Recent Action - Singtel

Publish date: Wed, 14 Sep 2016, 10:01 PM

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.

Singtel (Z74)

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