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Singapore’s Telecommunication Index Outperformed Over Past Three Years

My Gateway (92 x 92)Telecommunications maintain an important voice and bandwidth in the broad stock market. Three telecommunication stocks of Singtel (SGX:Z74), Starhub (SGX:CC3) and M1 (SGX:B2F) made up almost 9% of the FTSE ST All Share Index as of the end of May. In the first five months of 2014, the FTSE ST All Share Index generated a 6.4% total return, while the FTSE ST Telecommunications Index generated a 6.3% total return.

Weighed in accordance to the amount of publicly listed shares of the three stocks, the sector index – the FTSE ST Telecommunications Index – is 89% weighed to Singtel. Hence the Index’s associated dividend yield of 4.33% bears more semblances to Singtel’s dividend yield than the dividend yield for Starhub and M1.  Nevertheless, the 4.33% dividend yield for the FTSE ST Telecommunications Index as of the end of May reflected a higher yield than its regional peers with the FTSE Asian Telecommunications Index maintaining a yield of 3.87% as of the end of May. These relative yields and performances were published in the FTSE Asia Monthly Index Performance Report last week. Singtel and M1 distribute dividends on a semi-annual basis, whereas Starhub distributes on a quarterly basis.

Looking back over the past three years, Singapore’s FTSE ST Telecommunications Index has seen bigger swings than the region’s FTSE Asian Telecommunications Index. The Singapore index has generated higher returns. Over the three year period ending May 2014, the FTSE ST Telecommunications Index averaged annualised volatility of 14.1% versus 12.4% for the Asian Telecommunications Index. However during that period, on a total return basis, Singapore’s FTSE ST Telecommunications Index gained 47.4% compared to a 26.8% gain for the Asian Telecommunications Index. Amongst Singapore’s industry indices provided by FTSE Group, the FTSE ST Telecommunications Index was the best performing on a total return basis for the three-year period ending May 2014.

Dividends have been an important part of those total returns. Updating the three-year timeframe to take into account last week’s activity, shows that the average price gain of the three telecommunication stocks was 40.7% versus 66.7% on a total return basis for the past three years. The stock that saw the most difference between its price return and total return was M1 closely followed by Starhub. Total returns are computed by Bloomberg, assuming dividend distributions are reinvested. The table below details the respective returns.

Name SGX Code Market Cap S$B Total Return YTD % Px Chg YTD % Total Return 12M % Px Chg 12M % Total Return 36M % Px Chg 36M % Dvd Ind Yld %
SINGTEL Z74 61.5 5.5 5.5 10.3 5.5 46.2 22.9 4.4
STARHUB CC3 7.2 0.8 -1.6 9.5 4.5 81.4 54.0 4.7
M1 B2F 3.3 14.9 10.1 25.3 17.6 72.7 45.2 3.9

Source: Bloomberg (data as of 6 June 2014)

Given the aforementioned impact of Singtel on the FTSE Telecommunications Index, the average performance of the three stocks is also relevant. This could have been particularly the case for those diversifying investors who attempted to balance exposures in individual stocks. As noted above, the average total return for the three telecommunication stocks was 66.7% over the past three years. In the year thus far, the average total return of the three stocks is 7.0%.

Globally, telecommunication companies have had to expand their products and services to content with technological advances and the appetite for high speed data transmission. Singtel has diversified sources of revenue across eight products and services, with mobile communications contributing to the largest proportion of total revenue at 45% and data and internet accounting for 19% of the total revenue. StarHub’s revenue is distributed across five products and services, with mobile services accounting for 52% of total revenue while Pay TV and fixed network services each contribute 16% to the total revenue. M1’s revenue is largely generated by mobile telecommunications services, accounting for 64% of its total revenue, while the sale of handsets contributed to 19% of its revenue.

Note that despite outperforming regional peers and the broader market over the past three years, the FTSE ST Telecommunications Index has also been observed to underperform the broader market. For instance over the preceding three year period – that is from May 2008 to the end May 2011 – the FTSE ST Telecommunications Index declined 2.7% on a total return basis.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.