Review of SingTel H1FY2022 Results

SingTel released their FY2022 1st half results today before market opens.

 

I have been looking forward to this due to the many positivities surrounding SingTel recently and indeed, the results are impressive though with certain weaknesses if we delve deeper.

 

Comparing to the corresponding period (H1FY21) last year,

 

Revenue

Increased by 3% driven mainly by the Australian business, NCS and Amobee.

 

EBITDA

Largely stable. Contribution from Australia consumer is offset by the decrease in Singapore consumer and NCS.

Associates Contributions

Regional associates which have frequently been a cash cow for SingTel, deliver 21% increase in pre-tax profits due to a strong turnaround by Airtel which saw operation improvement in their India and Africa markets.

 

Underlying Net Profit

 

Increased by 17%. For dividend lovers myself included, this is the figure to pay attention to since SingTel will be paying dividends based on 60% - 80% of its underlying net profit.

Net Profit

More than double the net profit (105% increase). What more can I say?

 

FCF

 

Free cash flow which I've always pay close attention to, improved 4% to S$1.771 B driven by Australia and the associates. Contribution from Singapore market actually fell around 10%.

Debt and Gearing

Net debt decreased by S$1.4 B and consequently, gearing has been reduced to 29% (compared to 32.1% last September).

This is good considering the anticipated CAPEX for the digital bank and continual business restructuring.

Since SingTel has not announced any special dividend for the net proceeds from divestment of Optus (~A$1.9 B) and Telkomsel (S$200 M) towers, I think they will be conserving this cash for the said capital expenses.

ICR

Interest coverage also increased to 14.8 times as compared to 13.3 times in last Sept.

CAPEX

SingTel has guided that the capital expenses for FY2022 will be around S$2.4 B. This should be well covered by the capital recycling which they have undertaken as mentioned above as well as the debt facilities on which they should have sufficient headroom with their A1 rating from Moody's.

(S&P gave an 'A' rating as well but with negative outlook although I believe this is last year's figure. Fitch gave an 'A' with stable outlook.)

 

Dividend

 

Interim dividend of 4.5 cents per share is a reduction of 11.8% from last year's 5.1 cents per share.

 

Looks like the new CEO, Mr Yeun Kuan Moon is a conservative man.

 

Assuming the full year dividend is reduced by the same margin, that will translate to 6.61 cents per share for total dividend. Is SingTel transiting from a dividend counter to a growth one?

 

Anyway this is only an assumption and the final dividend is very much dependent on the 2nd half results as well.

 

Personally I don't think it will go to that.

 

It has also been mentioned that barring any unforeseen circumstances, the Group expects to pay dividends at the upper half of its dividend policy range of between 60% - 80% of underlying net profit for FY22.

Let's see how it goes.

 

Since this round of dividend is a 76% payout, it translates into S$747.08 M which is about 42% of the free cash flow generated during this half.

This is well covered and sustainable.

 

Special Mention

 

Since I have always been an environmental person both professionally and personally (I run an environmental engineering company), I like to pay attention to companies' ESG efforts too.

I like that SingTel has pledged to cut their greenhouse gases emissions by 42% by 2030.

Challenges

The Singapore consumer market remains a challenging one for SingTel with their revenue contribution falling slightly and EBITDA falling by 5% in this half.

 

NCS saw its revenue increased by 5% but their EBITDA actually fell 21% although this is partly due to lower JSS distribution from the government.

 

Free cash flow contribution from Singapore market fell around 10%.

 

Possibility of deterioration of Covid-19 situation across the various markets.

 

Future Catalysts

 

Moving forward there are several catalysts that we can look forward to (pun intended : ))

 

Contributions from data centres. SingTel is projecting a ~170 MW data centre capacity in 3 to 5 years time, up from the current ~70 MW.

Earnings boost from Singapore digital banking operations from 2022 onwards.

 

Possible digital banking license win in Malaysia.

 

Continued rejuvenation of their business especially their pivoting into ICT and digital services.

 

Capital recycling (hopefully with special dividend) by offloading non-core assets. SingTel has guided a figure of S$2 B excluding the Optus divestment. So it is almost certain that we will see more divestments coming.

 

Continued improved performance from associates especially Airtel.

Takeaways from M1 AGM 2018

M1 AGM 2018

Date: 11/04/2018

Duration: 2.30 - 3.55 pm

Turnout: Full house (I nearly couldn't get a seat until an M1 staff led me to an empty seat at the 2nd row.

Questions from the floor

Q: Explanation for the higher EBITDA and lower net profit.

A: This is due to higher amortisation* for new investments such as narrow band internet of things (NBIOT).

* rightfully EBITDA should be before amortisation.

NBIOT is largely for B2B. Earnings from this segment takes time as things like smart meterings, smart lamp posts, smart flood monitoring, etc takes time to develop.

Q: How will M1 defend against the new Telco entrant?

A: M1 will continue to invest in their Telco business. However they do not intend to engage in price war.

Q: Can M1 diversify from its traditional source of income to reduce its vulnerability?

A: M1 is actually quite glad that they are not in the pay-tv segment due to players such as Netflix.

M1's fixed services grew 24.5% and M1 is pushing on that area.

M1 is not sitting just on mobile. They are looking for opportunities such as acquisitions.

Q: Can M1 lower their CAPEX than that of TPG's?

A: TPG stated their CAPEX as $250 M. However M1 estimated the figure should be $500 M instead.

Moving forward M1's CAPEX will be around $100 - 120 M.

Q: How does M1 intends to deal with the ~$200 M spectrum fee paid?

A: Amortise it over 15 years.

Q: How will M1 handle the high cost of interest payments to avoid affecting the dividends payout?

A: M1 has short term facilities to use.

Rights issue is not likely unless it's a last resort.

M1 used bank loans as those have the cheapest cost among all options including bonds.

Q (interesting as it tells us the operational readiness of TPG): Status of TPG now?

A: TPG has 200 base stations now. Some of them are interconnected.

M1 has 2,500.

Q: M1 already has a $450 M bank loan. How does M1 intends to fund the new spectrum?

A: M1's gearing is still low compared to the Telco industry. They can still borrow from their short and medium term facilities.

Q: How does M1's board feels about M1's future in the next 5 years which are challenging?

A: Acknowledged that next few years are indeed challenging.

They will be controlling costs.

M1 also has avenues to increase revenues but these take times.

The suffering revenue from mobile segment can hopefully be covered by these new sources of revenues, which might even be more than that of the mobile segment.

Q: How does M1 retains customers instead of them porting around?

A: Through sunrisers for high spenders, sunperks points and multisaver discounts.

M1 is also the Telco of choice for MPA due to their superior 4.5G network.

Q (this is my favourite question among all): What is the growth plan of M1? Does M1 intends to venture overseas? There's only one new entrant and yet M1's share price has fallen by half from its peak.

A: M1 is apprehensive about the start up costs of venturing overseas.

Telco industry is high cost, not like setting up a bank overseas.

Telco industry is also a highly regulated one to enter.

M1 has to be realistic about their financial capability. To raise funds for overseas venture, M1 has to ask money from the shareholders and the 3 major shareholders have to agree first.

However there are many ways to expand abroad. One way is through partnerships. E.g. to bring M1's IoT capability to the overseas market.

Q: CAPEX is high last year. How does M1 intends to arrest that?

A: M1 is investing for the future. And that is reflected in the high CAPEX and acquisitions.

Moving forward, estimated CAPEX will be lowered to $100 - 120 M per year.

Comment from one of the shareholders: M1's website is old-fashion and doesn't appeal to the younger generation.

Resolutions: All passed.

The above are what I have garnered. I have probably missed out some questions as I was focusing on the replies from the board. I have also left out some which I feel is not that important.

Summary and my thoughts

M1 is reluctant to expand overseas to be a full fledge Telco like what TPG has done in Singapore. This is due to their financial capability.

This in my opinion, is a double-edge sword. 

By doing so they are limiting their growth as Singapore is only this big. However this also limits their risk to external environments of which a single mistake might wipe out all the cash generated so painstakingly especially since their financial capability is not big.

For M1, their focus now is controlling costs and continue to build on to their mobile base. Growth comes from their new initiatives such as the IoTs which I personally find promising in terms of being a new revenue driver for M1.

Personally I will continue to stay vested in M1 since the dividend yield is still attractive while I awaits the contributions from the new sources.

Recent Action - Comfort Delgro

Bought 2,000 shares of Comfort Delgro (CDG) at $2.38 as my first tranche yesterday morning after putting it in queue on the previous night.

The counter has fallen below my target price for buy in recently and my first thought was maybe I should enter after their latest financial results are released on this Friday.

However I decided to do some study on their 3Q16 results.

In summary the 3Q results are not bad but not sterling either. In other words, the business remained quite stable.

Likes:

Stable operating profit.

Net cash position.

Gearing remains low.

Capex was lower compared to 3Q15. This shows the company is putting effort for sustainable growth.

Diversified businesses including non-vehicular business such as 3rd party testing house, Setsco.

Concerns:

Decreased revenue from bus BU due to the new Bus Contracting Model.

Taxi BU will continue to face headwinds from Uber and Grab. But I trust CDG will take reactive measures to tackle this. Furthermore Uber and Grad drivers are required to get a vocational license by this year.

Also expected decrease in revenue from other BUs such as the bus station, automotive engineering services, inspection & testing services and car rental & leasing should be able to be offset by the increase in revenue from the rail business especially as riderships on NEL and DTL continue to grow!

Going to ride on NEL and DTL more frequent!

CDG share price as of point of writing is $2.43.

I probably got lucky as news came out yesterday on the mandatory requirement for private-hire car drivers from operators such as Uber and Grab to get vocational license.

Hopefully the latest results on this Friday would be favourably viewed by the market as well.

Good luck and cheers to all who are vested.