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The Three Numbers That Make SingTel Buzz

SingTelLogoSingapore’s largest telecom company Singapore Telecommunications (SGX: Z74) has delivered one of the most consistent Return on Equity (ROE) amongst Singapore’s large caps. In fact, it ranks as one of the top most profitable companies in the Straits Times Index (SGX: ^STI).

Most investors should, if they don’t already, take an interest in a company’s ROE. After all, it is the returns a company make on the money that we investors have invested in it. So the higher the number, the more bangs for bucks an investor would get.

Singapore Telecommunications or SingTel as it is affectionately known in Singapore, has, over the last three years, beaten the average ROE delivered by the 30 Straits Times Index constituents. Last year’s return of 17.3% was almost twice the benchmark average.

SingTel’s remarkable achievement has been thanks to a consistently high net profit margin that hovers around 21%. This could be testament to its dominant position in the Singapore telecom market. Interestingly, its return is regularly higher than rival StarHub (SGX: CC3), which has in recent years only delivered returns in the low to mid-teens.

The other components of the Return on Equity are best described as much of a muchness. Its Asset Turnover, which is a measure of the amount of sales the company generates from every dollar of asset employed in the business, is within a whisker of the benchmark average. In other words it generates 50 cents of revenue for every dollar of asset used. Meanwhile, its leverage of 1.7 is in line with Singapore’s largest companies too.

By dismantling SingTel’s Return on Equity, it is easy to see what makes the telecom titan buzz. Its consistent return of around 17% has been the product of a high profit margin of 21.2%; a respectable asset turnover of 0.47 and a manageable dose of leverage of 1.7.

As a quadruple player, namely mobile, fixed line, internet and television, SingTel has four fantastic ways to maintain its profitability. The only thing that could possibly hold it back is complacency, but that is highly unlikely in a competitive market such as telecommunications.

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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.