Sunday, May 11, 2014

Simple Singapore Telcomms Analysis - Singtel vs M1 vs Starhub

Recently, Dividend Warrior updated his May portfolio. It's always nice to read his monthly portfolio update and see how dividends investing is working out for a fellow Singaporean investor. I must admit, he and AK are one of the few Singaporean financial bloggers that give me a lot of hope to slowly build a local portfolio that can generate strong passive income in the future.

Anyway, I was wondering what were his particular stock picks and how they measure up to the rest of the SGX universe. I was quite surprised to see all 3 telcos - SingTel, Starhub and M1 in his portfolio! I would have thought that most people would pick the telco that they have the most conviction with, but to be fair, he has a roughly equal about 10% allocation to each of them, which means he is taking a very conservative diversified approach to investing in the Singapore telecomm industry.

This made me dig deeper to look at the 3 telco stocks. From the SGX Yield Stocks blog, we can see them quite clearly grouped together.

correct as at Friday's 9th May 2014 closing

Note that M1's dividend yield without the special dividend is 4.08%, which gives it the lowest yield of the 3 stocks. Starhub has the highest payout ratio, making it's dividend distribution seem unstable and prone to a future cut or at least stagnation. M1 without it's special distribution, comes in roughly with SingTel. However, Singapore has a more attractive PE, along with a much much more diversified business. Oh you know I love diversification, don't you?

Based on their Q3 FY 2014 presentation, I could work out just how much of their business is in Singapore (For M1 and Starhub, the majority of their business in Singapore). Quick calculations tells me that the Singapore market only accounts for about 40% of their revenues! The other large part of their revenues comes from Australia, with about maybe 10% coming from the rest of the region.

Diversification in location, lowest P/E multiple, decent yields, decent payout ratio, Singtel does look quite attractive to me personally. Being the technician that I am though, I do think that it's recent run up will see a pull back in the coming weeks, and that might be a good opportunity to pick up on some Singtel stock.

According to SGX Data, their dividend payout amount has been fairly constant as well. It looks like it would be able to pump out a nice decent 4% payout annually, and potentially more if the price drops.

Anyway, if it not a wrong strategy to invest in all 3 of them. What if erhaps their business strategy in Singapore goes really bad? It's a good way to make a safe bet on the telco industry in Singapore. However, I believe that the 3 players will be in a constant push and pull with each other. It's good that there is competition in the market anyway, it breeds innovation and improvement.

Personally, if it was a contest now in choosing one of the telcos - Singtel vs M1 vs Starhub, I would say that I would definitely choose to invest into Singtel.

Let me know what you think of my analysis!

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