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Tug-Of-Fools: SingTel – The Bull Argument
Corporate Digest | 06 February 2014
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This article is written by David Kuo, Director Motley Fool Singapore (

Welcome to a brand new collaboration between Shares Investment and Motley Fool Singapore where two opposing analysts will present their case about a side of a specific stock.

Motley Fool Singapore is a part of, which is a widely known US website to help people invest. Together with Shares Investment, we believe in making informed decision choices.

The key objective of a two-side argument is to present you with informative analysis which you might not know about the stock, and to allow you to weigh the potential risks and rewards presented in a more objective way.

For this issue’s “face-off”, we will be looking at the largest Telco in Singapore; Singapore Telecommunications (SingTel). The team from Motley Fool Singapore will put up the bull argument, while the team from Shares Investment will put up the bear argument, and you decide for yourself which side has a stronger case.

The Bull Case
SingTel is Singapore’s largest telecom company. It has a total customer base of around 477 million subscribers.

Eagle-eyed readers will notice straight away that this number is significantly greater than the population of Singapore. There is a perfectly good reason for this. SingTel has operations in 25 different countries. They include Australia, where SingTel owns the country’s second-largest telecom operator, Optus, and India, where the company has a one-third stake in Bharti Airtel.

The wide geographic footprint of SingTel could make it an attractive proposition for investors looking for country diversification. Through a one-stop investment, investors can get exposure to a host of different countries, notably Australia, without even venturing offshore. Last year, Australia accounted for about 60 percent of SingTel’s group revenues and a third of group income.

Some investors might understandably balk at the idea of currency risk. However, for a small country such as Singapore where growth opportunities might be limited, overseas expansion can be an attractive route to expand in spite of the risk.

Unfortunately, there is no easy way to sidestep currency risk if you invest abroad. The thing to bear in mind is that none of us have any idea about what the Aussie might do against the Singapore dollar. That part of investing we have little control over. You could, if you wanted, hedge against currency risk but that merely adds extra cost to investing, which effectively reduces your return.

For investors, the key question should always be this: Is it better to invest in a business with overseas links which exhibits strong fundamentals but with a risk that the currency might fall or invest in a business with poor fundamentals but a chance that the currency might rise? For me it is always better to try and control something that I have control over rather than try and control something that I can’t.

Strong Fundamentals
In that regard, SingTel’s fundamentals speak for themselves. The company has one of the highest Net Income Margins on the Singapore market. At 21 percent, it is higher than the average margin of 18 percent for Singapore’s 30 largest companies. It means that SingTel generated $18 of bottom-line profit for every $100 of top-line sales. Additionally, SingTel’s margin has been consistently high, which might suggest that the company has strong pricing power despite intense competition in the telecom sector.

Another notable fundamental is SingTel’s asset turnover of 0.5. It implies that the telecom company is generating 50 cents in revenue for every dollar of asset employed in the business. That is no mean feat given the high level of existing and on-going investments needed in today’s modern telecoms businesses.

At a time when corporate debt exposure is in focus, it is assuring to see that SingTel is not highly leveraged. Its leverage ratio of 1.7 is not excessive when compared to other Singapore companies. SingTel’s leverage ratio is also significantly lower than its overseas peers that include America’s AT&T, the UK’s BT Group and Germany’s Deutsche Telekom. AT&T is about 70 percent more leveraged than SingTel; Deutsche Telekom is twice as leveraged, while BT is nearly ten times more leveraged than SingTel.

High Income Margin, Steady Dividends
SingTel’s high income margin, efficient use of assets and modest leverage helps to explain its impressive return on equity, which is not only above average for Singapore’s blue chips but also one of the highest amongst Singapore’s largest companies. It generates around $17 of profit for every $100 of shareholder equity. That is nearly twice the average for Singapore’s 30 largest businesses.

Shareholders have been amply rewarded by SingTel’s efficiency if they had stuck with the company over the years. Over the last decade, the shares have risen from a dividend-adjusted price of $1.21 to $3.50, which equates to a total annual return of 11.2 percent. Just over half of the return has come from capital growth and the remainder by reinvesting the dividends. This highlights the importance of reinvesting the payout that you receive, which in the case of SingTel has been reliable. Over the last five years, SingTel has grown its payout by around six percent, which is faster than the rate of inflation.

Currently, shares in SingTel are valued at 15 times historic earnings, with a yield around 4.8 percent. The valuation is a little higher than the market average but a premium is only to be expected for a quality company. It is sometimes said that large companies can be boring investments. But if doubling an investment over seven years is the definition of boring, then please bore me to death.

Do wait and check out the Bear Argument on SingTel that’s coming up soon by Shares Investment.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead. The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.

The Motley Fool ( offers stock market and investing information, offering people suggestions on how to take control of their money and make better financial decisions.

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Singtel  3.160 -0.01 -0.32%   
Business: Asia's leading communications group. [FY19 Turnover] Mobile Comm (31.1%), Data & Internet (19.2%), Infocomm Technology (17.5%), Sale of Eqmt (16.5%), Digital Biz (7.2%), Fixed Voice (5.2%), Pay-TV (2.1%), Leasing (0.8%), others (0.4%).

Insight: May-19, FY19 operating revenue remained flat at $1... Read More
StarHub  1.280 -0.010 -0.78%   
Business: [FY18 Turnover] Mobile (34.9%), sale of equipment (22.4%), enterprise fixed (21.6%), pay TV (13.2%), broadband (7.9%).

Insight: May-19, 1Q19 total revenue rose 6% to $596.8m attr... Read More

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