news that China's growth was decelerating, but the share price also rebounded pretty quickly afterwards.

      A P/E of 15 would mean a share price of approximately $3.59, hence I would be comfortable buying in anywhere below the point. But of course, the lower the better :). It has always been difficult to buy in at the lowest point though, so I may possibly try to average down.