Today, let us look at SingTel. Before we look into whether the current Singtel share price is a good price to buy, or decide whether Singtel is a fundamentally strong stock for investment in Singapore for beginners, let us dive into its business model.
If you think Singtel is only a telecommunication company, you are wrong! Singtel has a huge presence outside of Singapore and has over 70% of its earnings overseas. Singtel’s telecommunication business model has expanded to cyber security, digital marketing services, smart city solutions as well as cloud solutions. By the way, we also wrote an article on 800 Super Share Price and Viva Industrial Trust (VIT) if you are looking to invest to make passive income in Singapore.
Singtel Business Model
They have categorized their business model into 3 parts:
- Delivers range of services from entertainment and mobile payments, to smart living on any devices, also focuses on faster connections
- Mobile data plans and boosting network speeds (5G)
- Delivering premium services e.g. FIFA world cup and esports streaming
- Provides solutions to help enterprises embark on their digital journey
- Deployment of cloud services, cyber security, analytics, Internet of things (IoT) and smart city solutions which enhances quality, performance and interactivity of services.
Group digital life
- Helps marketers better engage their audience online
- Provides data analytics services
- e.g. Amobee, which provides marketing services and offers customers new programmatic solutions of improve effectiveness of their campaigns, HOOQ (Video digital streaming services) and Dataspark, its advanced analytics arm
Singtel provides telecommunication and digital services to consumers and enterprises, with a keen understanding of the unique needs of the region’s different markets. Together with regional associates AIS, Airtel, Globe and Telkomsel, the Group’s presence spans Asia, Australia, Africa as well as the US. The Group(Singtel) offers different types of mobile services including a subscription-based model, just like how we buy our own mobile plans. The types of cost involved to operate its telecommunication service are as follows:
- Cost of operating datacenters and switching centers
- Cost of acquiring/leasing land to build cell sites
- Costs involved in laying the fiber optic/support network
- Charges paid towards inter-operator and international roaming
- Costs involved in using third party services e.g. the use of a software system to handle new customers handling or billing
Of course, Singtel has its competitors in its telecommunication services. As we can see from the extract from Wikipedia, many of the service providers are under the same operator. E.g. Circles.Life is a MVNO on M1’s network. MVNO – Mobile virtual network operator is a wireless communications services provider that does not own the wireless network infrastructure over which it provides services to its customers.
An interesting article over a fire at a SingTel facility in Bukit Panjang.
Majority of Internet services and cable television are actually leased out by Singtel. Now we know who the King of the Telco business is.
Economic Moat/Investment Moat of Singtel
In Singtel’s telecommunication business, the company has a low switching cost in it mobile plan business, which is the termination fee incurred when a customer decides to terminate his mobile plan before expiry. For example, I would have to pay a fee if I were to terminate my mobile plan before the renewal date. The switching cost for mobile plans is weak and temporary as most mobile plans have only about 2 years before expiry.
However, the bundle packages that includes the broadband connection and television services such as MioTV and our WiFi connection at home, brings a higher switching cost as it would cost the consumer a lot of trouble to switch from SingTel to other telco services.
Also, many consumers choose their telco services depending on whichever has the lowest price and the better mobile plan, thus there is little to no loyalty or ‘stickiness’ to its service provider. When Circles.Life first started operating in Singapore and introducing their attractive mobile deals (unlimited data roaming), something which Singtel did not offer back then, there was a noticeable amount of people who switched their provider over to them. However, I noticed that in its initial stages, there was a bridge of trust that has to be established between consumer and provider first, before more consumers started switching over.
Overall, I feel that the telecommunication business has a weak moat despite the growing industry due to the growing internet sector. It is important to know how to identify companies with wide economic moats.
However, Singtel has expanded its presence in many different countries and is also currently providing many other services such as cyber security, cloud, data analytics and digital marketing. Diversifying its business outside Singapore makes business sense in this situation because of the tough competition of its telecommunication business in Singapore. Moreover, Temasek Holdings (Singapore government) has an interest of approximately 52% in Singtel. Meaning to say that Singtel is being ‘protected’ by Singapore’s government.
Singtel Financial Numbers
Return on equity (ROE) has been consistently more than 15% for the past 10 years, which means that the company has been efficient in generating returns with its own equity consistently.
The debt/equity ratio is at 0.26, a very healthy level of long term debt. Looking at the current ratio, it is below 1. This means that Singtel is unable to pay of its short-term debt with its current assets (assets being able to be converted to cash within a year). However, there is something assuring.
The change in working capital has been decreasing for the past 5 years, and this means that the company is using less cash to operate its business. A good sign.
Stable and increasing dividends for the past 10 years with a healthy payout ratio.
Variable bonuses include performance bonus as well as Value sharing bonus. (A portion of Senior management’s remuneration is tied to the economic profit performance of the group in the form of Value sharing bonus, which is used to defer their bonuses a time of horizon to ensure alignment with sustainable value creation for shareholders.
Because Singtel controls a 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, and with the with Temasek Holdings having an interest of 52% of Singtel, I feel that it is not easy for newer competitors to disrupt SingTel significantly such as TPG Telecom. Moreover, the Singapore government will take the necessary actions to help if Singtel were to be in hot water.
However, in an unlikely case of Temasek Holdings selling off its 52% stake in SingTel, SingTel would definitely be exposed to more risks.
Moreover, Singapore has set it sight on being a Smart Nation through by further developing the Internet of Things. (IOT) A Smart Nation is one where people are empowered by technology to lead meaningful and fulfilled lives. Through harnessing the power of networks, data and info-comm technologies, we seek to improve living, create economic opportunity and build a closer community.
SingTel is supporting Singapore heavily in this area and because of that, I don’t see Temasek holdings selling off its huge stake in SingTel in the near future.
Aiming for at least a 5% dividend from SingTel, entry price would be at $3.40.
Singtel’s current dividend payout is at $0.17 per share. ($0.17/5 x 100) Current SingTel share price is at SGD3.11 as of 19 August. In other words, it’s undervalued right now with very consistent and attractive dividend payout. To learn how to buy stocks in Singapore, start learning how to analyse them first!
Investment in Singapore for Beginners
Chloe Lin, the founder of Invest Travel Play (ITP), was featured on Singapore national papers 联合早报 (Lian He Zao Ba) on 22 Aug 2018, which she actually shared a simple strategy to help readers to start investing safely with just $360!
If you are looking for investment in Singapore for beginners, and are interested in learning how to make money safely and consistently from the stock market, check out Supercharge Investing Acceleration Program and it’s Skillfuture credit claimable. SIAP is a 2-day workshop that teaches students how to perform fundamental analysis on stocks and ultimately, decided whether to invest in certain stocks. Moreover, SIAP will also be teaching options strategy, a derivative which combines investing and options to increase your return on investment. If you are interested, check out SIAP now. Use “ITPfriends” as a discount code to get it at $535!