Singtel had released its 3QFY20 financial results on 13 February 2020. The financial results are not so rosey, with operating revenue declining 5% to S$4.38 billion due to lower equipment sales, weak business sentiment and spending, continued price erosion in carriage services and heightened market competition.
Net Profit After Tax was down by 24% to S$627 million due mainly to the weakness in the enterprise business, the impact of the final settlement of a gain on the Airtel Africa pre-IPO investment and lower exceptional gains.
| 3QFY20 (S$ Mil) | 3QFY19 (S$ Mil) | % Change | |
| Operating Revenue | 4,378.3 | 4,626.1 | (5%) |
| Net Profit After Tax | 627.2 | 822.8 | (24%) |
As shared previously, 48% of Singtel’s net profit comes from its regional associates.
I am glad that Profit Before Tax from its Regional Associates increased 15% to S$393 million. This was driven by strong data growth across all markets. Airtel’s losses narrowed, on the back of strong 4G customer growth, customer upgrades and price increases in India. Its African operations also saw growth momentum in carriage and mobile money services. The stronger operating performances mitigated higher costs and depreciation from its network expansion.
Debt
Singtel’s Net Debt stood at S$12.4 billion. Net debt gearing ratio stood at 31.7%.
Free Cash Flow
Free cash flow for the nine months was up 8% at S$2.74 billion.
Current Dividend Yield
If Singtel maintains the dividend pay out of 17.5 cents, based on the current share price of S$3.17, this translates to a current dividend yield of 5.52% which I deemed attractive given most REITs current yield have fallen to slightly above 5%.
If Singtel is to cut its dividend pay out to 15.8 cents (based on year 2012), the current dividend yield will be 4.98%.
Note: Singtel has a dividend policy to maintain pay out of 17.5 cents until March 2020.
Potential Catalyst
A joint application with consortium partner, Grab, for a digital full bank licence in Singapore has also been submitted in December 2019. The license will allow them to lend monies to companies. Singtel and Grab will know if their application has been approved by mid 2020.
Would the FCF be able to sustain a DPU of 17.5 cents ?
Hi Shouyi, my own opinion only is that Singtel might cut dividends if financial results doesn’t improve over the next few quarters. Telcos are facing stiff competition in many countries.