Singapore Telecommunications Limited: What’s Next For Its Business? – Part 1

Singapore Telecommunications Limited (SGX: Z74) – or more popularly known as Singtel – could be a company worth studying given that its shares are up 31% from 1 April 2010 to its closing price on 6 March 2015.

Over the same timeframe, the capital gains of the SPDR STI ETF (SGX: ES3) – a proxy for the market barometer, the Straits Times Index (SGX: ^STI) – was only 16%.

In addition, over the past five of SingTel’s completed financial years, the company has distributed a hefty annual dividend totaling around 89.4 cents per share.

Financial Year ended 31 March Dividend per share (Singapore cents)
2010 14.2
2011 25.8
2012 15.8
2013 16.8
2014 16.8

Source: Singtel’s Website

Although the shares of Singtel have been connecting with gains, as Foolish investors, we should look behind the curtains to understand its drivers of growth.

A closer look

As Asia’s leading communications group, the business of Singtel can be divided into three major buckets.

The Group Consumer segment comprises of its consumer communication services in Singapore and Australia and other investment stakes in telecommunication outfits across Asia. The Group Enterprise segment provides communications infrastructure, cloud computing, and other services to enterprise customers. Finally, the Group Digital L!fe business comprises of new internet technologies like mobile advertising, e-commerce and hyper-local services.

 image (3) Singtel chart - 2 

Source: Singtel’s Earnings Report

For the financial year ended 31 March 2014 (FY2014) and FY2013, SingTel segmented its revenue by its business units. Prior to FY2013 (FY2010 to FY2012), the company’s revenue was organized by geography.

Overall, Singtel’s revenue has been relatively unchanged between FY 2010 and FY2014. For FY2014, the Group Consumer business made up about 62% of total sales. As an outlet of new business revenue for Singtel, the growth of the Digital L!fe segment could be worth watching. However, the Digital L!fe business is fairly negligible at the moment.

Taking a hint from the FY2012 figures, we can see that majority of Singtel’s revenue actually comes from Australia – about 65% of total sales. The revenue from Australia has also seen growth from FY2010 to FY2012.

Foolish summary

The exercise above is to look at Singtel’s sales alone. As a next step, we should observe if the company’s topline growth trickles down to the bottom-line in order for it to sustain its growth in share price.

But, that’s for the next article.

As of Singtel’s closing price of $4.18 on 6 March 2015, the telco traded at a trailing price/earnings ratio of about 17.8 and has a historical dividend yield of around 4% (based on its payout for FY2014).

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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 contributor Chin Hui Leong doesn’t own shares in any companies mentioned.