Summary of February 2020 Transactions

Today is a special day (29th February 2020). Instead of the usual 28 days, we have 29 days in this month of February 2020, which is also called the leap year. We are also in the second month of the COVID-19 outbreak where it causes disruptions or instability to the current economy.

Earlier this month, the stock market seemed to have ignored the impact of the COVID-19 to the economy. This is based on my observation on the Straits Time Index (Read more: Impact of COVID-19 to Straits Time Index) However, just a few days ago, I observed that the stock market started to react to the impact of the COVID-19 outbreak. It is hard to tell whether the downtrend is short term or long term. The Straits Times Index (STI) closed at 3,011.08 yesterday.

The current situation has proven that we should always have some form of emergency funds that can tide us over 6 months or more should we get retrenched due to financial crisis. Thus, I continued to purchase Singapore Savings Bonds monthly even though the interest rate has fallen. The average interest rate of March Singapore Savings Bond is 1.71% if you hold it for 10 years. Singapore Savings Bonds currently makes up 17% of my entire investment portfolio.

I did not make any stock purchases this month but definitely I am looking around as the stock prices of many counters in my watchlist has fallen this week and they provide an attractive dividend yield in the long run. Some examples are Singtel, SPH REIT, Suntec REIT, Mapletree North Asia Commercial Trust.

Singtel

Closing Price: S$3.00, Current Dividend Yield: 5.83%

SPH REIT

Closing Price: S$1.01, Current Dividend Yield: 5.54%

Suntec REIT

Closing Price: S$1.70, Current Dividend Yield: 5.59%

Mapletree North Asia Commercial Trust

Closing Price: S$1.10, Current Dividend Yield: 6.57%

 

Last but not least, here is a quote from Warren Buffet.

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

– Warren Buffet

Warren Buffett

 

Singtel 3QFY20 Net Profit Fell 24% – Should You Buy?

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.

Singtel Q1FY20 Results Dragged Down By Airtel

Currently, Singtel makes up 9% of my wife’s stock portfolio. On 8th August 2019, Singtel has released their 1QFY20 financial results. Singtel has posted a net profit of S$541 million that was down a whopping 35%. This was due to Airtel’s losses. There was no surprises that an associate losses can have a lot of impact on Singtel as 48% of Singtel’s net profit comes from its Regional Associates which consists of Airtel, AIS, Telkomsel and Globe.

If we put the negative news about Airtel aside, below are the positives from the rest of the associates:

  • Telkomsel in Indonesia posted an 18% increase in earnings on robust growth in data and digital services.
  • In the Philippines, Globe saw strong data revenue growth from its mobile and broadband businesses.

Here are the financial highlights for Singtel’s Quarter Ended 30 June 2019.

Debt

In the quarter, Singtel paid S$735 million for subscription to Airtel’s rights issue based on its rights entitlement for its direct stake of 15%. On top of this, Singtel has invested on upgrading its network and spectrum (5G). Overall, net debt increased by S$1.97 billion from a quarter ago to S$11.85 billion. With higher net debt, net debt gearing ratio increased to 28.4%.

Free Cash Flow

Free cash flow for the quarter was S$1.22 billion, down 17% due to lower associates’ dividends and higher capital expenditure.

Dividend Yield

Based on the current closing share price of S$3.26 and historical dividend payout of 17.5 cents, the current dividend yield is 5.37%. The current yield is attractive but take note of the outlook below. My personal opinion is that growth has slowed down and outlook does not seem rosy. The main concern here is still about Airtel and what is Singtel going to do about it.

Can Singtel continue to sustain its dividends?

Outlook

Here is a summary of the outlook for Singtel as indicated in its management report.

  • Excluding acquisitions, consolidated revenue for the Group to grow by mid single digit and consolidated EBITDA to grow by high single digit.
  • Capital expenditure is expected to approximate S$2.2 billion, comprising A$1.4 billion for Optus and S$0.8 billion for the rest of the Group.
  • Group free cash flow (excluding spectrum payments and dividends from associates) to be around S$2.4 billion.
  • Dividends from the regional associates are expected to be around S$1.2 billion, reflecting Telkomsel’s lower earnings for its financial year ended 31 December 2018.
  • Revenue from ICT services to grow by low single digit.
  • Cyber security revenue to increase by low teens.
  • Amobee’s operating revenue (including intragroup revenue) to grow by high single digit and its EBITDA to improve.