Monday, June 27, 2005
TELCOs - A Case Study
The figures fm the fllwg table are extracted fm the periodical SHARES Investment (Issue 254),
| SingTel | 2001 | 2002 | 2003 | 2004 | 2005 |
|---|---|---|---|---|---|
| Margin (%) | 48.43 | 25.65 | 13.35 | 46.60 | 29.33 |
| ROE (%) | 22.91 | 11.19 | 9.06 | 22.71 | 16.96 |
| DIV (S$) | 0.13 | 0.055 | 0.055 | 0.064 | 0.13 |
| EPS (S$) | 0.151 | 0.092 | 0.079 | 0.251 | 0.196 |
| Turnover (S$M) | 4925 | 7338 | 10259 | 11994 | 12617 |
| StarHub | 2001 | 2002 | 2003 | 2004 | 1Q05 |
|---|---|---|---|---|---|
| Margin (%) | NA | 8.95 | NA | NA | 10.70 |
| ROE (%) | 9.49 | 10.96 | -5.14 | -6.10 | -- |
| DIV (S$) | -- | -- | -- | -- | -- |
| EPS (S$) | -- | -- | -- | -0.025 | 0.014 |
| Turnover (S$M) | 777 | 911 | 1118 | 1355 | 374 |
| MobileOne | 2001 | 2002 | 2003 | 2004 | 1Q05 |
|---|---|---|---|---|---|
| Margin (%) | 20.53 | 23.08 | 25.54 | 24.58 | 25.59 |
| ROE (%) | 31.61 | 28.78 | 30.10 | 38.40 | -- |
| DIV (S$) | -- | 0.073 | 0.094 | 0.107 | -- |
| EPS (S$) | -- | 0.122 | 0.135 | 0.158 | 0.041 |
| Turnover (S$M) | 639 | 698 | 717 | 747 | 189 |
Note : StarHub was listed in 2004. MobileOne in 2002
MobileOne is a good reference to start off this analysis as it's business are mainly in providing Mobile Telecom services and it operates only locally. Margin is consistent and flat at 23-25% fm 2002 onwards. ROE improves every year fm 28-38% since it's listing in 2002. Dividends and EPS has been on the uptrend since 2002. Turnover is growing every year at 20-30%.
StarHub was listed in 2004, so there's only one year of financial data and it may not be meaningful to use it for analysis and comparison.
SingTel merged with Optus (Australia) in 2001 and the impact is the erosion of Margin, ROE and EPS fm 2001-03. A strong recovery was seen in 2004, with Margin and ROE back to 2001 levels. However, in 2005, we see a sharp drop in Margin, ROE and EPS again. Dividend payout has been increasing every year though and except for 2004, it is more than 50% of EPS.
Non-Financial Criteria
- Simple and Understandable - Telecommunication services are simple and understandable to all. It is a service that we uses in our daily lives.
- Consistent Operating History - MobileOne has a consistent operating history. StarHub has too short a history to do a meaningful study. SingTel has inconsistent operating history, perhaps due to it's many different acquisitions over the years.
- Favourable Long Term Prospect - SingTel may have favourable long term prospect if they do a good job in consolidating the regional telcos they had acquired. StarHub has a more varied composition of businesses and has just turned a profit but again, has too short a track record for any meaningful conclusion to be drawn. MobileOne's prospect does not look very favourable in the long term if they do not venture out of Singapore.
Conclusion - MobileOne at the moment is more useful as a Dividend Yield play. StarHub is a question mark, although the share price has risen a lot recently after it announced it's first profit. Prices may have risen ahead of it's future performance. Need more analysis to confirm. SingTel has been aggressive in its regional expansion and it shows in their results of fluctuating figures. SingTel does hold the most promise in the long term if they can do a good job of consolidating their acquisitions.
My Action - My current interest is in SingTel and I recently sold off all my hldgs before I even started on this study. Now, looking at the Margin, ROE and EPS for 2005, I see a worsening of their fundamentals. The mkt has however shown optimism in SingTel (will be paying $0.13 div and mkt expects special div after its failure in buying a stake in Pakistan Telecom) and we'll see if there's any better reason for that in the coming Q1 results. I plan to buy back some SingTel shares on mkt weakness. Target price is below $2.60.
Disclaimer : Use the above at your own risk! We'll not be responsible for any losses incurred but you can give us credit if you make money :D
(in millions of S$ unless stated)
Q2 2005 Q2 2004
Operating profit/(loss) 53.40 vs 52.60
Pre-tax profit/(loss) 50.90 vs 50.10
Net profit/(loss) 40.10 vs 39.50
Group shr (cents) 4.10 vs 3.80
Turnover 194.70 vs 185.00
H1 2005 H1 2004
Operating profit/(loss) 104.40 vs 102.20
Pre-tax profit/(loss) 99.30 vs 97.10
Net profit/(loss) 80.20 vs 86.30
Group shr (cents) 8.20 vs 8.20
Turnover 384.20 vs 367.20
Dividend (cents) 5.00 vs 4.90
: July 19, 2005 6:40 PM M1 earned S$40.1 million ($23.8 million) in net profit in the three months ended June, compared with S$39.5 million a year ago and S$40.1 million in the first quarter.
The results were better than a quarterly net profit estimate of around S$38.2 million from two analysts.
M1 is seen posting a consensus mean net profit of S$153.8 million for the year to December 2005, according to 16 analysts polled by Reuters Estimates. This is almost unchanged from its 2004 income of S$154.6 million.
In April, the company forecast low single-digit growth in profit after tax for the year.
M1 is seen as a low-growth, high-yield stock as it is focused on its domestic mobile phone operations.
In contrast, SingTel has spent S$17 billion in the last four years buying operators in high-growth Asian nations with fewer cellphone users, and in the bigger Australian market, to counter the saturated domestic market.
StarHub has also said it holds no regional expansion ambitions, but has bundled its broadband offerings and cable TV services together with its mobile operations to drive subscriber and earnings growth.
M1 shares rose 9 percent in the April-June quarter, compared with a 7.4 percent rise in SingTel and a 45 percent jump in StarHub. The stock closed down 1 percent at S$2.04 on Tuesday before the earnings announcement.
: July 19, 2005 6:42 PM << Home
