The Week Ahead: Singtel, SIA and ComfortDelGro
- Original Post from The Motley Fool Sg

It’s a big week for Singapore’s transportation sector with numbers from a port operator, an airport services outfit and a cab firm.


Hutchison Port Holdings (SGX: NS8U) posted a slump in third-quarter profits in October. Revenue fell nearly 7% because of weaker within Asia. The Hong Kong-based port operator said it will continue to focus on improving costs given the soft global trade outlook.


Airport services company, SATS (SGX: S58), reported a 9% drop in second-quarter earnings because of the absence of a one-time gain a year ago. But SATS said revenues was 4.2% higher, with gateway services up 6.3% and food solutions up 2.5%.


ComfortDelGro (SGX:C52) said third-quarter profits were down 2%. But revenues improved 8.5% with increased revenues from its existing business and contributions from new acquisitions.


Singapore’s biggest telecom operator, Singapore Telecommunications (SGX: Z74), said profits sunk in the second-quarter because of negative currency movements and lower contributions from Airtel and Telkomsel.


Singapore Airlines (SGX: C6L) was adversely affected by higher fuel costs in the second quarter. Profits sank 81%, even though sales rose 5.6%.


On the economic front, US headline inflation could have moderated from 1.9% in December to 1.6% in January. In December, my monthly consumer prices fell for the first time in nine months because of a slump in petrol prices.


China’s inflation rate could have edged up to 2% in January, after falling back to a six-month Low in December. The slowdown in inflation was due to a drop in non-food prices.


Meanwhile, the country’s balance of trade with the rest of the world could have narrowed to $35 billion on lower a drop in exports and an even bigger fall in imports.


Japan is expected to say that its economy grew at an annualised rate of 1.4% in the fourth quarter of 2018. That would be a sharp reversal of a 2.5% contraction in the previous quarter.


Malaysia will also report GDP numbers for the final three months of 2018. The economy could have expanded from 4.4% in the previous quarter to 4.6%.


And finally, Singapore will report retail sales for December. In November, they fell 3% on a slump in sales of computer and telecom equipment. It would be unusual not to see an uplift in a festivity-driven December number.


The Motley Fool’s purpose is to help the world invest, better. Click here nowfor your FREE subscription to Take Stock - Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock - Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.


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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 Director David Kuoowns shares in SATS.



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Singtel’s Share Price Has Risen 21% Year-to-Date. Is There Room for Further Growth?
- Original Post from The Motley Fool Sg


Singapore Telecommunication Limited (SGX: Z74), or Singtel, is Asia’s leading telecommunications group, and provides a range of services from mobile and pay TV to technology services and infotainment to both consumers and businesses. Singtel has a presence in Singapore, Indonesia, Australia, Africa, as well as India.


Singtel’s share price has soared 21% year-to-date, from S$2.88 to S$3.50. For a large blue-chip conglomerate, this is very impressive as the Straits Times Index (SGX: ^STI) has only risen by around 9.1% year-to-date. However, does this mean Singtel’s growth has been priced in? Is there more room for the business to improve?


Here are two aspects of the business that I feel will continue to drive growth ahead.


1. Reducing costs through digitalisation and automation


Digitalisation and automation are being harnessed to improve the customer experience and to achieve a leaner cost structure for Singtel. The group estimates that cost savings of around S$490 million can be delivered in the fiscal year 2020 (Singtel has a 31 March fiscal year-end). It seems that Singtel is making a concerted and coordinated effort to reduce its operating cost base, and the benefits could come through as soon as next year.


2. The planned monetisation of digital life division


Singtel’s latest annual report has management confirming that it plans to monetise some of its loss-making digital investments. These include its cybersecurity business, its digital life division, and also the Amobee advertising arm, all of which have been bleeding thus far. The idea now is for digital units such as Amobee and Hooq to “realise value” through bringing in additional partners (as stakeholders in the entity), or through an initial public offering.


It should be noted that as these are early-stage growth businesses, traditional valuation metrics would not work and metrics which are more appropriate for these industries should instead be used. This means that Singtel may start to disclose different methods to value each of these loss-making units to give investors a better sense of what they are worth.


Room for further growth


The initiatives that Singtel is undertaking would help to stabilise the business and prevent it from declining further. Although its key markets are still going through challenging and competitive conditions, it appears that the worst is over for Singtel, and investors can now look forward to some semblance of growth. The growth may have been priced in for the year thus far. However, I believe there is room for the group to do even better as it has diversified operations outside of Singapore, and would not fall victim to the liberalisation of the telecommunications market like its more locally-entrenched competitors have.


Worried about the overall state of the market? Do you know the 1 thing you should never do in the stock market? The Motley Fool Singapore’s new e-book lays out a plan to handle market crashes, details the greatest advantage you have as an investor, and looks at decades worth of market data to bring you the smartest insights on investing. You can download the full e-book FREE of charge—Simply click here now to claim your copy


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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 Royston Yang does not own shares in any of the companies mentioned.


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5 Charts from Singapore Airlines Ltd’s Annual Report
- Original Post from The Motley Fool Sg


Singapore Airlines Ltd (SGX: C6L) had a mixed financial year, with revenue reaching new highs but earnings per share dropping by nearly 50%. The group, which counts Scoot, SIA Engineering Company Ltd (SGX: S59), and SilkAir as subsidiaries, released its annual report for the year ended 31 March 2019.


In it, there were five charts that highlighted some of the significant trends over the year.


Operating expenses



Source: Singapore Airlines 2019 Annual Report


The chart above shows the breakdown of operating expenses. As you can see, the biggest expense came from fuel costs, which made up 30.1% of total operating expenses.


Fuel price trend


The chart below shows fuel cost trends over the last eight quarters.



Source: Singapore Airlines Ltd 2019 Annual Report


The most obvious pattern is the steady increase in fuel prices starting from the second quarter of financial year 17/18, which has caused the group to suffer higher expenses. That said, fuel prices dropped in the fourth quarter of 18/19.


If fuel prices continue to decline, operating expenses could decrease this year.


5-year operating profit and margin


Another important chart is this one, showing the company’s operating profit and operating profit margin over the last five years.


Source: Singapore Airlines 2018/19 Annual Report


As you can see, operating profit and operating profit margin have been very erratic. This is not unusual for airline companies, which are highly susceptible to changes in fuel prices. However, one thing to note is that despite higher fuel prices this year, operating profit and margin held up well, and both were higher than in the three years prior to FY17/18.


Cash flow


Cash is the lifeblood of a company. This is especially so for a capital-intensive company like Singapore Airlines. The group has been quite consistent in this regard, generating healthy cash flow from operations each year. The chart below shows internally generated cash flow, which includes sales of assets.



Source: Singapore Airlines 2018/19 Annual Report


Net cash position


Lastly, it is essential to monitor the financial strength of a company. The chart below shows the net liquid assets, or net debt position, of Singapore Airlines over the last five financial years.



Source: Singapore Airlines FY18/19 Annual Report


Despite good operating cash flow in the past five years, Singapore Airlines’ financial position has deteriorated. Its net liquid asset position turned negative in 2018 and widened in 2019.


The weaker balance sheet is largely due to the group’s heavy capital expenditures over the last two years. In the two years, the group spent close to S$11 billion on aircraft, spares, and engines.


Putting it all together


The first things investors should have noticed from these charts is that Singapore Airlines, like other airline companies, is highly susceptible to changes in fuel prices.


Despite higher revenue this year, the group ended the year with lower profit and lower profit margins.


It also spent heavily on capital expenditures over the last two years, which weakened its balance sheet. However, the new aircraft, spares, and engines will hopefully serve to improve the company’s profit and cash flow generation over the next few years.


Investors will have to keep an eye on revenue, profit, and cash flow over the next few years to see if these investments have paid off.


Click here nowfor yourFREEsubscription toTake StockSingapore, The Motley Fool’s free investing newsletter. Written byDavid Kuo,Take Stock Singaporetells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.


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Better Buy: Singtel vs. StarHub
- Original Post from The Motley Fool Sg

With M1 Ltd already privatised, Singapore Telecommunications Limited (SGX: Z74), or Singtel for short, and StarHub Ltd (SGX: CC3) are the two remaining telco companies listed in Singapore. For investors interested in the telco space, which of the two outfits would be the better buy? Let’s check it out.


Scanning the businesses


Singtel is the largest telco in Singapore with a 49% mobile market share, which works out to 4.1 million customers (as of 31 March 2018). On top of doing business in Singapore, it operates in Australia, India, Indonesia, the Philippines, and Thailand. Overall, Singtel boasts over 650 million mobile customers in 21 countries (as of 31 March 2018).


StarHub, on the other hand, operates solely in Singapore and is our country’s second-largest telecommunications company.


Business growth


We will start the comparison with the income statement. This statement, also known as profit and loss statement, shows us how much revenue Singtel and StarHub brought in from the sale of their goods and services, and how much is left after paying all the various overheads needed to run the businesses. The leftover portion is known as net profit or earnings.


Singtel has a fiscal year (FY) that ends on 31 March each year while StarHub’s ends on 31 December every year. The following compares the revenue and net profit growth of the two companies over the last five fiscal years:




















Singtel StarHub
Revenue growth 0.61% 0.02%
Net profit growth -3.26% -11.46%

Source: Company annual reports; author’s compilation


Singtel’s revenue has grown from S$16.85 billion in FY2014 to S$17.37 billion in FY2019, translating to a growth of 0.6% per annum. In comparison, StarHub’s top-line growth was flat from FY2013 to FY2018.


As for the earnings, both Singtel and StarHub saw their bottom-lines fall over the past five years. However, Singtel performed better than its counterpart in terms of a much smaller percentage decline.


Winner: Singtel


Financial strength


Although revenues and profits are important, they do not tell investors the whole story. For instance, the income statement does not show if a company can survive a prolonged economic crisis. That is where the balance sheet comes into play. It can reveal the health of a company by providing a snapshot of its financial condition.


As of 31 March 2019, Singtel and StarHub’s balance sheet revealed the following:

























Singtel StarHub

Cash and cash equivalents

(S$’ million)


512.7 171.5

Total debt

(S$’ million)


10,664.1 1,028.3
Net-debt-to-equity ratio 34.0% 147.5%

Source: Company earnings reports; author’s compilation


Of the two, Singtel appears to be more conservatively leveraged with a lower net-debt-to-equity ratio of 34%, compared to StarHub’s ratio of above 100%.


Winner: Singtel


Cash is king


Although the income statement shows the amount of profit a company makes every year, this profit does not necessarily translate into the actual cash that flows into a company. To get an accurate picture of the flow of money in and out of a company, we have to look at the statement of cash flows.


In particular, we will zoom into the free cash flow of Singtel and StarHub. Free cash flow (FCF) is cash that the telcos can use to dish out dividends to shareholders, buy back their shares, make acquisitions, strengthen their balance sheet, or reinvest back into their businesses. The following compares the FCF growth of Singtel and StarHub over the last five fiscal years:















Singtel StarHub
FCF growth 2.4% -13.0%

Source: Company annual reports; author’s compilation


It can be seen that Singtel is better at producing FCF with an annualised growth of 2.4% from FY2014 to FY2019. The metric grew from S$3.25 billion to S$3.65 billion during the same time frame. In comparison, StarHub’s FCF fell from S$291.9 million in FY2013 to S$145.5 million in FY2018.


Winner: Singtel


Dividend growth


Telcos are perceived to be great income shares due to the defensive nature of their businesses. Here, let’s compare the dividend growth at Singtel and StarHub over the past five fiscal years.















Singtel StarHub
Dividend per share growth 0.8% -4.4%

Source: Company annual reports; author’s compilation


Singtel has increased its dividend per share from 16.8 Singapore cents in FY2014 to 17.5 Singapore cents in FY2019. On the other hand, StarHub’s dividend per share tumbled 4.4% per annum, from 20.0 Singapore cents in FY2013 to 16.0 Singapore cents in FY2018.


Winner: Singtel


Valuations


As investors, we should focus on the value of businesses and not on the daily changes in the share prices. Let’s now compare the price-to-earnings (PE) ratio and dividend yield of the two telcos. The values below are as of the closing prices on 11 June 2019.






























Singtel StarHub
PE ratio 17.4 13.8
Dividend yield 5.3% 9.7%
Share price S$3.29 S$1.47
Market capitalisation S$53.72 billion S$2.55 billion

Source: SGX StockFacts


StarHub has a lower PE ratio and higher dividend yield than Singtel. Income investors should keep in mind that the dividend payout of the two telcos in the coming years could change significantly though.


In its FY2018 annual report, Singtel mentioned that it “expects to maintain its ordinary dividends at 17.5 cents per share for the next two financial years and thereafter revert to the payout ratio of between 60% to 75% of its underlying net profit”.


As for StarHub, from FY2019, it intends to pay out at least 80% of net profit (adjusted for one-off items) as dividends. For the current financial year (FY2019), StarHub plans to pay a total dividend of at least 9.0 Singapore cents per share, divided into 2.25 cents each quarter. Any payment above 9.0 cents corresponding to the new dividend policy would be dished out in the fourth quarter. If adjusted for the 9.0 cents dividend, StarHub’s dividend yield falls to 6.1%.


Winner: StarHub


Connecting the data


Overall, Singtel is the clear winner since it has superior revenue, net profit, and free cash flow growth when compared to StarHub. Singtel’s balance sheet and dividend growth are also stronger than its counterpart. I also like Singtel better than StarHub due to its varied geographical reach, which diversifies its business and allows it to ride on rising consumerism in Asia.


There are 28 surprising and important things we think every Singaporean investor should know—and we’ve laid them all out in The Motley Fool Singapore’s new e-book. Packed with information and insights, we believe this book will help you be a better, smarter investor. You can download the full e-book FREE of charge—simply click here now to claim your copy.


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Better Buy: Singtel vs. StarHub
- Original Post from The Motley Fool Sg

With M1 Ltd already privatised, Singapore Telecommunications Limited (SGX: Z74), or Singtel for short, and StarHub Ltd (SGX: CC3) are the two remaining telco companies listed in Singapore. For investors interested in the telco space, which of the two outfits would be the better buy? Let’s check it out.


Scanning the businesses


Singtel is the largest telco in Singapore with a 49% mobile market share, which works out to 4.1 million customers (as of 31 March 2018). On top of doing business in Singapore, it operates in Australia, India, Indonesia, the Philippines, and Thailand. Overall, Singtel boasts over 650 million mobile customers in 21 countries (as of 31 March 2018).


StarHub, on the other hand, operates solely in Singapore and is our country’s second-largest telecommunications company.


Business growth


We will start the comparison with the income statement. This statement, also known as profit and loss statement, shows us how much revenue Singtel and StarHub brought in from the sale of their goods and services, and how much is left after paying all the various overheads needed to run the businesses. The leftover portion is known as net profit or earnings.


Singtel has a fiscal year (FY) that ends on 31 March each year while StarHub’s ends on 31 December every year. The following compares the revenue and net profit growth of the two companies over the last six fiscal years:




















Singtel StarHub
Revenue growth 0.61% 0.02%
Net profit growth -3.26% -11.46%

Source: Company annual reports; author’s compilation


Singtel’s revenue has grown from S$16.85 billion in FY2014 to S$17.37 billion in FY2019, translating to a growth of 0.6% per annum. In comparison, StarHub’s top-line growth was flat from FY2013 to FY2018.


As for the earnings, both Singtel and StarHub saw their bottom-lines fall over the past six fiscal years. However, Singtel performed better than its counterpart in terms of a much smaller percentage decline.


Winner: Singtel


Financial strength


Although revenues and profits are important, they do not tell investors the whole story. For instance, the income statement does not show if a company can survive a prolonged economic crisis. That is where the balance sheet comes into play. It can reveal the health of a company by providing a snapshot of its financial condition.


As of 31 March 2019, Singtel and StarHub’s balance sheet revealed the following:

























Singtel StarHub

Cash and cash equivalents

(S$’ million)


512.7 171.5

Total debt

(S$’ million)


10,664.1 1,028.3
Net-debt-to-equity ratio 34.0% 147.5%

Source: Company earnings reports; author’s compilation


Of the two, Singtel appears to be more conservatively leveraged with a lower net-debt-to-equity ratio of 34%, compared to StarHub’s ratio of above 100%.


Winner: Singtel


Cash is king


Although the income statement shows the amount of profit a company makes every year, this profit does not necessarily translate into the actual cash that flows into a company. To get an accurate picture of the flow of money in and out of a company, we have to look at the statement of cash flows.


In particular, we will zoom into the free cash flow of Singtel and StarHub. Free cash flow (FCF) is cash that the telcos can use to dish out dividends to shareholders, buy back their shares, make acquisitions, strengthen their balance sheet, or reinvest back into their businesses. The following compares the FCF growth of Singtel and StarHub over the last six fiscal years:















Singtel StarHub
FCF growth 2.4% -13.0%

Source: Company annual reports; author’s compilation


It can be seen that Singtel is better at producing FCF with an annualised growth of 2.4% from FY2014 to FY2019. The metric grew from S$3.25 billion to S$3.65 billion during the same time frame. In comparison, StarHub’s FCF fell from S$291.9 million in FY2013 to S$145.5 million in FY2018.


Winner: Singtel


Dividend growth


Telcos are perceived to be great income shares due to the defensive nature of their businesses. Here, let’s compare the dividend growth at Singtel and StarHub over the past six fiscal years.















Singtel StarHub
Dividend per share growth 0.8% -4.4%

Source: Company annual reports; author’s compilation


Singtel has increased its dividend per share from 16.8 Singapore cents in FY2014 to 17.5 Singapore cents in FY2019. On the other hand, StarHub’s dividend per share tumbled 4.4% per annum, from 20.0 Singapore cents in FY2013 to 16.0 Singapore cents in FY2018.


Winner: Singtel


Valuations


As investors, we should focus on the value of businesses and not on the daily changes in the share prices. Let’s now compare the price-to-earnings (PE) ratio and dividend yield of the two telcos. The values below are as of the closing prices on 11 June 2019.






























Singtel StarHub
PE ratio 17.4 13.8
Dividend yield 5.3% 9.7%
Share price S$3.29 S$1.47
Market capitalisation S$53.72 billion S$2.55 billion

Source: SGX StockFacts


StarHub has a lower PE ratio and higher dividend yield than Singtel. Income investors should keep in mind that the dividend payout of the two telcos in the coming years could change significantly though.


In its FY2018 annual report, Singtel mentioned that it “expects to maintain its ordinary dividends at 17.5 cents per share for the next two financial years and thereafter revert to the payout ratio of between 60% to 75% of its underlying net profit”.


As for StarHub, from FY2019, it intends to pay out at least 80% of net profit (adjusted for one-off items) as dividends. For the current financial year (FY2019), StarHub plans to pay a total dividend of at least 9.0 Singapore cents per share, divided into 2.25 cents each quarter. Any payment above 9.0 cents corresponding to the new dividend policy would be dished out in the fourth quarter. If adjusted for the 9.0 cents dividend, StarHub’s dividend yield falls to 6.1%.


Winner: StarHub


Connecting the data


Overall, Singtel is the clear winner since it has superior revenue, net profit, and free cash flow growth when compared to StarHub. Singtel’s balance sheet and dividend growth are also stronger than its counterpart. I also like Singtel better than StarHub due to its varied geographical reach, which diversifies its business and allows it to ride on rising consumerism in Asia.


There are 28 surprising and important things we think every Singaporean investor should know—and we’ve laid them all out in The Motley Fool Singapore’s new e-book. Packed with information and insights, we believe this book will help you be a better, smarter investor. You can download the full e-book FREE of charge—simply click here now to claim your copy.


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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 Sudhan P doesn’t own shares in any companies mentioned.


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2 Major Risks for Singapore Airlines
- Original Post from The Motley Fool Sg

Singapore Airlines Ltd (SGX: C6L), or SIA, is Singapore’s flagship airline engaging in passenger and cargo air transportation. It operates the following airline segments: Singapore Airlines, Scoot, Silkair, SIA Engineering Company Ltd (SGX: S59), and Singapore Airlines Cargo (SIA Cargo).


While SIA has managed to weather many downturns and storms since its formation in 1972, the airline is currently caught in a funk. While it reported record revenue of S$16.3 billion in its full-year earnings release last week, net profit plunged 47.5% year on year to just S$683 million from S$1.3 billion. A situation where revenue increases while profit plunges certainly warrants a closer look, and investors need to be mindful of risks on the horizon that may further cloud SIA’s prospects. I explore two of these risks below.


Macroeconomic environment


SIA’s current passenger load factor has hit an all-time high of 83% from 81%, while revenue per passenger kilometre rose 7% year on year. Load factor measures the utilisation rate of SIA’s aircraft — the higher the load factor, the better for SIA, as this means more of its aircraft is being utilised (remember that the fuel required to fly an aircraft stays constant whether it is empty or full). While these operating statistics are certainly encouraging, it could all change very quickly should the current trade war between the US and China escalate further.


The trade war would make goods and services more expensive, which then affects worldwide supply chains as producers and distributors pass the costs down to final consumers. As the higher prices trickle down to consumers, the effect would be for them to tighten their wallets and rein in their spending. Air travel would thus get hit as it is considered a discretionary expense for most people.


Fuel costs


Another major risk for SIA is escalating fuel costs. Higher net fuel costs contributed two-thirds of the total increase in expenditure for SIA for fiscal year 2019 (FY 2019), as there was a 21.6% increase in average jet fuel prices over the period. While hedging did mitigate some of the increase, it was unable to offset the full impact of the higher fuel costs.


With fuel being a major cost component of SIA’s operations, a sustained rise in oil prices could further crimp profits for the airline. Though SIA has hedged 64% of its fuel requirement for FY 2020, the airline is still exposed to rising prices that it is unable to fully mitigate.


Investors should adopt a cautious stance


With these two significant risks looming over SIA, investors should adopt a more cautious stance and monitor macro-developments and oil prices before deciding if they should invest in the airline.


Click here nowfor yourFREEsubscription toTake StockSingapore, The Motley Fool’s free investing newsletter. Written byDavid Kuo,Take Stock Singaporetells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.


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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 Royston Yang does not own shares in any of the companies mentioned.


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