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Why Has Singapore Telecommunications Limited’s Stock Price Fallen By 6% Over The Past Month?

Singapore Telecommunications Limited (SGX: Z74) is an easily recognisable company in Singapore given that it’s our island nation’s largest operational telco.

Over the last month, Singtel’s stock price has fallen by 6% to S$3.29, as at the time of writing. What may have caused this?

Reasons for a decline

There can be many reasons behind a stock’s price decline. But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related.

The former deals with how a stock’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the stock’s profits.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

The case with Singtel

In Singtel’s case, I believe it’s the former at work. Here’s a table showing a condensed income statement for the telco for the fourth quarter of its financial year ended 31 March 2018 (FY2018):

Source: Singtel earnings update

Singtel released its FY2018 fourth quarter earnings update in the middle of May. We can see that although revenue had increased slightly, the telco’s pre-tax earnings from regional associates had fallen sharply, along with underlying net profit, and net profit.

During the quarter, Singtel’s net profit suffered mainly from weaker results from Airtel and Telkomsel (two of Singtel’s many regional associates), and adverse currency movements. Other factors included higher expenses, and a lower economic interest in NetLink NBN Trust (SGX: CJLU) following its spin-off from Singtel in July 2017.

It appears that Singtel’s weaker financial results had played a role in its stock price decline.

What lies ahead

Going forward, the impending introduction of TPG Telecom’s services in Singapore may increase the level of competition within Singapore’s telco market; TPG Telecom won the bid for Singapore’s fourth telco license in late 2016. Although Singtel’s business is geographically diversified – due to its full stake in the Australia-based telco Optus, and its partial stakes in other telcos around the reigon – it will still be interesting to see how Singtel is going to address the increasingly challenging environment in its home turf.

Moreover, investors may also want to look out for signs of improvement at Airtel and Telkomsel, which are based in India and Indonesia, respectively.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.