Singapore Telecommunications Limited: Net Profit Decline Analysis and Investment Recommendations

Business Description

Singapore Telecommunications Limited (Singtel) is a leading telecommunications company in Singapore. Its core business operations include mobile, fixed voice and data, pay television, content and digital services, ICT, managed services, equipment sales, satellite services, and data center services. The company operates primarily in Singapore and Australia, with a regional presence through investments in associates and joint ventures in countries like Thailand, India, Philippines, and Indonesia.

Industry Position

Singtel is a major player in the telecommunications industry, competing with other large telecom operators such as StarHub and M1 in Singapore, and Telstra and Vodafone in Australia. Singtel holds a substantial market share in both markets due to its extensive service offerings and strong brand recognition.

Revenue Streams and Customer Base

Singtel’s revenue streams are diversified across mobile services, equipment sales, ICT services, data and internet services, fixed voice, and pay television. The company serves a broad customer base, including individual consumers, businesses, and government entities. Singtel has a competitive advantage through its comprehensive service portfolio and strategic investments in regional telecom operators.

Financial Statement Analysis

Income Statement

For the half year ended 30 September 2024, Singtel reported a decline in net profit after tax to S\$1,238.4 million from S\$2,140.6 million in the previous year [[2]]. Operating revenue stood at S\$6,991.9 million, slightly down from S\$7,028.3 million [[2]]. Exceptional gains were S\$12.0 million compared to S\$1,192.1 million in the previous year [[14]].

Balance Sheet

As at 30 September 2024, Singtel’s total assets were S\$45,160.9 million, with total liabilities of S\$20,566.5 million [[4]]. The net asset value per ordinary share was S\$1.49, down from S\$1.51 as at 31 March 2024 [[22]]. Current assets included cash and cash equivalents of S\$2,608.0 million, and non-current assets included significant investments in associates and joint ventures [[4]].

Cash Flow Statement

Net cash from operating activities was S\$2,138.1 million [[10]]. However, net cash used in investing activities was S\$2,194.7 million, primarily due to investments in property, plant, and equipment, and intangible assets [[10]]. Net cash used in financing activities was S\$1,935.7 million, including dividend payments and lease obligations [[11]].

Dividend Information

The Directors approved an interim one-tier tax exempt ordinary dividend of 7.0 cents per share, totaling approximately S\$1.16 billion. This includes a core dividend of 5.6 cents per share and a value realisation dividend of 1.4 cents per share, to be paid on 9 December 2024 [[22]].

Key Findings

Strengths

• Diversified revenue streams and strong market presence in Singapore and Australia.
• Strategic investments in regional telecom operators provide growth opportunities.
• Solid liquidity position with substantial cash and cash equivalents.

Risks

• Significant decline in net profit after tax compared to the previous year.
• High capital expenditures impacting net cash flows from investing activities.
• Ongoing regulatory investigations and legal proceedings, particularly in Australia.

Special Actions

Singtel has taken steps to improve profitability by investing in regional data center services through Nxera and committing capital for new joint ventures [[20]].

Investment Recommendations

For Current Shareholders

Considering the decline in net profit and ongoing legal challenges, it is recommended to hold the stock. The company’s strategic investments and strong market position provide long-term growth potential.

For Potential Investors

Potential investors may consider a cautious approach. Monitor the company’s performance in the next few quarters, especially in addressing legal challenges and improving profitability before making an investment decision.

Disclaimer

This analysis is based on the financial report for the half year ended 30 September 2024 and is intended for informational purposes only. It should not be considered as financial advice. Investors are advised to conduct their own research and consult with a financial advisor before making any investment decisions.