4 Takeaways From Singtel FY20 Annual Report

Singtel is one of Asia's leading and largest Telecommunications groups with over 700 million customers across 21 countries. They provide telecom services, cloud, cybersecurity, and digital advertising to enterprises as well as entertainment and mobile financial services to millions of consumers across the globe. Some of the popular telecom services you may have heard of include Airtel in India, Optus in Australia, and Singtel in Singapore. The share price for Singtel has fallen from $3.30 pre-COVID to the current share price of $2.44. Singtel is a blue-chip stock included in the Straits Times Index and has a market capitalization of $40 billion. Here are my top 4 takeaways from Singtel's FY20 annual report.

1. Significant Decrease in Net Profits

Singtel suffered significant financial losses in 2020 with their net profit for FY2020 decreasing by 65% to $1.08 billion compared to $3 billion in FY19. They faced increased competition across all their businesses, unfavorable court rulings in India, and COVID-19 pandemic decreasing demand for their products. Excluding a one time fee of Airtel's regulatory charges, their underlying net profit would have dropped by 13% to $2.46 billion. Additionally, their Return On Equity (ROE) dropped by a huge margin from 10.4% to 3.8%. The decrease in net profits and ROE is definitely a sign that Singtel is facing huge challenges to compete in the extremely competitive mobile market. Ironically, their diversification across countries is causing them more losses as demand and profit fell across all their businesses. This is definitely not what an investor would like to see in a huge dividend company like Singtel. A decrease in net profits would lead to a decrease in dividend payouts to shareholders 

 

2. Increased Competition

A huge reason for Singtel's decrease in net profits is attributable to the intensified competition across all their markets, significantly decreasing Singtel's ability to monetize data growth. More value-seeking consumers are opting for the cheaper SIM-only plans and abandoning the traditional contracts that Telcos offer. The COVID-19 pandemic would contribute to a larger pool of consumers switching to SIM-only plans to save money. The heightened competition and price wars among Telcos in an attempt to gain more market share in countries such as Singapore and Australia have crippled Singtel's ability to easily monetize data. Singtel's market share has decreased across some of the countries it operates in due to the intense competition it faces and competition from other Telcos would only increase in the future. If Singtel is unable to find ways to maintain or increase its market share, its net profits could very well further decrease in the future. 

 

3. Dividend Cuts

Singtel's dividend per share decreased from 17.5c in 2019 to 12.25c in 2020. Singtel's dividend yield for the past 5 years was consistently at a high rate of 7.17% which was very attractive to dividend investors. Their decrease in dividends in 2020 would definitely disappoint many dividend investors expecting a similar return as compared to 2019. However, the reduction in dividend per share is a good sign as it shows management conserving financial cash flow to cope with further uncertainties arising from COVID-19 and tells investors that the management is not recklessly giving out unsustainable dividends. Dividend investors would be affected by the cut in dividends but I believe this cut in dividends is only temporary and would definitely rise in the future. 

 

4. Innovation and Improvement

Despite the many setbacks, Singtel has some remarkable achievements for FY20. They increased their market share in mobile services in Singapore and they won the bid to operate a 5G network in Singapore. Their Australian sector Optus managed to expand 5G coverage to over 800 fixed wireless sites in Australia. Singtel appears to be doing well in the new 5G sector market across many countries, possibly bringing in new revenue opportunities and increasing its market share in the competitive data market worldwide. Singtel has also made improvements to its mobile wallet DASH and innovated some of its data plans to make it more flexible to attract more consumers. For example, Optus introduced greater choice and flexibility with its customizable plans and no lock-in contracts. Singtel's management has a strong focus on innovation and improving its products and services to make Singtel continually be at the forefront of the data market. 

 

Verdict

In my opinion, I have mixed feelings regarding Singtel's performance. On one hand, Singtel has constantly managed to innovate and improve itself over the years to increase its market share and remain one of the largest Telecommunications companies. On the other hand, it is facing increasingly fierce competition from various Telcos across the globe and there is a worrying increase in consumers who are switching to SIM-only plans. Singtel is definitely too big to fail at the moment but it would have to improve and innovate itself if it wants to remain as one of Asia's largest Telecommunications groups in the future.

What do you make of Singtel's future?