Stock Analysis Singtel: Q3 ’11: More VC and innovation initiatives

Singtel just announce their Q3 quarterly report. There is nothing much different to shout about. Every thing is in order. It won’t collapse it won’t surprise on the upside.

I would like to touch on a few things though.

Strong Stable Free Cash Flow Yield and likely increase Dividends.

In their last announcement, the CEO of Singtel indicated that they would like to raise dividends. According to my Dividend Stock Tracker, Singtel currently yields 4.7%. A 10% increase will bring it to 5.1%.

Can they do it safely? A look at the 9 months Free Cash Flow shows that they can.

Their Full Year 2010 Dividend payment comes up to $2 billion. The current 9 months free cashflow (operating cashflow minus capital expenditure) is $2.8 billion and with 1 more quarter to come.

I forecast their full year free cashflow to be around $3.4 billion. This means that they can raise dividend by 70%. That’s a yield of 8%!

But I think the conservative estimate is a 20% rise in dividend payout which translate to 5.6%

Why is their dividend yield so low compare to Starhub and M1?

A lot of people think Singtel is not really attractive because Starhub has a 8% yield and M1 have 5.5%

Well you have to look at the 10 year result to understand that. If you look at the second graph above, for 10 years revenue and gross profit have been rising. But Net Income have been stalling.

In the first graph above,Dividend payout (orange line) have been pretty constant. Debt Issue (purple have been going down). No doubt they have been generating free cash flow and paying down debts.

But the Other investing CF (baby blue line) shows a consistent outflow that is of equal amount to dividend. This is the investment in other subsidiary and associates.

What this means is that, if Singtel follows what Starhub and M1 does and remain largely constant, they can easily pay out 4.7 times 2 or 9.4% yield.

It is this investment in emerging market telco that is of our next focus.

Emerging Mobile Telcos pulling down results

So was it great for Singtel to invest in all these telcos? I am of the opinion that they don’t reap it immediately. In terms of return on investments, these regional telco definitely pull down the result.

The opportunity is to turn them around. A look at the top top slide shows that free cashflow from associate grew 284 mil from 700 mil to 1010 mil. That is very very good. And it could be what we as share holders wants to see.

This emerging market experiment might be paying off.

But hold on there. We recently got wind that in Thailand TOT might sue Singtel and a potential write-off of 600 mil is in the cards. This is probably well covered by then cash flow but it means again that emerging market telco is going to be detrimental to Singtel

Singtel aggressive to change to Telco 2.0

I written this morning that long term telco ARPU is likely to change dramatically. They key for telcos is to move to become vertically integrated and provide mobile content and cloud computing.

Out of the 3 telcos, M1 and Singtel is doing all they can but Singtel is the favorite here because they have NCS.

I really like the idea of a corporate VC fund, the more content they get the more likely they evolved to become a part media company to value add their supply chain.

Why is this great?

1. Mobile Content or IT content is low on capex yet high in cashflow generation
2. The cost to deliver is already own by Singtel
3. Singtel can make it work by bringing together different startups.
4. These services will result in additional ARPU in the form of 3-4 bucks per month possibly.

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