Equity Research - Singapore Telecommunications Limited (SGX: Z74) BAFI1045 Singapore Telecommunications Limited (SGX: Z74) INVESTMENT OVERWEIGHT
Blue Chip for cheap – Investment Thesis
Thesis #1 - Tremendous institutional support Temasek Holdings, Singapore’s sovereign wealth fund, owns 51.18% of SingTel. SingTel represents the backbone of Singapore’s communications infrastructure and thus the stability and security of SingTel as a company is paramount to Current Price Target Price Temasek Holdings. We expect Temasek Holdings to maintain its majority shareholding of SingTel into perpetuity. Being the 3rd largest company by market capitalization listed on the SGX and a $ 3 .6 8 0 $ 4 .18 1 constituent of the Straits Times Index (STI), funds tracking the STI are (15 Sept 2015) compelled to buy and hold SingTel for as long as SingTel remains in the STI. 13.6% Upside With tremendous support from institutions, we expect Z74’s potential downside to be considerably limited. Share price performance $4.40
Thesis #2 - Market bears are cornered $4.20 Current stock float level for Z74 is 48.51% as of writing, with the actual free float expected to be even lower after accounting for funds obliged to holding $4.00 SingTel shares for purposes of tracking the STI. $3.80 Short sell interest peaked on the 24th August 2015, on the day of China’s $3.60 announced “Black Monday”, where global equities indices all fell sharply including the STI. Since then, short sell interest in Z74 has been slowly depleting and coupled with 52 week range: the limited stock float, we foresee Z74 to rebound as investors reassess the $3.630 $4.570 company’s fundamentals. Thesis #3 - Rock-solid fundamentals As the market leader in the telecommunications business in the region, SingTel is uniquely positioned to capitalize on the growth of its regional associates and 30 Day Average Volume 20,987,000 subsidiaries, most of them wholly owned by the company. Price/Earnings 15.51 SingTel’s strong balance sheet ensures a stable foundation upon which it grows its revenue streams both organically and through acquisitions. Its cash flows are Earnings per Share $0.237 rising steadily and constant innovation ensures the company stays relevant as the industry evolves. Market Capitalization $58.83b
We are of the view that SingTel is currently oversold based on current prices Shares Outstanding 15.944b and foresee a correction in the near term. Price/Book 2.37 Billy Ng 3474928 [email protected] Price/Sale 3.31 Yee Wei Lei 3475163 [email protected] Dividend Yield 4.76% Alvin Yam 3475158 [email protected] Lin Zhiren 3475474 [email protected] Stock Float 48.51% Goh Zhenping 3531540 [email protected]
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1. OVERVIEW
Singapore Telecommunications Limited (“SingTel”) is Asia’s leading communications group which provides a wide range of multimedia and infocomms technology (ICT) solutions, including voice, data and video services over fixed and wireless platforms. SingTel’s three major business divisions are Group Consumer, Group Enterprise, and Group Digital Life. The company’s main operations are in Singapore and Australia. As of end March 2015, SingTel has a combined subscriber base of more than 555 million customers from its local operations and associates spread across 25 countries. SingTel is a major communications player in Asia and Africa through its strategic investments in five regional mobile operators, namely Airtel (India), Telkomsel (Indonesia), Glove Telecom (Philippines), AIS (Thailand) and PBTL (Bangladesh). More than half of SingTel’s revenue are derived offshore. SingTel has an 81% market share by wireless revenue in the Singaporean market, with starhub at 11.18% and M1 at 7.22%.
SingTel is the 3rd largest company in Singapore by market capitalization and is majority owned by Temasek Holdings, Singapore’s sovereign wealth fund.
2. SHARE PRICE PERFORMANCE
SingTel is currently trading near the lower end of its 52- week range, with an uptrend from Oct 2014 till Apr 2015, followed by a general downtrend thereafter, reflecting the general downturn in the Straits Times Index.
Share price took a noted tumble on the 24th August 2015, the day China announced its “Black Monday” where the Shanghai Composite index closed down 8.5% to 3209 points on that single day, dragging global equity indices down across the board.
Since the downturn beginning on the 24th August 2015, the market has wiped out SingTel’s gains for the year. SingTel last traded at the current price of $3.680 in October 2014. At the current price level, SingTel is trading at 2.37x book value with a P/E of 15.53 and dividend yield at 4.74%. From a Technical perspective, the price level of $3.650 seems to be a strong support level for the stock, as despite heavy selling with high volume for the past 3 weeks, prices does not seem to be able to break below $3.650 in a convincing manner.
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3. FINANCIAL PERFORMANCE
SingTel’s financial performance has seen a mild improvement in FY2015, with a 2% rise in operating revenue from $16.85b in FY2014 to $17.22b in FY2015. Although its EBITDA fell 1% from $5.16b in FY2014 to $5.09b in FY2015, its net profit rose a healthy 4% from $3.65b in FY2014 to $3.78b in FY2015. This can be attributed to a reduction in interest costs, tax payments and also lower depreciation & amortization charges. Free cash flow of SingTel rose an impressive 9% for the year, from $3.25b in FY2014 to $3.55b in FY2015. For the financial year ended 31 March 2015, the Board of SingTel has recommended a final ordinary dividend of $0.107 per share. Together with the interim dividend of $0.068 per share, the total ordinary dividends for the year is $0.175 per share, an increase of 4% from FY2014. It also represents 74% of the Group’s underlying net profit. SingTel delivered a healthy free cash flow of $3.55b, up 9.2% from last year. Most of the improvements to the free cash flows can be attributed to improvements in cash flows from Singapore and Australia, with a 17% and 8.1% increase in free cash flows, respectively. For FY2015, SingTel is in a strong financial position. SingTel is rated A+ by Standard & Poor’s and Aa3 by Moody’s.
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4. COMPETITIVE ANALYSIS - PORTER’S FIVE FORCES
In addition to objective valuations of SingTel on a fundamental level based on data and figures, it is crucial to analyze the company based on its relative strengths and market power – often cannot be measured in numbers. Porter’s five forces model is used to analyze SingTel and the dynamics between its competitors. This will provide a better understanding on the complex competitive landscape of the telecommunications industry.
4.1 Market rivalry: Very High The telecommunications market in Singapore is highly saturated, with 3 major telecommunications companies vying for customers in a land area of just under 720 square kilometers. SingTel is the market leader and has a wireless subscriber market share in Singapore of just over 50%, with its major competitors Starhub and M1 splitting the remaining half approximately equally. SingTel’s offshore associates and subsidiaries are equally strong and most are also market leaders in the industry. Optus is a wholly owned subsidiary of SingTel and is the 2nd largest telecommunications group in Australia. SingTel’s regional associates are leading mobile operators in India (Airtel), Indonesia (Telkomsel), Thailand (AIS), and number two in the Philippines (Globe).
4.2 New entrants: Medium The treat of new entrants into the overcrowded telecommunications market (from scratch) in the region is low, mainly due to the very high capital expenditures required on networking and telecommunications infrastructure, and long lead times before positive cash flow occurs. This is especially so for developed countries like Singapore and Australia. Recently, the Singapore government has proposed allowing a forth mobile Telco to operate in Singapore, utilizing existing infrastructure from SingTel. This is a potential threat to the existing three industry players as their existing market share will be eroded. However, we are of the view that SingTel is in the position and has the ability to profit and monetize from the potential new entrant by leasing its telecommunications infrastructure to the new Telco just like it has done so for M1 and (to a lesser extent) Starhub. On the broadband internet side of its business, the industry has seen a rapid fall in broadband internet subscription prices ever since the introduction of new players like MyRepublic and ViewQuest into the scene. These new competitors differentiates themselves from the incumbents by offering higher internet speeds, and at lower prices. What happened at the broadband internet industry offers sneak peak of what will happen to SingTel’s mobile communications business should the new forth Telco enters the market. With the introduction of a forth Telco, price competition is expected to heat up, putting downward pressures on profit margins.
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4.3 Substitutes: Low In the mobile telecommunications industry, a potential substitute to a mobile service could potentially be WiFi networks, Satellite phones and landline phones. However, those are considered poor substitutes to a terrestrial mobile cellular network. Notwithstanding the fact that SingTel is already a player in the broadband internet market, WiFi only works within range of a WiFi access point, beyond there will be no internet access. Satellite phones are usually used by explorers or persons travelling to remote areas beyond the range of a terrestrial cellular radio tower, considering the small geographical area of Singapore and nearly 100% cellular signal coverage, Satellite phones make little financial sense as its use in Singapore does not justify its high subscription fees. In addition, Satellite phones only work when there is direct line-of-sight with the satellites orbiting the earth. Satellite phones do not work indoors. With the advent of cellphones, the use of landline telephones are on an evident decline year-on-year, registering an annual decline in revenue of 6.8% from 2009-2015 for SingTel. Landlines are technically a substitute for mobile phones, albeit a poor one, being mostly used in the corporate world. Anecdotal evidence suggests that every user of a landline telephone also owns a mobile phone for their personal use.
4.4 Bargaining power of buyers: High The bargaining power of mobile wireless subscribers are high as the services offered by Telcos are essentially homogeneous. The three market players forms an oligopoly in the highly saturated market, and other than some minute differences in pricing and plan benefits, the three Telcos have little leverage over consumers. Singaporean subscribers are highly price sensitive and will change their service plans as soon as their current contract expires. This can be seen in the rapid fall in broadband internet prices as new entrants like MyRepublic and ViewQuest enter the market with significantly lower prices. There may be attempts by Telcos to lock in customers by offering discounts for customers signing up for TV, broadband internet and mobile line from the same Telco. A quick comparison of price plans on the three local Telco’s websites reveals that prices for equivalent mobile service plans are identical across all three companies. Refer to Appendix #8 for price comparison among the local Telcos (Date taken 15 Sept 2015) Having said that, it can be noted that SingTel has been gradually gaining market share in Singapore from its two competitors over the years (see chart on right).
4.5 Bargaining power of suppliers: Low Suppliers to the telecoms industry generally have low bargaining power as most infrastructure, hardware and software can be obtained from more than one supplier. In addition, with more than 50% market share in the mobile telecommunications market, SingTel wields tremendous leverage over its suppliers, being able to purchase in bulk at better prices as well as the ability to negotiate better deals. In addition, NCS Pte Ltd, a major company specializing in the provision of information technology and network consultancy services, is 100% wholly owned by SingTel. In essence, SingTel is able to acquire most of its networking and IT equipment in-house, thus reducing its reliance on external contractors/suppliers to a minimum.
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With an IT and networking company under its wings, SingTel is in the unique position compared to its competitors to enjoy the synergies that come with such a vertically-integrated business model, whereby the consultation, sourcing, purchasing and installation of IT and networking equipment is done in-house, and usually at-cost (without profit markup). With the above mentioned reasons, we believe the bargaining powers of SingTel’s suppliers are weak.
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5. INDUSTRY TRENDS – MICROECONOMIC FACTORS
5.1 Competition There are currently 3 major players in the local market, namely SingTel, Starhub and M1. Among the three, SingTel is the largest Telco and even more so, the 3rd largest listed Singapore company in the Singapore Exchange by market capitalization. It operates in more than 25 countries through its subsidiaries and associates. SingTel wholly owns Optus, the second largest telecommunications company in Australia. With such size and field of operations, SingTel enjoys economies of scale over the other two competitors. The IDA announced in mid-2015 that it will be putting up the spot of a fourth Telco on bid early next year. Two confirmed bidders are Consistel and MyRepublic. By introducing a 4th Telco into the market, it encourages the existing 3 players to make innovative changes or improvements to their data and price plans. Let's take a look at the broadband price changes after MyRepublic introduced the 1Gbps plan into the market for an affordable price at $49.99 in January 2014. Within months, the larger Telcos have also cut their sky high price for the fast-speed data to a price relatively competitive to that of MyRepublic's. The price may not be as low but what the larger Telcos can offer in return is to bundle free mobile and carrier-specific services in their fiber broadband plans, on top of the networking equipment offers. For example, SingTel's current $54.90/month unlimited fiber promo comes with a 10% discount for your mobile bill. This helps it to retain customers. As we can see, a cut in price from another competitor has led to a revolutionary price change of the high-speed data bundle over the past year. When the fourth Telco is finally introduced into the market, it may be more beneficial than detrimental to both consumers and to the existing Telcos as they are forced to explore new regions or new business models to bring in extra revenue and to come up with better innovative ideas to keep themselves competitive and to achieve sustainable growth.
5.2 Directions The ultimate goal according to SingTel's Annual Report 2015 is to "create sustainable long-term growth to deliver superior returns to shareholders" through strengthening the core business and to build new growth engines. Singapore is still a growing and developing financial hub where in today's context, relies heavily on telecommunication and internet services. It requires a reliable and effective network infrastructure that can connect Singapore to the rest of the world. This means Singapore will be in constant need of improvement in network infrastructure. Such developments in the financial industry will cause an increasing demand for higher quality telecommunication services and it will ensure sustainable growth for the entire telecommunication industry for a number of decades.
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Confidence in the company amongst investors is considered to be of utmost importance. SingTel pays out roughly between 60-75% of its underlying net profit as ordinary dividends. From 2006 up till 2015, the amount of dividends paid increased from $1.7 billion in 2006 to $2.8 billion in 2015. Such payouts have shown that SingTel has kept to their promise to "create sustainable long-term growth to deliver superior returns to shareholders". In comparison, M1 and Starhub’s dividend payout ratio frequently surpasses 100%, taking on debt to maintain and increase dividend payouts. This is unsustainable in the long term (see chart on right). This will further strengthen shareholders’ confidence in the company and attract more investments. In addition, most mobile and broadband data in today's market are tied down to a 2-years contract. Subscribers who wish to terminate their contract prematurely will be subjected to an Early Termination Charge pre-determined at the point of subscribing. Such distinctive characteristics are unique to the telecommunication industry and it helps Telcos achieve predictable cash flows with predictable Average Revenue Per User (APRU). This helps to reduce the volatility in the share prices and therefore, Telcos appeals to risk averse investors.
5.3 Operations SingTel is the largest telecommunication company in Southeast- Asia. It boasts a combined mobile subscriber base of roughly 500 million through its regional associates and businesses. Comparing it to the other 2 existing local Telcos which operates only within Singapore, SingTel definitely has the upper hand. It operates in more than 25 countries through its associates. Optus, the second largest telecommunication company in Australia is wholly owned by SingTel. In addition, SingTel owns a 32.5% stake in Bharti Airtel, the largest Telco in India. Others are namely, Telkomsel in Indonesia, Globe Telecom in the Phillipines and AIS in Thailand. Looking at the widening field of operations that SingTel is taking on, we can see that they are more than ready to face the inevitable growth of the telecommunications industry. By just operating in Singapore, SingTel may not be able to sustain the kind of long-term growth they have promised their investors. We can see the acquisitions and investments they have taken in order to achieve this promise and to achieve the results they have produced over the past decade. Looking at contribution of profits by geography, we can see that business in Singapore only attributes to 26% of the total EBITDA while the regional associates outside of Singapore has contributed to more than 70%.
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Having a wider network of associates also has a huge advantage for SingTel. For example, the "Roam like home" add-on service, subscribers can enjoy local rates while roaming in Australia and in Malaysia. Should SingTel subscribers be able to travel to most parts of the world and still enjoy local rates, it will be a huge advantage and we believe this is highly possible in the foreseeable future as SingTel already has the necessary network infrastructure through its associates around the world.
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6. INDUSTRY TRENDS – MACROECONOMIC FACTORS 6.1 Market Trends Forecasts from Gartner, Inc have shown that global mobile data traffic alone will achieve a 59% increase from 2014 to 52 million terabytes. Such growth are also expected to continue up to 2018 which will hit 173 million terabytes. The growing demand only tells Communication Service Providers (CSP) in Singapore how much of a preparation they have to make in order to maintain or even improve their future market share. In addition, the Infocomm Development Authority of Singapore (IDA) had announced plans to release a total of 225 MHz of spectrum up for auction early 2016 to the Telcos. 60 MHz of which will go to a new entrant at 60% discount as an effort from IDA to spur healthy competition and innovation in the telecommunications industry. With the additional spectrum, Telcos can meet the growing demands of mobile data traffic. SingTel, with more than 50% of the mobile wireless market share in Singapore, will definitely stand to benefit from the growing market in the long run as users are switching from slower connections (2G) to faster alternatives (3G, 4G) and consume more data, with the ultimate result of more revenue for SingTel.
6.2 Income growth Income which almost directly reflects purchasing power also has an impact on SingTel's future earnings. Statistics have shown that the median household income from work rose from $7,870 in 2013 to $8,290 in 2014. It saw a 4.1% increase in real terms. Real income has grown and thus, the purchasing power will be stronger and also the per capita consumption growth. It is likely that spending towards lifestyle services and devices will increase based on social trends. In 2014, Google, Inc released a new global research called "Consumer Barometer". Singapore was found out to be the world's largest smartphone market per capita. It reports the highest smartphone penetration at 85%. With the majority of consumers having the ability to afford a smartphone, SingTel will benefit from the surge in demand for complementary services like data and voice.
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6.3 Technology Advancements and Innovation The fast-paced improvements of technology can be felt all around the world. One example is cloud computing. According to the Gartners Hype Cycle, cloud computing has matured into a productive stage where it can be commercially exploited. Services like online storage space, Google Drive, Dropbox and Mega are products of cloud computing. These services allow users to store files, videos and photos online and can be retrievable wherever they go. Users of such services can now store their files in the cloud and retrieve them on any device as long as there is reliable internet connectivity. Users require large usage of mobile data when accessing such services on the move as it requires uploading and downloading. Soon enough, physical storage devices like USB drives may be obsolete and the reliance on cloud storage will be higher than ever. This will ultimately increase the demand on SingTel’s mobile data services. In 2013, Facebook launched a non-profit organization called Internet.org. It plans to provide affordable internet access to less developed countries by helping with the development of new business models providing internet access. Aquila, a solar-powered unmanned plane is part of the effort. It flies at an altitude much higher than commercial aircraft for up to 90 days continuously. It beams down laser providing internet connectivity to Earth thereby providing internet access to even the most remote or inaccessible areas. Although these are still in the testing stages, it shows the incredible fast-paced improvement of technology. SingTel, being directly related to such technology advancements, may stand to benefit as new business models may be created from technologies which may not exist today. According to a United Nation's report, 60% of the world’s population does not have internet access. SingTel stands to benefit from the tremendous untapped potential of the remaining 60% of the world’s population without internet access. In today's world, most parts of the world are connected through submarine communications cables. They are cables laid in the sea bed which carries telecommunications signals across the ocean to different terrestrial stations. SingTel is a major investor in submarine cables. SingTel's international submarine cable network provides connections from Singapore to more than 100 countries. These may be affected when laser technology is developed and introduced into the market. In step with Internet.org, Facebook is researching and developing laser beams that can transmit data at high speeds of up to 10gbps. SingTel will have to keep up with such advancements in order to be ready when such models can be commercially exploited. Some may say laser technology is a threat to SingTel as submarine cables may then be made obsolete or not as cost-effective as compared to laser communications. We however believe that submarine cable connectivity are inherently more stable and reliable due to the fact that it does not require perfect line-of-sight in order to transmit data, unlike laser technology. Laser communications however, can be an additional revenue stream over the current business model.
6.4 Population Growth A government white paper released in 2013 projects the population to be between 6.5 million to 6.9 million by the year 2030. The projections are based on life expectancy, social and economic trends as well as fertility trends. The current population in Singapore stands at approximately 5.5 million today. Studying the projections, the population is expected to grow by an estimated 20% in 15 years’ time. With that increased amount of population and with Singapore's high
11 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74) mobile penetration rate, we expect the increase in population directly translates into increased revenue streams for the wireless mobile market. This will help to boost SingTel's local business. According to United Nations estimates, the current world population stands at 7 billion people and is expected to reach 8 billion by 2024. The growth in population is not only within Singapore but also the world, meaning and increased demand for telecommunication and data services. The market will only get bigger over time and therefore if SingTel is able to reach out to the emerging markets, SingTel’s revenue growth is expected to increase at a steady rate.
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7. INVESTMENT THESIS
7.1 Tremendous institutional support Temasek Holdings, Singapore’s sovereign wealth fund, owns a controlling stake of 51.18% in SingTel. Fundamentally, most of Singapore’s vital communication infrastructure assets including network cables, telephone lines, high-speed fibreoptic cables as well as sub- sea cable storage facilities are owned and operated by SingTel. As such, SingTel represents the backbone of Singapore’s communications infrastructure and thus the stability, security and the control over SingTel as a company is paramount to Temasek Holdings. Temasek Holdings will not allow another entity to gain a controlling stake over SingTel for national security reasons. As such, we expect Temasek Holdings to maintain its majority shareholding of SingTel into perpetuity. SingTel is the 3rd largest company by market capitalization listed on the SGX and a constituent of the Straits Times Index (STI), representing a substantial 10.9% of the market capitalization of the index. Funds tracking the STI are hence compelled to buy and hold SingTel shares for as long as SingTel remains in the STI. With tremendous support from institutions, we expect Z74’s potential downside to be considerably limited.
7.2 Market bears are cornered The current stock float level for SingTel is 48.51% as of writing, with the actual free float expected to be even lower after accounting for funds obliged to holding SingTel shares for purposes of tracking the STI.
Short sell interest peaked on the 24th August 2015, on the day of China’s announced “Black Monday”, where global equities indices all fell sharply including the STI. Since then, short sell interest in Z74 has been slowly depleting and coupled with the limited stock float, we foresee Z74 to rebound. Market bears face an uphill battle as their trades are stacked and put up against strong institutional backing. The constant threat of rising interest rates from the Federal Reserve of the United States also looms over short sellers as their interest charges for borrowing SingTel shares for short selling may rise. In addition, SingTel’s generous dividend payouts (yielding 4.76% as of writing) is a further deterrent against short sellers.
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7.3 Rock-solid fundamentals As the market leader in the telecommunications business in the region, SingTel is uniquely positioned to capitalize on the growth of its regional associates and subsidiaries, most of them wholly owned by the company. SingTel’s strong balance sheet ensures a stable foundation upon which it grows its revenue streams both organically and through acquisitions. SingTel’s cash flows are rising steadily and constant innovation ensures the company stays relevant as the industry evolves. SingTel has a track record of consistently increasing its dividend every year over the past decade, paying 60%-75% of underlying net profit as dividends. Our internal valuations of SingTel suggests that SingTel is underpriced by approximately 10-15% at current prices. At the current price ($3.680) as of writing, SingTel represents an excellent opportunity for investors with both short and long-term timeframes. Bargain hunters are expected to go long on Z74 and coupled with the rapidly drying short sell interest, SingTel is expected to rebound from its current depressed prices as investors reassess the company’s fundamentals.
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8. ROE ANALYSIS
Return on Equity, or ROE, is a measure of how efficiently the company can generate profits based on the amount of common equity, money investors invested into the company in exchange for shares, it has. The higher the ROE, the more efficient the company is at generating profits on that limited amount of equity, the more lucrative the company’s shares will appear in the market. SingTel’s ROE of 15.70% indicates that for every 1 dollar of equity, SingTel generate a return of 15c for the shareholders. As compared to M1’s ROE of FY14/15 Simple ROE 44.55%, and StarHub’s value of 248.66%, SingTel’s ROE is extremely low. SingTel 15.70% SingTel’s low ROE could be attributed to its involvement in the Australian M1 44.55% market, with its depreciating currency and falling economy. StarHub 248.66% However, there is more to ROE than just a simple measure of income generated over the amount of common equity, which will be explored in the Industry Average 115.31% DuPont analysis.
9. DUPONT ANALYSIS
The DuPont analysis breaks down the driving force behind ROE, and each component can be analysed and calculated in broad detail in order to improve overall performance of the company, by directly identifying any problematic or weak areas for improvement. Despite the comprehensiveness of the formulas involved in the calculation, this is in no way a replacement for more detailed analysis. The calculation of certain ratios using items from the balance sheet will have an average of the relevant items the company have at the beginning and end of the fiscal year, while those items from the comprehensive income statement sales revenue is used simply as listed. The reason being, the balance sheet values are based on a snapshot of the company’s financial position at the end of the fiscal year, whereas the income statement values show the amount generated over the course of the entire fiscal year. Thus it is necessary to obtain an average of the balance sheet items, to get a better picture of new acquisitions and/or disposals over the course of the year.
9.1 Operating Profit Margin (OPM) Operating Profit Margin is the amount of revenue left after operating expenses (money paid off to generate said amount of revenue), before FY14/15 Operating Profit Margin interest and taxes, expressed as a percentage over said revenue, effectively showing how much the company makes on every dollar of SingTel 16.93% sales. It is often used to judge how profitable the company core M1 20.51% business is and how the company manages its operational costs, fixed and/or variable, to generate operating cash flow and maximise profit. StarHub 19.97% Industry Average 19.13% In this case of SingTel, the group generated an OPM of 16.93%, which as compared to its competitors, M1’s 20.51 (Highest among the 3) and StarHub’s 19.97%, is the lowest amongst of all 3. So no surprises there when SingTel’s OPM is below the industry average. Despite SingTel generating the most revenue, 7.21 times of StarHub and 16 times of M1, it has the lowest OPM, even with SingTel’s investment and business in Australia, though it could be because those exact investment resulting in such dismal results (to be further elaborated under Total Asset Turnover). However though, SingTel’s comparatively low OPM is in part due to high operating expenses.
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SingTel largest operating expense item is “Selling and Administrative” accounting for 32.6%, while M1’s equivalent, “Advertising & Promotion” and “Other General & Administrative Expenses” only accounts for 6.3%, and StarHub’s equivalent, “Marketing and Promotion” and “Other Expenses” accounts for 12.7%. SingTel’s “Cost of Sales” is 17.5% of the operating expenses, while M1 “Cost of Sales” accounts for 56.4%, the majority of M1’s operating expenses, and StarHub “Cost of Equipment Sold” and “Cost of Services” accounts for 40.6%, also the largest item. As such, SingTel is clearly focusing too much of their expenses into marketing, despite already holding on to 50.54% of the market share. 9.2 Total Asset Turnover (TAT) Total Asset Turnover is the amount of revenue generated, expressed as a percentage over the amount of assets it has, thus showing how efficient the company uses its assets to generate sales. It is often compared to the industry average and competitors to give a sense of how the company is doing in comparison. SingTel had a TAT of 0.42, generating 42c for every dollar of assets, which is very unproductive compared to its competitors, and even below the industry FY14/15 Total Asset Turnover average. The industry is almost generating a dollar sales to a dollar asset at 0.91, SingTel 0.42 while SingTel is not even doing half as well. M1 1.07 M1 and StarHub is at a healthy excess at 1.07 and 1.23 respectively, well above StarHub 1.23 the industry average and far ahead of SingTel. SingTel’s low TAT could be Industry Average 0.91 attributed to the recent and drastic depreciation, even hitting a 6-year low, thus having an unfavourable effect on the conversion of sales money from AUD to SGD and/or devaluation of properties due to the falling currency. The Australian economy also shows sign of decline, which would negatively affect business segments owned by SingTel in Australia.
9.3 Interest Expense Rate Interest Expense Rate is the amount of interest needed to be pay in order to finance the loans that is, in turn, financing the assets. As interest expense is actually tax-deductible in regards to company tax, it is calculated in before the tax is factored on the earnings, which brings about an interesting point. Due to the tax benefit loans can provided through interest expenses, there is actually tax savings (due to increased expenses, less profit is registered, resulting in less tax paid) to taking out loans and paying interest, as opposed to issuing equity. However, too much, obviously, is too much. Too much loans will cause the benefit saved on interest expense to be not worth in comparison to the opportunity and financing costs. The interest expense rate of SingTel is about the industry average, 0.75% to 0.77%. M1 at a low 0.40% with StarHub on the other end at 1.17%. FY14/15 Interest Expense Rate SingTel, being average, is the average one, comparing to M1’s low interest rate, SingTel 0.75% due to having a low amount of debt liabilities, and StarHub’s high interest rate, M1 0.40% due to it being highly geared with a ridiculously high Debt/Equity ratio of 12.33, StarHub 1.17% as opposed to SingTel’s 0.70 and M1’s 1.60, thus StarHub is more risky as Industry Average 0.77% compared to the others, warranting a higher interest rate. Although M1’s ratio is more than twice of SingTel’s, SingTel’s has liabilities 27.32 times more than M1, which would make SingTel more risky, and M1 less, by sheer number.
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9.4 Financial Leverage Multiplier Financial Leverage Multiplier is a measure of how levered, equity wise, a company is. The higher the multiplier, the more financially levered, debt wise, the company is, the benefits and handicaps of which is briefly touched on in the “Interest Expense Rate”. One thing to note about this particular index is that, it could be sensitive to large purchases or share buy-out/issue, giving it a sense of volatility. So this index, in comparison to more “traditional” asset-equity ratios, can be a bit unconventional and overwhelming. Due to the “volatility” experienced in this index, it could be possible that this volatility is carried over to the larger DuPont analysis formula. A close look at the balance sheets reveals that there is not much large movements with regards to the purchases or share buy-out/issue, despite some FY14/15 Financial Leverage Multiple fluctuations from SingTel’s assets and StarHub’s equity increasing in large bounds over the 5 years. SingTel 1.67x M1 2.55x SingTel’s rather low value of 1.67 indicates that their assets are funded by quite StarHub 14.91x a substantial amount of equity, with M1 favouring slightly more towards Industry Average 6.38x liabilities, against StarHub’s preference of debt as funding with a value of 14.91. SingTel, together with M1, is well below the industry average, which is good, but the industry average had been skewed by StarHub. 9.5 Tax Retention Rate Tax Retention Rate is simply the percentage of money left over after the government levy company tax on earnings, which is effectively (1 - prevailing tax rate). After tax is factored in, the amount left is pretty much the same as the take away “salary” of the company for the work it’s done over the year. As Benjamin Franklin once wrote in a letter, “In this world nothing can be said to be certain, except death and taxes” and as such, this is the only part of the DuPont analysis where the company has no control over.
With regards to this index, all 3 companies have roughly 80+% retention rate, FY14/15 Tax Retention Rate indicating a tax rate of 10+%. SingTel 84.80% However, SingTel retention rate is 3.57% ahead of StarHub and 3.82%, almost M1 80.98% 4%, ahead of M1. As the company tax is levied by the government, the tax StarHub 81.23% rate should be more or less consistent with each other, spare for some Industry Average 82.34% variations in the numbers, perhaps due to rounding up in the business annual reports or when doing the calculations. It can explain the discrepancy, 0.25%, between StarHub and M1, but SingTel appears to be taxed at least 3% less as compared to its competitors. Noting that SingTel has significant investments outside of Singapore and Australia, SingTel may face different tax rates. SingTel also has the option to move Australia’s profits to jurisdiction with significantly lower corporate tax rate, in order to maximise retention rate. Thus, SingTel can average a lower tax over its competitors, in turn, having a higher retention rate, which gives SingTel a competitive edge over its Singapore-based competitors.
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9.6 Conclusion for DuPont Analysis
SingTel M1 StarHub Industry Average Operating Profit Margin 16.93% 20.51% 19.97% 19.13% Total Asset Turnover 0.42 1.07 1.23 0.91 Interest Expense Rate 0.75% 0.40% 1.17% 0.77% Financial Leverage Multiplier 1.67 2.55 14.91 6.38 Tax Retention Rate 84.80% 80.98% 81.23% 82.34% DuPont ROE 9.09% 44.42% 284.01% 112.51% Simple ROE 15.99% 44.52% 285.44% 115.31%
The above table summarises the components of DuPont analysis, and includes the calculated DuPont ROE. At 9.09%, SingTel’s DuPont ROE is, not only the lowest as compared to M1’s 44.42% and StarHub’s 284.01%, nearly half of its Simple ROE of 15.99%. Please refer to Appendix #1 for detailed workings on the calculation of both the simple ROE and DuPont ROE. This is due to the consideration that the DuPont does not take into account any non-operating and foreign exchanges income losses/gains, which forms 68.73% of their operating income. Therefore, SingTel’s Simple ROE is much larger than that of their DuPont. The same applies for both M1 and StarHub, though the difference is only a fraction of a percentage point. However, despite the advantage of extra income, SingTel’s ROE is still not as favourable as compared to M1’s, and even more so against StarHub’s. SingTel’s dismal performance could be attributed to their investment in Australia affected by the depreciation of the Australian dollar and that SingTel operating expenses is placed more in promotion of their product and services, as opposed to their competitors who are focused on the actual product and services, thus negatively impacting on their OPM and TAT. However, SingTel’s low financial leverage multiplier does provide less risk to investors over its competitors.
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10. CAPM ESTIMATION
Three components are required in order to accurately estimate SingTel’s required rate of return. These components are namely the Beta, risk free rate of return, and market risk premium. We will be using the Singapore Government Security (SGS) 10 year treasury bonds and the Straits Times Index as a proxy for the risk free rate of return and the market return, respectively. 10.1 Beta The Beta of SingTel is determined by running a regression analysis of SingTel’s monthly price movements against those of the Straits Times Index, for the ten-year period from 2005 to 2015. We decided to utilize a ten-period instead of a five-year period as by including the 2007-08 financial crisis within the scope of regression analysis, more accuracy of the Beta can be achieved. The raw Beta of SingTel obtained from the regression analysis is 0.7586. The raw Beta is then adjusted to reflect the fact that the Beta of any stock is expected to revert to 1.00 in the long run, with the adjusted Beta being 0.8391. Please refer to Appendix #2 for detailed calculations for the Beta. 10.2 Risk free rate The risk free rate selected for the calculation of CAPM is the Singapore Government 10 year Treasury Bond, issued on the 1st June 2015, with a yield of 2.375% per annum. Singapore Government Bonds are rated AAA credit rating by Fitch. 10.3 Market risk premium The FTSE Straits Times Index (STI) is a capitalization-weighted stock market index that is regarded as the benchmark index for the Singapore stock market. It tracks the performance of the top 30 companies listed on the Singapore Exchange. The STI is notorious among the investment community to be a poor index, with the 4 largest companies on the index constituting 44% of the entire index, with SingTel alone making up 10.91% of the index. The index is also notorious for trading for years in a horizontal range. The chart on the right shows STI’s movements as compared to the S&P500 over the same time period. As can be seen, there is a very pronounced gradual rise in the S&P 500 over the years as compared to the STI, which dipped below the price level it was at 5 years ago.
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The S&P500 moves upwards in a predictable trend whereas depending on the time period selection, returns on the STI could be negative over the same time period. To overcome this difficulty in measuring the market’s return using the STI, we instead decided to analyze the returns of an index ETF that tracks the STI as a proxy for the market return. This is chiefly due to the fact that the actual market return does not constitute only capital gains, but dividend gains as well. By basing our market return on an index fund that tracks the STI, we are able to obtain a more realistic market return figure which includes dividend returns. For this, we chose the SPDR STI ETF, an index fund with minimal and negligible tracking error. The return from this fund (as a proxy for market return) is 9.4519% per annum. Straits Times Index constituents The market risk premium is thus 7.0769%, taken by Name Index Weight (%) deducting the risk free rate from the market return. DBS Group Holdings Ltd 12.60 Oversea-Chinese Banking Corp Ltd 11.28 = 44.09% Singapore Telecommunications Ltd 10.91 10.4 CAPM estimation United Overseas Bank Ltd 9.30 With the three key data obtained above, the required Jardine Matheson Holdings Ltd 6.93 rate of return of SingTel is estimated to be 8.3125%, Hongkong Land Holdings Ltd 4.43 using the Capital Asset Pricing model. Keppel Corp Ltd 3.89 Please refer to Appendix #3 for detailed workings Jardine Strategic Holdings Ltd 3.57 for the calculation of the CAPM return. CapitaLand Ltd 2.82 Thai Beverage PCL 2.73
Global Logistic Properties Ltd 2.51 Singapore Press Holdings Ltd 2.48 Singapore Exchange Ltd 2.40 Wilmar International Ltd 2.33 ComfortDelGro Corp Ltd 2.31 Singapore Airlines Ltd 2.01 City Developments Ltd 2.00 CapitaLand Mall Trust 1.99 Singapore Technologies Engineering Ltd 1.83 Genting Singapore PLC 1.78 Ascendas Real Estate Investment Trust 1.73 Hutchison Port Holdings Trust 1.57 Jardine Cycle & Carriage Ltd 1.32 Sembcorp Industries Ltd 1.21 Noble Group Ltd 0.97 StarHub Ltd 0.83 Sembcorp Marine Ltd 0.79 Golden Agri-Resources Ltd 0.78 Olam International Ltd 0.39 SIA Engineering Co Ltd 0.31
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11. VALUATION
11.1 Dividend Discount Model Being the third largest company traded on the SGX by market capitalization coupled with stable cash flows, earnings, and dividend growth, it is appropriate to value SingTel using the dividend discount model. In using Gordon’s growth model, the share price of a company is estimated to be the present value of all future dividends. Share price is calculated using the DDM model assuming a constant dividend growth as well as a required rate of return that is larger than the growth rate. 11.1.1 Assumptions In order to be able to accurately estimate SingTel’s intrinsic value, it is crucial to obtain a realistic required rate of return and dividend growth rate. For the required rate of return, we used the value obtained through CAPM: 8.3125%. The growth in dividends are calculated over the past 5 historical years: 2010 2011 2012 2013 2014 2015
Dividends paid (per share $0.142 $0.158 $0.158 $0.168 $0.168 $0.175
5Yr Avg Growth: 5-year dividend growth 11.27% 0.00% 6.33% 0.00% 4.17% 4.35%
11.1.2 Target share price The target share price was calculated using the formula:
퐷푖푣푖푑푒푛푑 푝푒푟 푠ℎ푎푟푒 푆ℎ푎푟푒 푃푟푖푐푒 = 퐷푖푠푐표푢푛푡 푅푎푡푒 − 퐷푖푣푖푑푒푛푑 퐺푟표푤푡ℎ 푅푎푡푒
Dividend Discount Model Results The dividend discount model suggests an intrinsic value of $4.416, an upside of 20% from the current stock price of $3.680. Dividend paid $0.175 In the calculation of the DDM, assumption has been made that SingTel will Growth rate 4.35% maintain a constant dividend growth rate of 4.35% into perpetuity. Considering the previous patterns of maintaining the same dividend payout per share for two Required Rate of Return 8.31% years before increasing the payout for the third year ($0.158, $0.158, followed by DDM Target Price $4.416 $0.168, $0.168, so $0.175 in 2015 is expected to be followed by $0.175 in 2016). The market index (Straits Times Index) is also assumed to continue to grow at the same rate as it has done historically (9.5419%), with SingTel’s corresponding discount rate calculated using CAPM to be 8.3125%. Please refer to Appendix #4 for detailed workings for the calculation of the DDM value.
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11.1.3 Sensitivity Analysis of DDM The below table shows the sensitivity of the model with the discount rate (RRR) and dividend growth rate as variables:
Dividend Growth 3.10% 3.35% 3.60% 3.85% 4.10% 4.35% 4.60% 4.85% 5.10% 5.35% 5.60% RRR Variation -1.25% -1.00% -0.75% -0.50% -0.25% 0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 7.0625% -1.25% $ 4.416 $ 4.714 $ 5.054 $ 5.447 $ 5.907 $ 6.452 $ 7.107 $ 7.910 $ 8.917 $ 10.219 $ 11.966
7.3125% -1.00% $ 4.154 $ 4.416 $ 4.714 $ 5.054 $ 5.447 $ 5.907 $ 6.452 $ 7.107 $ 7.910 $ 8.917 $ 10.219
7.5625% -0.75% $ 3.922 $ 4.154 $ 4.416 $ 4.714 $ 5.054 $ 5.447 $ 5.907 $ 6.452 $ 7.107 $ 7.910 $ 8.917
7.8125% -0.50% $ 3.714 $ 3.922 $ 4.154 $ 4.416 $ 4.714 $ 5.054 $ 5.447 $ 5.907 $ 6.452 $ 7.107 $ 7.910
8.0625% -0.25% $ 3.526 $ 3.714 $ 3.922 $ 4.154 $ 4.416 $ 4.714 $ 5.054 $ 5.447 $ 5.907 $ 6.452 $ 7.107
8.3125% 0.0% $ 3.357 $ 3.526 $ 3.714 $ 3.922 $ 4.154 $ 4.416 $ 4.714 $ 5.054 $ 5.447 $ 5.907 $ 6.452
8.5625% 0.25% $ 3.204 $ 3.357 $ 3.526 $ 3.714 $ 3.922 $ 4.154 $ 4.416 $ 4.714 $ 5.054 $ 5.447 $ 5.907
8.8125% 0.50% $ 3.063 $ 3.204 $ 3.357 $ 3.526 $ 3.714 $ 3.922 $ 4.154 $ 4.416 $ 4.714 $ 5.054 $ 5.447
9.0625% 0.75% $ 2.935 $ 3.063 $ 3.204 $ 3.357 $ 3.526 $ 3.714 $ 3.922 $ 4.154 $ 4.416 $ 4.714 $ 5.054
9.3125% 1.00% $ 2.817 $ 2.935 $ 3.063 $ 3.204 $ 3.357 $ 3.526 $ 3.714 $ 3.922 $ 4.154 $ 4.416 $ 4.714
9.5625% 1.25% $ 2.708 $ 2.817 $ 2.935 $ 3.063 $ 3.204 $ 3.357 $ 3.526 $ 3.714 $ 3.922 $ 4.154 $ 4.416 Prices in Green indicates undervaluation Current stock price is: $ 3.680 Prices in Red indicates overvaluation
The areas in green are valuations that are above the current market price ($3.680), and the areas in red are valuations below the current market price. It can be seen that most of the valuations are higher than the current market price, despite generous variations in the required rate of return and dividend growth of SingTel.
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11.2 Free Cash Flow to Equity (FCFE) FCFE model uses discounted cash flow approach to determine the amount of free cash flow available to shareholders, taking into consideration of debt obligations, capital expenditure to maintain existing assets, and new asset purchases to maintain the growth rate assumed. 11.2.1 Assumptions In order to project and derive forward FCFE of SingTel, we had to make certain assumptions on SingTel’s revenues, COGS, interest expenses, tax rates as well as depreciation & amortisation. We based our revenue projections on certain assumptions. We have segregated our projections for various revenue sources of SingTel so that we have more granular control and precise assumption-making instead of simply projecting the main revenue figure as a whole. We assumed revenue growth from mobile communications (especially from regional emerging markets), data & internet, and IT & Engineering services to grow at 5% annually for the period from 2016-2020. Revenue from sales of equipment is assumed to be at 1.3%, the average growth rate over the past 5 years. With the advent of mobile phones, the use of landline phones are assumed to decrease at a rate of 5% a year. The same goes for international phone usage, with the advent of VOIP technologies international call usage are expected to dramatically decrease in the coming years. We assumed a decrease in international telephone revenues of 5% annually. Please refer to our income statement projections for further details of our derivation of projected revenues. With the assumptions made above, we are able to calculate the projected revenues for the years 2016-2020. Costs of Goods Sold (COGS) for SingTel is presumed to be 16.6% of revenue, the median value to COGS for the past 5 years. Other operating revenue (0.6% of revenue), operating expenses (66.9% of revenue), interest expenses (1.8% of revenue) and the effective tax rate (15.1% of revenue) are also derived from the median values of the past 5 years. Please see the table named “Income Statement Assumptions” in the following page for more details on our FCFE income statement assumptions. We have also made certain assumptions with regards to cash flow items. Depreciation & Amortisation (11.7% of revenue), other non-cash adjustments (-2.3% of revenue), changes in non-cash capital (0.1% of revenue), as well as capital expenditures (-11.9% of revenue) are projected forward based on the median for the past 5 years. Refer to the table “Cash Flow Assumptions” in the following page for more details on our FCFE cash flow assumptions.
11.2.2 FCFE Calculation & Terminal Value Using the projected revenues, depreciation & amortization, changes in working capital, capital expenditures as well as changes in other non-cash adjustments, we are able to calculate the exact FCFE figure for each of the years from 2016 - 2020. We calculated the terminal value of SingTel at the year 2020 to be $93,827.21 million ($62,941.33 million in Present Value), based on our required rate of return of 8.3125% (obtained from CAPM) and a conservative terminal growth rate of 4%.
11.2.3 Target share price By summing up the discounted individual FCFEs from 2016 to 2020, as well as the discounted terminal value at the year 2020, we obtained an implied equity value of SingTel in Present Value to be $76,964.47 million ($76.964 billion). Dividing the implied equity value by the current number of shares outstanding (15,934.87 million), we obtained an implied target share price of $4.830, an upside of 31.2% from the current share price of $3.680. Please refer to Appendix #5 for detailed calculations for the Free Cash Flow to Equity valuation.
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Singtel - Income Statement Projections ($ in Millions SGD except per share data) Historical Projected 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total Revenue $ 18,071 $ 18,825 $ 18,183 $ 16,848 $ 17,223 $ 17,922 $ 18,680 $ 19,500 $ 20,388 $ 21,350 Mobile Communications 7719.8 8173.6 7836.6 7249.9 7242.3 7,604.4 7,984.6 8,383.9 8,803.1 9,243.2 Data and Internet 3486.7 3577.2 3506.1 3414.1 3099.6 3,254.6 3,417.3 3,588.2 3,767.6 3,956.0 IT & Engineering 2026.6 2067.1 2140.4 2146.1 2404.4 2,524.6 2,650.9 2,783.4 2,922.6 3,068.7 Sale of Equipment 1557.4 1705.6 1485.7 1244 1554.6 1,575.3 1,596.2 1,617.5 1,639.0 1,660.8 National Telephone 1886.4 1850.7 1723.3 1502.5 1356.8 1,289.0 1,224.5 1,163.3 1,105.1 1,049.9 Others Inc. Satellite and Pay Television 540.9 633 731.4 602.6 937.6 1,078.2 1,240.0 1,426.0 1,639.9 1,885.8 International Telephone 852.8 818.1 759.5 688.9 627.6 596.2 566.4 538.1 511.2 485.6 COGS 2980.2 3151.1 2993 2649.1 2933.8 2,975.0 3,100.8 3,237.0 3,384.4 3,544.0 Gross Profit $ 15,090 $ 15,674 $ 15,190 $ 14,199 $ 14,289 $ 14,947.3 $ 15,579.2 $ 16,263.3 $ 17,004.0 $ 17,806.0 Other Operating Revenue 116.5 99.6 114.3 108.4 145.5 114.0 118.8 124.0 129.7 135.8
Operating Expenses 12,095 12,590 12,232 11,281 11,519 11,993.5 12,500.5 13,049.4 13,643.7 14,287.3
Operating Income $ 3,112 $ 3,184 $ 3,073 $ 3,027 $ 2,916 $ 3,068 $ 3,197 $ 3,338 $ 3,490 $ 3,655
Interest Expenses 398 428 330 288 305 321.0 334.6 349.3 365.2 382.4
Foreign Exchange Losses (Gains) (7) (10) 16 10 (8) 1.6 1.6 1.7 1.8 1.9 Net Non-Operating Losses (Gains) (1,726) (1,548) (1,405) (1,619) (1,844) (1,624.9) (1,693.6) (1,767.9) (1,848.4) (1,935.6)
Profit Before Tax $ 4,446 $ 4,314 $ 4,131 $ 4,348 $ 4,463 $ 4,370 $ 4,555 $ 4,755 $ 4,971 $ 5,206
Income Taxes 623.7 324.9 620.7 691 678.5 660.5 688.4 718.6 751.4 786.8
Net Income $ 3,823 $ 3,990 $ 3,511 $ 3,657 $ 3,785 $ 3,710 $ 3,866 $ 4,036 $ 4,220 $ 4,419
Dividends Paid $ (2,357) $ (4,111) $ (2,518) $ (2,678) $ (2,678) $ (2,660) $ (2,773) $ (2,895) $ (3,026) $ (3,169) % Pay Out Ratio: -61.6% -103.1% -71.7% -73.2% -70.7% -71.7% -71.7% -71.7% -71.7% -71.7%
Additional to Retained Earnings $ 1,466 $ (122) $ 993 $ 979 $ 1,107 $ 1,049 $ 1,094 $ 1,142 $ 1,194 $ 1,250
EBITDA $ 5,080.50 $ 5,185.70 $ 5,199.90 $ 5,159.20 $ 5,077.00 $ 5,125.35 $ 5,342.01 $ 5,576.61 $ 5,830.59 $ 6,105.59 EBITDA Margin 28.11% 27.55% 28.60% 30.62% 29.48% 28.60% 28.60% 28.60% 28.60% 28.60%
Income Statement Assumptions Historical Projected 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Revenue Growth 4.2% -3.4% -7.3% 2.2% Mobile Communications 5.9% -4.1% -7.5% -0.1% 5.0% 5.0% 5.0% 5.0% 5.0% Data and Internet 2.6% -2.0% -2.6% -9.2% 5.0% 5.0% 5.0% 5.0% 5.0% IT & Engineering 2.0% 3.5% 0.3% 12.0% 5.0% 5.0% 5.0% 5.0% 5.0% Sale of Equipment 9.5% -12.9% -16.3% 25.0% 1.3% 1.3% 1.3% 1.3% 1.3% National Telephone -1.9% -6.9% -12.8% -9.7% -5.0% -5.0% -5.0% -5.0% -5.0% Others Inc. Satellite and Pay Television 17.0% 15.5% -17.6% 55.6% 15.0% 15.0% 15.0% 15.0% 15.0% International Telephone -4.1% -7.2% -9.3% -8.9% -5.0% -5.0% -5.0% -5.0% -5.0% COGS, % of Revenue 16.7% 16.5% 15.7% 17.0% 16.6% 16.6% 16.6% 16.6% 16.6% Other Operating Revenue, % of Revenue 0.5% 0.6% 0.6% 0.8% 0.6% 0.6% 0.6% 0.6% 0.6% Operating Exp, % of Revenue 66.9% 67.3% 67.0% 66.9% 66.9% 66.9% 66.9% 66.9% 66.9% Interest Expenses, % of Revenue 2.3% 1.8% 1.7% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% Foreign Exchange Losses (Gains), % of Revenue -0.1% 0.1% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Net Non-Operating Losses (Gains), % of Revenue -8.2% -7.7% -9.6% -10.7% -9.1% -9.1% -9.1% -9.1% -9.1% Effective Tax Rate 7.5% 15.0% 15.9% 15.2% 15.1% 15.1% 15.1% 15.1% 15.1% Depreciation & Amortisation $ 1,968.7 $ 2,001.6 $ 2,127.4 $ 2,132.7 $ 2,161.4 $ 2,096.90 $ 2,185.54 $ 2,281.52 $ 2,385.43 $ 2,497.94 D&A, % of Revenue 10.9% 10.6% 11.7% 12.7% 12.5% 11.7% 11.7% 11.7% 11.7% 11.7%
Cash Flow Assumptions Historical Projected 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Depreciation & Amortization 1,968.7 2,001.6 2,127.4 2,132.7 2,161.4 2,096.9 2,185.5 2,281.5 2,385.4 2,497.9 % of Revenue 10.9% 10.6% 11.7% 12.7% 12.5% 11.7% 11.7% 11.7% 11.7% 11.7% Other Non-Cash Adjustments (62.5) (660.1) (25.3) (385.8) (504.3) (410.4) (427.7) (446.5) (466.9) (488.9) % of Revenue -0.3% -3.5% -0.1% -2.3% -2.9% -2.3% -2.3% -2.3% -2.3% -2.3% Changes in Non-Cash Capital 15.4 11.3 (91.8) (305.2) 86.2 10.8 11.2 11.7 12.2 12.8 % of Revenue 0.1% 0.1% -0.5% -1.8% 0.5% 0.1% 0.1% 0.1% 0.1% 0.1% Capital Expenditures (2,004.6) (2,248.7) (2,058.6) (2,101.5) (2,237.6) (2,140.8) (2,231.3) (2,329.3) (2,435.4) (2,550.3) % of Revenue -11.1% -11.9% -11.3% -12.5% -13.0% -11.9% -11.9% -11.9% -11.9% -11.9%
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Singtel - FCFE Projections ($ in Millions SGD except per share data) Historical Projected 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total Revenue: $ 18,071 $ 18,825 $ 18,183 $ 16,848 $ 17,223 $ 17,922 $ 18,680 $ 19,500 $ 20,388 $ 21,350
Net Income $ 3,823 $ 3,990 $ 3,511 $ 3,657 $ 3,785 $ 3,710 $ 3,866 $ 4,036 $ 4,220 $ 4,419
Adjustments for Non-Cash Charges: Depreciation & Amortisation 1,968.7 2,001.6 2,127.4 2,132.7 2,161.4 2,096.9 2,185.5 2,281.5 2,385.4 2,497.9 % Revenue: 10.9% 10.6% 11.7% 12.7% 12.5% 11.7% 11.7% 11.7% 11.7% 11.7% Other Non-Cash Charges (62.5) (660.1) (25.3) (385.8) (504.3) (410.4) (427.7) (446.5) (466.9) (488.9) % Revenue: -0.3% -3.5% -0.1% -2.3% -2.9% -2.3% -2.3% -2.3% -2.3% -2.3% Total Non Cash Adjustments 1,906 1,342 2,102 1,747 1,657 1,687 1,758 1,835 1,919 2,009 % Revenue: 10.5% 7.1% 11.6% 10.4% 9.6% 9.4% 9.4% 9.4% 9.4% 9.4%
Changes in Working Capital: Net Decrease / (Increase): 15.4 11.3 (91.8) (305.2) 86.2 10.8 11.2 11.7 12.2 12.8 % Revenue: 0.1% 0.1% -0.5% -1.8% 0.5% 0.1% 0.1% 0.1% 0.1% 0.1%
Less: Capital Expenditures: (2,004.60) (2,248.70) (2,058.60) (2,101.50) (2,237.60) (2,140.84) (2,231.34) (2,329.33) (2,435.41) (2,550.28) % Revenue: -11.1% -11.9% -11.3% -12.5% -13.0% -11.9% -11.9% -11.9% -11.9% -11.9%
Free Cash Flow: $ 3,739.70 $ 3,093.60 $ 3,462.30 $ 2,997.10 $ 3,290.20 $ 3,266.03 $ 3,404.09 $ 3,553.59 $ 3,715.43 $ 3,890.67
Discount Factor 92.3% 85.2% 78.7% 72.7% 67.1%
Singtel - DCF Assumptions & Output 11.2.4 Sensitivity Analysis The table below shows the sensitivity of the share price against changes in the discount rate and the terminal growth rate. Discount Rate: 8.3125% Terminal Growth Rate: 4.0% Our target share price of $4.830 appears to be able to withstand rather large variations in both the discount rate and the terminal growth rate. Terminal Value: $ 93,827.21 PV of Terminal Value: $62,941.33 Sum of PV of Cash Flows: + $14,023.15 Implied Equity Value: $76,964.47 Diluted Shares Outstanding: 15,934.87 Implied Share Price: $ 4.830
Current Share Price: $ 3.68 Implied Premium / (Discount): 31.2%
RRR 5.81% 6.31% 6.81% 7.31% 7.81% 8.31% 8.81% 9.31% 9.81% 10.31% 10.81% Terminal Growth Variation -2.500% -2.000% -1.500% -1.000% -0.500% 0.00% 0.500% 1.000% 1.500% 2.000% 2.500% Rate 2.75% -1.25% $ 7.119 $ 6.115 $ 5.359 $ 4.768 $ 4.294 $ 3.906 $ 3.581 $ 3.306 $ 3.070 $ 2.865 $ 2.686 3.00% -1.00% $ 7.684 $ 6.520 $ 5.661 $ 5.002 $ 4.480 $ 4.056 $ 3.705 $ 3.409 $ 3.157 $ 2.940 $ 2.750 3.25% -0.75% $ 8.360 $ 6.991 $ 6.007 $ 5.265 $ 4.685 $ 4.221 $ 3.839 $ 3.521 $ 3.251 $ 3.020 $ 2.819 3.50% -0.50% $ 9.181 $ 7.546 $ 6.404 $ 5.562 $ 4.915 $ 4.403 $ 3.987 $ 3.642 $ 3.352 $ 3.105 $ 2.892 3.75% -0.25% $ 10.202 $ 8.209 $ 6.866 $ 5.901 $ 5.173 $ 4.605 $ 4.148 $ 3.774 $ 3.462 $ 3.197 $ 2.970 4.00% 0.0% $ 11.505 $ 9.015 $ 7.411 $ 6.291 $ 5.465 $ 4.830 $ 4.327 $ 3.919 $ 3.581 $ 3.297 $ 3.054 4.25% 0.25% $ 13.224 $ 10.017 $ 8.061 $ 6.744 $ 5.797 $ 5.083 $ 4.526 $ 4.078 $ 3.711 $ 3.405 $ 3.145 4.50% 0.50% $ 15.599 $ 11.295 $ 8.853 $ 7.279 $ 6.180 $ 5.369 $ 4.747 $ 4.254 $ 3.853 $ 3.522 $ 3.243 4.75% 0.75% $ 19.090 $ 12.983 $ 9.836 $ 7.918 $ 6.625 $ 5.696 $ 4.995 $ 4.448 $ 4.009 $ 3.649 $ 3.348 5.00% 1.00% $ 24.731 $ 15.313 $ 11.091 $ 8.694 $ 7.150 $ 6.072 $ 5.276 $ 4.666 $ 4.182 $ 3.789 $ 3.463 5.25% 1.25% $ 35.385 $ 18.739 $ 12.746 $ 9.659 $ 7.777 $ 6.509 $ 5.597 $ 4.910 $ 4.373 $ 3.942 $ 3.589 Prices in Green indicates undervaluation Current share price: $3.680 Prices in Red indicates overvaluation
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11.3 Price/Earnings model (P/E) The P/E ratio is a relative valuation method used to compare a company’s current share price to its earnings per share. It provides an indication of how much investors at a point in time are willing to pay for each dollar of a company’s earnings. It is one of the most popular and common valuation method, as it is very simple to calculate. Ceteris paribus, a firm with higher growth expectations will have higher PE ratios than another with lower growth expectations. 11.3.1 Assumption In order to accurately estimate the intrinsic value using P/E method, there are certain assumptions to be made. Firstly, earnings in the annual report are a good representative and are not being manipulated. Next, the guidelines used for accounting standards are standardized and are the same for its competitors. With that, using Share Price/Earnings Per Share, we have calculated SingTel’s historical Trailing P/E as shown in the table below:
2011 2012 2013 2014 2015 Share Price $3.020 $3.150 $3.590 $3.650 $3.680 Earnings Per Share $0.245 $0.250 $0.220 $0.229 $0.237 P/E Ratio 12.31 12.58 16.3 15.93 15.51
P/E ratios on its own does not say much about the company. It is much more useful when it is compared with its historical P/E, and P/E ratios of companies in the same industry, in our case Starhub and M1. The diagram shows the trailing P/E of SingTel and its competitors’. As compared to its peers, SingTel has a consistently lower P/E ratio than its competitors. The next step is to compare SingTel’s current P/E with its historical P/E. From 2010-2012, SingTel’s P/E stayed relatively constant around 12x P/E. In the year 2013, there’s a sudden increase in P/E to 16.30x, a 30% increment. This can be justified as SingTel began to provide 4G LTE services across Singapore, and as a result, investors anticipate a higher earnings growth in the future, leading to upward pressures of the P/E. However, as shown in the diagram, P/E for year 2014 and 2015 shows a slight decline in SingTel’s P/E. This may be an indication that investors realized that they overestimated growth potential from the 4G services, and the stock was actually overvalued in 2013. The fall in PE is likely to continue, until investors believe that the stock was properly valued, or SingTel starts to invest in technologies with huge potential for growth.
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11.3.2 Target share price Using our projected forward EPS of $0.2451 and current P/E ratio of 15.51, the target share price of SingTel is $3.802, suggesting a slight undervaluation based on the current share price of $3.680. Current Share Price $3.680 However, P/E ratio alone is not sufficient to make a proper investment decision. Earnings Per Share It is important to consider other valuations method in conjunction with the P/E $0.238 ratio. Forward EPS Please refer to Appendix #6 for detailed calculations for the Price/Earnings $0.245 model valuation. Growth Rate $0.033
Target Price $3.802
11.3.3 Sensitivity Analysis The table below shows the sensitivity of SingTel’s share price to changes in the P/E ratio and the Earnings Per Share:
P/E Ratio 13.0100 13.5100 14.0100 14.5100 15.0100 15.5100 16.0100 16.5100 17.0100 17.5100 18.0100 EPS Variation -2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 $0.220 -$0.025 $ 2.8635 $ 2.9736 $ 3.0836 $ 3.1937 $ 3.3037 $ 3.4138 $ 3.5238 $ 3.6339 $ 3.7439 $ 3.8540 $ 3.9640
$0.225 -$0.020 $ 2.9286 $ 3.0411 $ 3.1537 $ 3.2662 $ 3.3788 $ 3.4913 $ 3.6039 $ 3.7164 $ 3.8290 $ 3.9415 $ 4.0541
$0.230 -$0.015 $ 2.9936 $ 3.1087 $ 3.2237 $ 3.3388 $ 3.4538 $ 3.5689 $ 3.6839 $ 3.7990 $ 3.9140 $ 4.0291 $ 4.1441
$0.235 -$0.010 $ 3.0587 $ 3.1762 $ 3.2938 $ 3.4113 $ 3.5289 $ 3.6464 $ 3.7640 $ 3.8815 $ 3.9991 $ 4.1166 $ 4.2342
$0.240 -$0.005 $ 3.1237 $ 3.2438 $ 3.3638 $ 3.4839 $ 3.6039 $ 3.7240 $ 3.8440 $ 3.9641 $ 4.0841 $ 4.2042 $ 4.3242
$0.245 $0.000 $ 3.1888 $ 3.3113 $ 3.4339 $ 3.5564 $ 3.6790 $ 3.8015 $ 3.9241 $ 4.0466 $ 4.1692 $ 4.2917 $ 4.4143
$0.250 $0.005 $ 3.2538 $ 3.3789 $ 3.5039 $ 3.6290 $ 3.7540 $ 3.8791 $ 4.0041 $ 4.1292 $ 4.2542 $ 4.3793 $ 4.5043
$0.255 $0.010 $ 3.3189 $ 3.4464 $ 3.5740 $ 3.7015 $ 3.8291 $ 3.9566 $ 4.0842 $ 4.2117 $ 4.3393 $ 4.4668 $ 4.5944
$0.260 $0.015 $ 3.3839 $ 3.5140 $ 3.6440 $ 3.7741 $ 3.9041 $ 4.0342 $ 4.1642 $ 4.2943 $ 4.4243 $ 4.5544 $ 4.6844
$0.265 $0.020 $ 3.4490 $ 3.5815 $ 3.7141 $ 3.8466 $ 3.9792 $ 4.1117 $ 4.2443 $ 4.3768 $ 4.5094 $ 4.6419 $ 4.7745
$0.270 $0.025 $ 3.5140 $ 3.6491 $ 3.7841 $ 3.9192 $ 4.0542 $ 4.1893 $ 4.3243 $ 4.4594 $ 4.5944 $ 4.7295 $ 4.8645 Prices in Green indicates undervaluation Current share price: $3.680 Prices in Red indicates overvaluation
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11.4 Price/Book model (P/B) The Price to Book Ratio, is used to measure the firm’s current market price to its book value. The ratio is an indicator of a company’s intrinsic value. P/B ratios lesser than 1 indicate that the stock is undervalued as the residual assets (book value) attributable to each shareholder exceeds the market value of each share. Lower P/B ratios would mean that the share is undervalued and might be worth consideration for investment.
퐶푢푟푟푒푛푡 푃푟푖푐푒 표푓 푆푡표푐푘 The P/B ratio is calculated using the formula: 푃/퐵 푅푎푡푖표 = 퐵표표푘 푉푎푙푢푒 ( ) 푁푢푚푏푒푟 표푓 푆ℎ푎푟푒푠
The derivation of SingTel’s P/B Ratio is computed in the table below. 11.4.1 P/B Ratio Calculation 2011 2012 2013 2014 2015
Current Price of Stock $3.02 $3.15 $3.59 $3.65 $3.68 Net Book Value (Millions) $24,350.30 $23,447.90 $23,989.20 $23,892.60 $24,767.90 Number of Shares (Millions) 15935.5 15928.5 15931.2 15933.4 15943.9 Book Value Per Share $1.530 $1.470 $1.510 $1.500 $1.550 P/B Ratio 1.98 2.15 2.39 2.44 2.37 SingTel’s P/B Ratio for the year 2015 is 2.37. This value signifies an investor willingness to pay 2.37 times the book value of the company for its shares. This might signify an overvaluation of SingTel’s share when viewed objectively. However, due to the nature of the telecommunications industry, this value is significantly lower than its competitors as well as the industry average.
11.4.2 Industry P/B Ratio 2011 2012 2013 2014 2015 Average Growth SingTel 1.98 2.15 2.39 2.44 2.37 2.27 2.21%
M1 6.98 7.04 7.11 7.64 8.52 6.22 5.29%
Starhub 83.57 220.87 149.64 66.77 48.12 94.83 46.85%
Industry Average 30.84 76.69 53.05 25.62 19.67 18.12%
SingTel’s average P/B ratio over the past 5 years was 2.27. As compared to the P/B ratios of M1 (6.23x) and Starhub (94.83), SingTel’s P/B ratio is significantly lower than its competitors. This would mean that SingTel’s share price is relatively undervalued as compared to its competitors. Observing historical data, SingTel’s P/B ratio growth have been relatively stable over the past 5 years, moving between a very tight range of between 2x to 2.5x.
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11.4.3 Target share price Looking forward, we expect SingTel to maintain its stable P/B ratio of around 2.27x book value based on the average P/B ratio over the past 5 years. Our estimate of SingTel’s forward FY2016 equity value taking into account projections of SingTel’s FY2016 cash flows is $25,817.09 million, an increase of 4.24% over FY2015’s net book value of $24,767.90 million. Please see our balance sheet projections and assumptions on the following page to see how we obtained the forward FY2016 equity value of $25,817.09 million. Our balance sheet projections are obtained after forecasting the income statement (see here) as well as the cash flow statement (see here). We also assume that the outstanding shares remain unchanged at 15,943.90 million shares as it has been noted that there were only negligible changes in outstanding shares over the past 5 years. The target share price is hence calculated as follows: 퐶푢푟푟푒푛푡 푃푟푖푐푒 표푓 푆푡표푐푘 푃/퐵 푅푎푡푖표 = 퐵표표푘 푉푎푙푢푒 푝푒푟 푆ℎ푎푟푒
$3.680 2.27푥 = $25,817.09 ÷ 15943.90
퐶푢푟푟푒푛푡 푃푟푖푐푒 표푓 푆푡표푐푘 = $ퟑ. ퟔퟕퟓퟕ The target share price of $3.6757 suggests that SingTel is fairly valued at the moment with respect to the current price its shares at $3.680 after taking into account rounding adjustments. Please see the table in the following page for detailed our balance sheet projections and assumptions used in estimating the forward FY2016 equity value of SingTel. Please refer to Appendix #7 for detailed calculations for the Price/Book model valuation.
11.4.4 Sensitivity Analysis The table below shows the sensitivity of the share price against changes in the P/B ratio and Book Value of SingTel:
P/B Ratio 1.2700 1.4700 1.6700 1.8700 2.0700 2.2700 2.4700 2.6700 2.8700 3.0700 3.2700 Book Value -1 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1 ($ millions) Variation $ 11,257.54 -25.00% $ 0.8967 $ 1.0379 $ 1.1791 $ 1.3204 $ 1.4616 $ 1.6028 $ 1.7440 $ 1.8852 $ 2.0264 $ 2.1676 $ 2.3089 $ 15,010.06 -20.00% $ 1.1956 $ 1.3839 $ 1.5722 $ 1.7605 $ 1.9488 $ 2.1370 $ 2.3253 $ 2.5136 $ 2.7019 $ 2.8902 $ 3.0785 $ 18,762.57 -15.00% $ 1.4945 $ 1.7299 $ 1.9652 $ 2.2006 $ 2.4359 $ 2.6713 $ 2.9067 $ 3.1420 $ 3.3774 $ 3.6127 $ 3.8481 $ 22,073.61 -10.00% $ 1.7583 $ 2.0351 $ 2.3120 $ 2.5889 $ 2.8658 $ 3.1427 $ 3.4196 $ 3.6965 $ 3.9734 $ 4.2503 $ 4.5272 $ 24,526.24 -5.00% $ 1.9536 $ 2.2613 $ 2.5689 $ 2.8766 $ 3.1842 $ 3.4919 $ 3.7996 $ 4.1072 $ 4.4149 $ 4.7225 $ 5.0302 $ 25,817.09 0.0% $ 2.0564 $ 2.3803 $ 2.7041 $ 3.0280 $ 3.3518 $ 3.6757 $ 3.9995 $ 4.3234 $ 4.6472 $ 4.9711 $ 5.2949 $ 27,107.94 5.00% $ 2.1593 $ 2.4993 $ 2.8393 $ 3.1794 $ 3.5194 $ 3.8595 $ 4.1995 $ 4.5396 $ 4.8796 $ 5.2196 $ 5.5597 $ 29,818.74 10.00% $ 2.3752 $ 2.7492 $ 3.1233 $ 3.4973 $ 3.8714 $ 4.2454 $ 4.6195 $ 4.9935 $ 5.3676 $ 5.7416 $ 6.1156 $ 34,291.55 15.00% $ 2.7315 $ 3.1616 $ 3.5918 $ 4.0219 $ 4.4521 $ 4.8822 $ 5.3124 $ 5.7425 $ 6.1727 $ 6.6028 $ 7.0330 $ 41,149.86 20.00% $ 3.2778 $ 3.7939 $ 4.3101 $ 4.8263 $ 5.3425 $ 5.8587 $ 6.3749 $ 6.8910 $ 7.4072 $ 7.9234 $ 8.4396 $ 51,437.32 25.00% $ 4.0972 $ 4.7424 $ 5.3877 $ 6.0329 $ 6.6781 $ 7.3233 $ 7.9686 $ 8.6138 $ 9.2590 $ 9.9043 $ 10.5495
Current share price: $3.680 Prices in Green indicates undervaluation Outstanding Shares (millions): 15943.90 Prices in Red indicates overvaluation
It can be noted that the current price of SingTel is fairly valued based on P/B ratio, with the target price of $3.6757 being a negligible margin below current share price.
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Singtel - Balance Sheet Projections ($ in Millions SGD except per share data) Historical Projected 2011 2012 2013 2014 2015 2016
Cash & Cash Equivalents $ 2,738.00 $ 1,346.40 $ 911.00 $ 622.50 $ 562.80 $ 1,598.59 Short Term Investments $ - $ - $ - $ - $ - $ - Accounts & Notes Receivable $ 2,476.60 $ 2,865.50 $ 2,747.40 $ 2,360.20 $ 2,735.80 $ 2,649.99 Inventories $ 299.30 $ 208.10 $ 213.70 $ 169.60 $ 289.80 $ 210.64 Other Current Assets $ 1,041.30 $ 1,398.50 $ 933.70 $ 1,199.00 $ 1,179.20 $ 210.64
Total Current Assets $ 6,555.20 $ 5,818.50 $ 4,805.80 $ 4,351.30 $ 4,767.60 $ 4,669.85
LT Investments & LT Receivables $ 309.10 $ 1,473.70 $ 1,570.90 $ 1,621.80 $ 1,878.80 $ 1,548.38 Net Fixed Assets $ 11,112.50 $ 11,580.00 $ 11,724.90 $ 11,096.30 $ 10,683.20 $ 11,137.54 Other Long-Term Assets $ 21,305.50 $ 21,545.40 $ 21,881.90 $ 22,250.60 $ 24,737.20 $ 24,737.20
Total Non Current Assets $ 32,727.10 $ 34,599.10 $ 35,177.70 $ 34,968.70 $ 37,299.20 $ 37,423.11
Total Assets $ 39,282.30 $ 40,417.60 $ 39,983.50 $ 39,320.00 $ 42,066.80 $ 42,092.96
Accounts Payable $ 2,747.70 $ 3,205.60 $ 2,981.00 $ 2,759.00 $ 3,305.60 $ 2,933.28 Short-Term Borrowings $ 2,698.90 $ 131.10 $ 391.80 $ 1,457.10 $ 788.40 $ 788.40 Other Short-Term Liabilities $ 3,094.20 $ 2,198.70 $ 2,419.00 $ 1,473.90 $ 1,662.80 $ 1,548.38
Total Current Liabilities $ 8,540.80 $ 5,535.40 $ 5,791.80 $ 5,690.00 $ 5,756.80 $ 5,270.05
Long-Term Borrowings $ 4,586.70 $ 8,662.70 $ 7,536.90 $ 7,226.60 $ 8,804.40 $ 8,193.45 Other Long-Term Liabilities $ 1,804.50 $ 2,771.60 $ 2,665.60 $ 2,510.80 $ 2,737.70 $ 2,812.37
Total LT Liabilities $ 6,391.20 $ 11,434.30 $ 10,202.50 $ 9,737.40 $ 11,542.10 $ 11,005.82
Total Liabilities $ 14,932.00 $ 16,969.70 $ 15,994.30 $ 15,427.40 $ 17,298.90 $ 16,275.88
Total Preferred Equity $ - $ - $ - $ - $ - Minority Interest $ 22.00 $ 20.40 $ 24.60 $ 24.40 $ 34.60 $ 34.60 Share Capital & APIC $ 2,622.80 $ 2,632.20 $ 2,634.00 $ 2,634.00 $ 2,634.00 $ 2,634.00 Retained Earnings & Other Equity $ 21,705.50 $ 20,795.30 $ 21,330.60 $ 21,234.20 $ 22,099.30 $ 23,148.49
Total Equity $ 24,350.30 $ 23,447.90 $ 23,989.20 $ 23,892.60 $ 24,767.90 $ 25,817.09
Total Liabilities & Equity $ 39,282.30 $ 40,417.60 $ 39,983.50 $ 39,320.00 $ 42,066.80 $ 42,092.96
Balance Sheet Assumptions Historical Forecasted 2011 2012 2013 2014 2015 2016 Total Revenue $ 18,070.6 $ 18,825.3 $ 18,183.0 $ 16,848.1 $ 17,222.9 $ 17,922.3 Operating Expenses $ 12,095.1 $ 12,589.7 $ 12,231.8 $ 11,280.9 $ 11,519.0 $ 11,993.5
Days Receivable Outstanding 50.0 55.6 55.2 51.1 58.0 54.0 Other Current Assets, % of Revenue 1.7% 1.1% 1.2% 1.0% 1.7% 1.2% Inventories, % of Revenue 1.7% 1.1% 1.2% 1.0% 1.7% 1.2% Days Payable Outstanding 82.9 92.9 89.0 89.3 104.7 89.3 Other Short term Liabilities, % of Revenue 17.1% 11.7% 13.3% 8.7% 9.7% 8.6% LT Investments/Receivables, % of Revenue 1.71% 7.83% 8.64% 9.63% 10.91% 8.64% Other Long-Term Assets, % of Revenue 117.90% 114.45% 120.34% 132.07% 143.63% 120.34% Short term borrowings, % of Revenue 14.94% 0.70% 2.15% 8.65% 4.58% 4.58% Long term borrowings, % of Revenue 25.38% 46.02% 41.45% 42.89% 51.12% 42.89% Other Long-Term Liabilities, % of Revenue 9.99% 14.72% 14.66% 14.90% 15.90% 14.72%
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12. KEY INVESTMENT RISKS
SingTel’s business activities are exposed to various financial risks, including currency risk, interest rate risk, liquidity risk, credit risk, and market risk.
12.1 Credit Risk Financial assets that expose SingTel to credit risks consists mainly of trade receivables, marketable securities and financial instruments used hedging activities. SingTel has no significant exposure to trade receivables due to the diversity of its customer base. It manages its credit risk by using credit assessments, credit limits, and monitoring procedures. SingTel also requires its counterparty to obtain a deposit or bank guarantees where appropriate.
12.2 Interest Rate Risk SingTel’s source of interest rate risk comes primarily from its cash balances placed with banks and financial institutions. Interest received from these cash balances are a source of income for SingTel. SingTel hedges its interest rate risks on interest income by investing its cash balances in securities with varying maturities and interest rate terms. SingTel’s borrowings include bank loans and bonds. These borrowings expose the group to interest rate risks as changes in the interest rate will affect the fair value of its borrowings. SingTel seeks to minimize these risks by entering into interest rate swaps over the duration of its borrowings.
12.3 Currency Risk SingTel’s foreign exchange risk arises primarily from its operations by its subsidiaries, associates and joint ventures in foreign countries. Changes in the value of foreign currencies will therefore directly impact SingTel’s profit and equity in Singapore Dollar terms. SingTel hedges against this risk by using cross currency swaps in order to reduce its foreign currency exposures. As the hedges employed by SingTel are perfect, any change in the fair value of foreign currencies will have minimal impact on SingTel’s profit and equity.
12.4 Market Risk SingTel owns equity stakes in various companies, and the fair value of these investments will fluctuate with market sentiments.
12.5 Liquidity Risk SingTel manages its liquidity risk by closely monitoring its cash burn rate and maintaining an adequate level of cash in its reserves. Due to the dynamic nature of SingTel’s underlying businesses and investments, SingTel’s management maintains flexibility in funding its operations by holding credit lines available in order to mitigate liquidity risk arising from fluctuating cash flows.
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13. EVALUATION
The share price of SingTel as of 15th September 2015 is $3.680. Each valuation methods will yield different target prices as they differ in their usefulness and limitations. This section aims to discuss the valuation results with respect to the share price as of 15th September 2015, as well as come to a conclusion on how the final target price of $4.181 is achieved.
13.1 Discounted Cash Flow Models Discounted Cash Flow models aim to estimate the attractiveness of an investment opportunity by using future free cash flow projections and discounting them back to arrive at the present value. Discounted cash flow models are useful tools in an analyst’s toolbox. However, DCF methods do have their shortcomings. DCF is a rather mechanical valuation tool, which often subjects it to the axiom "garbage in, garbage out." Small changes in inputs may result in large changes in the expected value of the stock. Key to the discounted cash flow models are accurately estimating the discount rate and the growth rate of the company. The Capital Asset Pricing Model (CAPM) is used to determine SingTel’s required rate of return, whereby the Beta, risk-free rate of return and the market risk premium are used in conjunction to determine SingTel’s required rate of return. CAPM suggests that SingTel’s required rate of return to be 8.3125%. The DuPont analysis is also used to calculate SingTel’s required rate of return. Five things are taken into account under our DuPont analysis, and they are namely: operating efficiency, asset use efficiency, financial leverage, tax rates and interest expenses. These 5 considerations are taken into account in the DuPont ROE, and paints a clear picture of the financial performance of the company with regards to how efficient it uses its resources to generate profits. Our DuPont analysis suggests that SingTel’s required rate of return to be 9.09%.
13.1.1 Dividend Discount Model The dividend discount model suggests that the intrinsic value of SingTel’s shares to be $4.416, an upside of 20% from the current share price of $3.680. We believe SingTel to be currently undervalued at the moment, based on its historical performance and dividends, benchmarked relative to the market index (STI). The recent slump in market indices all around the world due to general pessimism on China’s growth has caused SingTel’s share prices to be depressed below its value determined by the dividend discount model. Our sensitivity analysis of the dividend discount model shows that the target price of $4.416 is quite resilient to changes in both the dividend growth rate as well as the company’s required rate of return. However, it is unwise to rely on the dividend discount model alone for valuation of SingTel’s shares. Other valuation methods are required to gain a more comprehensive insight into the viability of investment.
13.1.2 Free Cash Flow to Equity Model Using the Free Cash Flow to Equity (FCFE) approach, we discounted the value of all future cash flows as well as the terminal value of SingTel to the present value and the target share price obtained is $4.830, an upside of 31.2% from the current share price of $3.680. The FCFE approach is a suitable way of estimating the value of SingTel as SingTel is a mature company, with stable and predictable cash flows. We have used reasonable estimates of the growth in each of the company’s revenue segments (mobile and communications, data & internet, IT and engineering, sale of equipment etc) in order to accurately forecast the company’s cash flow for the next 5 years. Our sensitivity analysis of the discounted free cash flow to equity model indicates that the target price of $4.091 is quite robust to changes in both the estimated terminal growth rate as well as the company’s required rate of return.
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13.2 Relative Valuation Approaches Having discussed about discounted cash flow approaches to the valuation of SingTel, another alternative to valuing SingTel would be to use relative valuation methods. These methods are especially useful in comparing companies in the same industry but with differences in attributes like market capitalization, as well as operating and profit efficiencies. By stripping away the differences in attributes and comparing companies on a “per share” basis, we can more accurately compare companies in the same industry. The two most common relative valuation methods by far are the Price/Earnings ratio and Price/Book ratio.
13.2.1 Price/Earnings Ratio Using our forward EPS of $0.2451 and P/E ratio of 15.51, our implied target share price of SingTel is $3.802, suggesting a slight undervaluation based on the current share price of $3.680. We would consider SingTel to be fairly valued at the current Price/Earnings Ratio as the differences between price and value of SingTel is only 3.315% at the moment. Sensitivity analysis of the P/E ratio valuation model indicates that the target price of $3.802 is rather sensitive to changes in the Earnings Per Share of the company. It should be noted that P/E ratios are derived from historical data and may not be a good indicator of future performance. It is important to consider other valuations methods in conjunction with the P/E ratio.
13.2.2 Price/Book Ratio We are able to project SingTel’s P/B ratio forward as SingTel’s P/B ratio has shown to be very stable over the past 5 years. Using a forward P/B ratio of 2.27x book value based on the average P/B ratio over the past 5 years, coupled with our forward estimates of SingTel’s equity value in FY2016 of $25,817.09 million, we obtained a target share price of SingTel to be $3.6757. The target share price of $3.6757 suggests that SingTel is fairly valued at the moment with respect to the current price its shares at $3.680 after taking into account rounding adjustments. Sensitivity analysis of the P/B ratio valuation model indicates that the target price of $3.6757 is rather sensitive to changes in the book value and the forward P/B ratio of the company.
13.3 Conclusion Having obtained different target share prices of SingTel from our four different valuation approaches, our final target share price is derived by averaging the four target share prices ($4.416, $4.830, $3.802, $3.676) to obtain the final price of $4.181. Our final target price of $4.181 represents a 13.6% upside from the current price of $3.680.
(Current Share Price = $3.680) Target Price Upside / (Downside)
Dividend Discount Model $4.416 20.00%
Free Cash Flow to Equity Model $4.830 31.20%
Price/Earnings Model $3.802 3.32%
Price/Book Model $3.676 -0.12%
Average Target Price $4.181 13.60%
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14. REFERENCES
1. Singapore Telecommunications Limited 2015, Annual Report 2015, Singapore, viewed 5 September 2015, < http://info.SingTel.com/sites/default/files/invrel_areports/SingTel%20Annual%20Report%202015.pdf>
2. Gartner 2015, Gartner Forecasts 59 Percent Mobile Data Growth Worldwide in 2015, Connecticut USA, viewed 4 September 2015,
3. Business Times 2015, 4th Telco operator to be allocated spectrum at lower price: IDA, Singapore, viewed 4 September 2015,
4. Vulcan Post 2015, The SMRT-OMG Teamup: Everything You Need To Know About Our Newest Telco Hopeful, Singapore, Viewed 4 September 2015
5. Vulcan Post 2014, Google Reveals Singapore Number One For Smartphone Adoption, Surprised?, Singapore, viewed 4 September 2015
6. Yahoo Singapore 2013, S’pore population to hit 6 million by 2020, Singapore, viewed 5 September 2015
7. Trading Economics 2015, Singapore Population, New York USA, viewed 5 September 2015
8. Wikipedia 2015, Cloud Computing, viewed 4 September 2015
9. Wikipedia 2015, Hype Cycle , viewed 4 September 2015
10. Wikipedia 2015, SingTel Network and Infrastructure, viewed 5 September
11. Wikipedia 2015, Internet.Org, viewed 15 September 2015,
12. Ars Technica 2015, Facebook: Our drones will use lasers to deliver 10Gbps Internet access, New York USA, viewed 15 September 2015
13. The Guardian 2015, Facebook launches Aquila solar-powered drone for internet access, United Kingdom, viewed 15 September 2015
14. Tech Crunch 2015, Facebook’s Aquila Drone Will Beam Down Internet Access With Lasers, New York USA, viewed 15 September 2015
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15. Statistics Singapore 2014, Key Household Income Trends 2014, Singapore, viewed 15 September 2015
16. NUS Students' Investment Society, Singapore Telecommunications, Singapore, viewed 15 September 2015
17. Bloomberg Professional Service, Singapore, viewed 15 September 2015
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15. APPENDICES
15.1 Appendix #1: ROE and DuPont ROE Calculations 15.1.1 SingTel ROE & DuPont 푁푒푡 퐼푛푐표푚푒 3888.5 3888.5 푆푖푛푔푇푒푙 푆푖푚푝푙푒 푅푂퐸 = = = = 0.15982 표푟 15.99% 퐴푣푔. 퐶표푚푚표푛 퐸푞푢푖푡푦 (23892.6 + 24767.9) 24330.25 ( ) 2
푅푂퐸 = (((푂푝푒푟푎푡푖푛푔 푃푟표푓푖푡 푀푎푟푔푖푛 × 푇표푡푎푙 퐴푠푠푒푡 푇푢푟푛표푣푒푟) − 퐼푛푡푒푟푒푠푡 퐸푥푝푒푛푠푒 푅푎푡푒)
× 퐹푖푛푎푛푐푖푎푙 퐿푒푣푒푟푎푔푒 푀푢푙푡푖푝푙푖푒푟) × 푇푎푥 푅푒푡푒푛푡푖표푛 푅푎푡푒, 푖푛 푤ℎ푖푐ℎ: − 퐸퐵퐼푇 2915.6 푆푖푛푔푇푒푙 푂푝푒푟푎푡푖푛푔 푃푟표푓푖푡 푀푎푟푔푖푛 = = = 0.16928 ≈ 16.93% 푆푎푙푒푠 17222.9 푆푎푙푒푠 17222.9 17222.9 푆푖푛푔푇푒푙 푇표푡푎푙 퐴푠푠푒푡 푇푢푟푛표푣푒푟 = = = = 0.423 ≈ 0.42 퐴푣푔. 푇표푡푎푙 퐴푠푠푒푡푠 (39320.0 + 42066.8) 40693.4 ( ) 2 퐼푛푡푒푟푒푠푡 퐸푥푝푒푛푠푒 304.5 304.5 푆푖푛푔푇푒푙 퐼푛푡푒푟푒푠푡 퐸푥푝푒푛푠푒 푅푎푡푒 = = = = 0.00748 퐴푣푔. 푇표푡푎푙 퐴푠푠푒푡푠 (39320.0 + 42066.8) 40693.4 ( ) 2 ≈ 0.75% (39320.0 + 42066.8) ( ) 퐴푣푔. 푇표푡푎푙 퐴푠푠푒푡푠 2 40693.4 푆푖푛푔푇푒푙 퐹푖푛푎푛푐푖푎푙 퐿푒푣푒푟푎푔푒 푀푢푙푡푖푝푙푖푒푟 = = = 퐴푣푔. 퐶표푚푚표푛 퐸푞푢푖푡푦 (23892.6 + 24767.9) 24330.25 ( ) 2 = 1.672 ≈ 1.67 퐼푛푐표푚푒 푇푎푥푒푠 678.5 푆푖푛푔푇푒푙 푇푎푥 푅푒푡푒푛푡푖표푛 푅푎푡푒 = (100% − ) = (1 − ) = 0.84797 표푟 84.80% 푁푒푡 퐼푛푐표푚푒 푏푒푓표푟푒 푇푎푥 4463.0
푆푖푛푔푇푒푙 퐷푢푃표푛푡 푅푂퐸 = (((0.16928 × 0.423) − 0.00748) × 1.672) × 0.84797 = 0.09092 표푟 ퟗ. ퟎퟗ%
15.1.2 M1 ROE & DuPont 푁푒푡 퐼푛푐표푚푒 175.8 175.8 푀1 푆푖푚푝푙푒 푅푂퐸 = = = = 0.44523 표푟 44.52% 퐴푣푔. 퐶표푚푚표푛 퐸푞푢푖푡푦 (395.1 + 394.6) 394.85 ( ) 2
푅푂퐸 = (((푂푝푒푟푎푡푖푛푔 푃푟표푓푖푡 푀푎푟푔푖푛 × 푇표푡푎푙 퐴푠푠푒푡 푇푢푟푛표푣푒푟) − 퐼푛푡푒푟푒푠푡 퐸푥푝푒푛푠푒 푅푎푡푒)
× 퐹푖푛푎푛푐푖푎푙 퐿푒푣푒푟푎푔푒 푀푢푙푡푖푝푙푖푒푟) × 푇푎푥 푅푒푡푒푛푡푖표푛 푅푎푡푒, 푖푛 푤ℎ푖푐ℎ: − 퐸퐵퐼푇 220.7 푀1 푂푝푒푟푎푡푖푛푔 푃푟표푓푖푡 푀푎푟푔푖푛 = = = 0.20505 표푟 20.51% 푆푎푙푒푠 1076.3 푆푎푙푒푠 1076.3 1076.3 푀1 푇표푡푎푙 퐴푠푠푒푡 푇푢푟푛표푣푒푟 = = = = 1.068 ≈ 1.07 퐴푣푔. 푇표푡푎푙 퐴푠푠푒푡푠 (986.5 + 1027.8) 1007.15 ( ) 2 퐼푛푡푒푟푒푠푡 퐸푥푝푒푛푠푒 4.0 4.0 푀1 퐼푛푡푒푟푒푠푡 퐸푥푝푒푛푠푒 푅푎푡푒 = = = = 0.00397 ≈ 0.40% (986.5 + 1027.8) 퐴푣푔. 푇표푡푎푙 퐴푠푠푒푡푠 ( ) 1007.15 2
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(986.5 + 1027.8) ( ) 퐴푣푔. 푇표푡푎푙 퐴푠푠푒푡푠 2 1007.15 푀1 퐹푖푛푎푛푐푖푎푙 퐿푒푣푒푟푎푔푒 푀푢푙푡푖푝푙푖푒푟 = = = = 2.551 퐴푣푔. 퐶표푚푚표푛 퐸푞푢푖푡푦 (395.1 + 394.6) 394.85 ( ) 2 ≈ 2.55 퐼푛푐표푚푒 푇푎푥푒푠 41.3 푀1 푇푎푥 푅푒푡푒푛푡푖표푛 푅푎푡푒 = (100% − ) = (1 − ) = 0.80976 표푟 80.98% 푁푒푡 퐼푛푐표푚푒 푏푒푓표푟푒 푇푎푥 217.1
푀1 퐷푢푃표푛푡 푅푂퐸 = (((0.20505 × 1.068) − 0.00397) × 2.551) × 0.80976 = 0.44417 표푟 44.42%
15.1.3 StarHub ROE & DuPont 푁푒푡 퐼푛푐표푚푒 370.5 370.5 푆푡푎푟퐻푢푏 푆푖푚푝푙푒 푅푂퐸 = = = = 2.85439 표푟 285.44% 퐴푣푔. 퐶표푚푚표푛 퐸푞푢푖푡푦 (110.6 + 149.0) 129.8 ( ) 2
푅푂퐸 = (((푂푝푒푟푎푡푖푛푔 푃푟표푓푖푡 푀푎푟푔푖푛 × 푇표푡푎푙 퐴푠푠푒푡 푇푢푟푛표푣푒푟) − 퐼푛푡푒푟푒푠푡 퐸푥푝푒푛푠푒 푅푎푡푒)
× 퐹푖푛푎푛푐푖푎푙 퐿푒푣푒푟푎푔푒 푀푢푙푡푖푝푙푖푒푟) × 푇푎푥 푅푒푡푒푛푡푖표푛 푅푎푡푒, 푖푛 푤ℎ푖푐ℎ: − 퐸퐵퐼푇 476.7 푆푡푎푟퐻푢푏 푂푝푒푟푎푡푖푛푔 푃푟표푓푖푡 푀푎푟푔푖푛 = = = 0.19969 표푟 19.97% 푆푎푙푒푠 2387.2 푆푎푙푒푠 2387.2 2387.2 푆푡푎푟퐻푢푏 푇표푡푎푙 퐴푠푠푒푡 푇푢푟푛표푣푒푟 = = = = 1.233 ≈ 1.23 퐴푣푔. 푇표푡푎푙 퐴푠푠푒푡푠 (1882.7 + 1987.2) 1934.95 ( ) 2 퐼푛푡푒푟푒푠푡 퐸푥푝푒푛푠푒 22.6 22.6 푆푡푎푟퐻푢푏 퐼푛푡푒푟푒푠푡 퐸푥푝푒푛푠푒 푅푎푡푒 = = = = 0.01168 퐴푣푔. 푇표푡푎푙 퐴푠푠푒푡푠 (1882.7 + 1987.2) 1934.95 ( ) 2 ≈ 1.17% (1882.7 + 1987.2) ( ) 퐴푣푔. 푇표푡푎푙 퐴푠푠푒푡푠 2 1934.95 푆푡푎푟퐻푢푏 퐹푖푛푎푛푐푖푎푙 퐿푒푣푒푟푎푔푒 푀푢푙푡푖푝푙푖푒푟 = = = 퐴푣푔. 퐶표푚푚표푛 퐸푞푢푖푡푦 (110.6 + 149.0) 129.8 ( ) 2 = 14.907 ≈ 14.91 퐼푛푐표푚푒 푇푎푥푒푠 85.6 푆푡푎푟퐻푢푏 푇푎푥 푅푒푡푒푛푡푖표푛 푅푎푡푒 = (100% − ) = (1 − ) = 0.81232 표푟 81.23% 푁푒푡 퐼푛푐표푚푒 푏푒푓표푟푒 푇푎푥 456.1
푆푡푎푟퐻푢푏 퐷푢푃표푛푡 푅푂퐸 = (((0.19969 × 1.233) − 0.01168) × 14.907) × 0.81232 = 2.84007 표푟 284.01%
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15.2 Appendix #2: Beta calculation
Historical Growth 1 October 2010 3142.62 2.44 1.45% -2.40% 1 September 2010 3097.63 2.5 4.99% 2.88% Date STI Singtel STI2 Singtel3 2 August 2010 2950.33 2.43 -1.25% 1.25% 1 September 2015 2928.18 3.75 0.23% -0.27% 1 July 2010 2987.7 2.4 5.37% 3.00% 3 August 2015 2921.44 3.76 -8.78% -7.84% 1 June 2010 2835.51 2.33 3.01% 4.02% 1 July 2015 3202.5 4.08 -3.46% -1.45% 3 May 2010 2752.6 2.24 -7.46% -5.49% 1 June 2015 3317.33 4.14 -2.20% 2.99% 1 April 2010 2974.61 2.37 3.02% -3.66% 1 May 2015 3392.11 4.02 -2.73% -6.51% 1 March 2010 2887.46 2.46 4.97% 5.58% 1 April 2015 3487.39 4.3 1.17% 0.94% 1 February 2010 2750.86 2.33 0.20% 1.75% 2 March 2015 3447.01 4.26 1.30% 3.65% 4 January 2010 2745.35 2.29 -5.26% -4.58% 2 February 2015 3402.86 4.11 0.34% 3.53% 1 December 2009 2897.62 2.4 6.06% 7.62% 1 January 2015 3391.2 3.97 0.77% 4.75% 2 November 2009 2732.12 2.23 3.05% -0.45% 1 December 2014 3365.15 3.79 0.44% 1.61% 1 October 2009 2651.13 2.24 -0.80% -8.20% 3 November 2014 3350.5 3.73 2.33% 4.19% 1 September 2009 2672.57 2.44 3.07% 2.09% 1 October 2014 3274.25 3.58 -0.08% -2.45% 3 August 2009 2592.9 2.39 -2.49% -6.27%
1 September 2014 3276.74 3.67 -1.51% -1.34% 1 July 2009 2659.2 2.55 13.98% 16.44% 1 August 2014 3327.09 3.72 -1.39% -1.59% 1 June 2009 2333.14 2.19 0.17% -1.35% 1 July 2014 3374.06 3.78 3.64% 5.00% 1 May 2009 2329.08 2.22 21.29% 18.09% 2 June 2014 3255.67 3.6 -1.22% -0.55% 1 April 2009 1920.28 1.88 12.96% 0.53% 1 May 2014 3295.85 3.62 0.95% 1.40% 2 March 2009 1699.99 1.87 6.59% 1.63% 1 April 2014 3264.71 3.57 2.39% 5.00% 2 February 2009 1594.87 1.84 -8.68% -8.00% 3 March 2014 3188.62 3.4 2.50% 1.49% 1 January 2009 1746.47 2 -0.86% 3.09% 1 December 2008 1761.56 1.94 1.67% 6.59% 3 February 2014 3110.78 3.35 2.76% 2.45% 3 November 2008 1732.57 1.82 -3.43% 1.68% 1 January 2014 3027.22 3.27 -4.43% -3.82% 2 October 2008 1794.2 1.79 -23.94% -23.18% 2 December 2013 3167.43 3.4 -0.28% 0.29% 1 September 2008 2358.91 2.33 -13.91% -8.63%
1 November 2013 3176.35 3.39 -1.07% -2.02% 1 August 2008 2739.95 2.55 -6.48% -2.67% 1 October 2013 3210.67 3.46 1.35% 0.58% 1 July 2008 2929.65 2.62 -0.61% -0.38% 2 September 2013 3167.87 3.44 4.59% 6.50% 2 June 2008 2947.54 2.63 -7.68% -3.66% 1 August 2013 3028.94 3.23 -5.99% -8.76% 2 May 2008 3192.62 2.73 1.42% -3.53% 1 July 2013 3221.93 3.54 2.27% 5.36% 1 April 2008 3147.79 2.83 4.67% 0.00% 3 June 2013 3150.44 3.36 -4.86% 0.30% 3 March 2008 3007.36 2.83 -0.63% 2.54% 1 May 2013 3311.37 3.35 -1.69% -4.29% 1 February 2008 3026.45 2.76 1.50% 2.22% 1 April 2013 3368.18 3.5 1.82% 9.37% 2 January 2008 2981.75 2.7 -14.37% -6.57% 1 March 2013 3308.1 3.2 1.17% 4.92% 3 December 2007 3482.3 2.89 -1.11% 3.58%
1 February 2013 3269.95 3.05 -0.39% -2.56% 1 November 2007 3521.27 2.79 -7.47% -5.42% 1 October 2007 3805.7 2.95 2.68% 1.37% 1 January 2013 3282.66 3.13 3.65% 6.46% 3 December 2012 3167.08 2.94 3.16% 2.08% 3 September 2007 3706.23 2.91 9.23% 11.07% 1 August 2007 3392.91 2.62 -4.36% 3.56% 1 November 2012 3069.95 2.88 1.04% 2.13% 2 July 2007 3547.66 2.53 -0.02% 2.43% 1 October 2012 3038.37 2.82 -0.72% 0.71% 1 June 2007 3548.2 2.47 1.06% -2.76% 3 September 2012 3060.34 2.8 1.15% -5.08% 2 May 2007 3511.13 2.54 4.46% 5.39% 1 August 2012 3025.46 2.95 -0.36% -3.28% 2 April 2007 3361.29 2.41 4.02% 0.42% 2 July 2012 3036.4 3.05 5.49% 8.93% 1 March 2007 3231.24 2.4 4.09% 4.35% 1 June 2012 2878.45 2.8 3.82% 6.46% 1 February 2007 3104.15 2.3 -0.69% -8.37% 1 May 2012 2772.54 2.63 -6.92% -0.75% 3 January 2007 3125.56 2.51 4.68% 6.81% 2 April 2012 2978.57 2.65 -1.06% -0.75% 1 December 2006 2985.83 2.35 5.19% 11.90% 1 March 2012 3010.46 2.67 0.55% -0.74% 1 November 2006 2838.53 2.1 5.06% 9.38% 1 February 2012 2994.06 2.69 3.01% 2.28% 2 October 2006 2701.75 1.92 5.17% 8.47% 2 January 2012 2906.69 2.63 9.84% 0.00% 1 September 2006 2568.86 1.77 3.48% -1.67% 1 December 2011 2646.35 2.63 -2.08% 2.73% 1 August 2006 2482.39 1.8 1.51% -4.26% 1 November 2011 2702.46 2.56 -5.37% -4.83% 3 July 2006 2445.43 1.88 0.41% 2.17% 3 October 2011 2855.77 2.69 6.75% 1.51% 1 June 2006 2435.39 1.84 2.16% 1.10% 1 September 2011 2675.16 2.65 -7.28% 2.32% 2 May 2006 2383.87 1.82 -8.69% -8.08% 1 August 2011 2885.26 2.59 -9.53% -4.43% 3 April 2006 2610.71 1.98 3.05% 3.66% 1 July 2011 3189.26 2.71 2.21% 5.86% 1 March 2006 2533.4 1.91 2.07% 0.00% 1 June 2011 3120.44 2.56 -1.25% -0.39% 1 February 2006 2481.96 1.91 2.90% 3.24% 3 May 2011 3159.93 2.57 -0.40% 1.98% 3 January 2006 2412.08 1.85 2.76% -2.12% 1 April 2011 3172.73 2.52 2.15% 2.86% 1 December 2005 2347.34 1.89 2.05% 2.16% 1 March 2011 3105.85 2.45 3.17% 2.51% 2 November 2005 2300.25 1.85 3.77% 8.82% 1 February 2011 3010.51 2.39 -5.32% -5.16% 3 October 2005 2216.77 1.7 -3.83% -3.95% 3 January 2011 3179.72 2.52 -0.32% 1.20% 1 September 2005 2305.14 1.77 1.31% -5.85% 1 December 2010 3190.04 2.49 1.44% 1.63% 10 August 2005 2275.43 1.88 1 November 2010 3144.7 2.45 0.07% 0.41%
38 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
SUMMARY OUTPUT
Regression Statistics Multiple R 0.762503753 R Square 0.581411974 Adjusted R Square 0.577894428 Standard Error 0.035068739 Observations 121
ANOVA df SS MS F Significance F Regression 1 0.203275217 0.203275217 165.2890685 2.98387E-24 Residual 119 0.146348158 0.001229816 Total 120 0.349623375
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 0.00446534 0.003195077 1.397568925 0.164842609 -0.001861231 0.010791911 -0.001861231 0.010791911 X Variable 1 (Beta) 0.758648993 0.059009077 12.85647963 2.98387E-24 0.641805128 0.875492859 0.641805128 0.875492859
Adjusted Beta is: 0.8391
Beta adjustment formula: Adjusted Beta = (Raw Beta) x (2/3) + (1.00) x (1/3) Adjusted Beta = 0.7586 x (2/3) + (1/3) = 0.8391
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15.3 Appendix #3: CAPM Calculations
We have obtained the values for: Risk free rate, Rf = 2.375% Beta = 0.839 Market Return = 9.4519%
Calculation of CAPM:
퐶퐴푃푀 푅푒푡푢푟푛 = 푅푓 + 퐵푒푡푎(푅푚 − 푅푓)
퐶퐴푃푀 푅푒푡푢푟푛 = 2.375% + 0.839(9.4519% − 2.375%)
퐶퐴푃푀 푅푒푞푢푖푟푒푑 푅푎푡푒 표푓 푅푒푡푢푟푛 = ퟖ. ퟑퟏퟐퟓ%
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15.4 Appendix #4: Dividend Discount Model Calculations SingTel Expected Return 퐸푥푝푒푐푡푒푑 푅푒푡푢푟푛 표푛 푆푖푛푔푇푒푙 = 푅푖푠푘 퐹푟푒푒 푅푎푡푒 + 퐴푑푗푢푠푡푒푑 훽(푀푎푟푘푒푡 푅푎푡푒 표푓 푅푒푡푢푟푛 − 푅푖푠푘 퐹푟푒푒 푅푎푡푒), 푖푛 푤ℎ푖푐ℎ: − 푅푖푠푘 퐹푟푒푒 푅푎푡푒 = 2.375% 퐴푑푗푢푠푡푒푑 훽 = 0.839 푀푎푟푘푒푡 푅푎푡푒 표푓 푅푒푡푢푟푛 = 9.4519% 퐸푥푝푒푐푡푒푑 푅푒푡푢푟푛 표푛 푆푖푛푔푇푒푙 = 0.02375 + 0.839(0.094519 − 0.02375) = 0.083125 ≈ 8.31%
SingTel Arithmetic Average Dividend Growth Rate (2011 퐷푖푣푖푑푒푛푑 − 2010 퐷푖푣푖푑푒푛푑) (15.8 − 14.2) 2011 퐷푖푣푖푑푒푛푑 퐺푟표푤푡ℎ 푅푎푡푒 = = = 0.11267 ≈ 11.27% 2010 퐷푖푣푖푑푒푛푑 14.2 (2012 퐷푖푣푖푑푒푛푑 − 2011 퐷푖푣푖푑푒푛푑) (15.8 − 15.8) 2012 퐷푖푣푖푑푒푛푑 퐺푟표푤푡ℎ 푅푎푡푒 = = = 0 2011 퐷푖푣푖푑푒푛푑 15.8
(2013 퐷푖푣푖푑푒푛푑 − 2012 퐷푖푣푖푑푒푛푑) (16.8 − 15.8) 2013 퐷푖푣푖푑푒푛푑 퐺푟표푤푡ℎ 푅푎푡푒 = = = 0.06329 ≈ 6.33% 2012 퐷푖푣푖푑푒푛푑 15.8 (2014 퐷푖푣푖푑푒푛푑 − 2013 퐷푖푣푖푑푒푛푑) (16.8 − 16.8) 2014 퐷푖푣푖푑푒푛푑 퐺푟표푤푡ℎ 푅푎푡푒 = = = 0 2013 퐷푖푣푖푑푒푛푑 16.8
(2015 퐷푖푣푖푑푒푛푑 − 2014 퐷푖푣푖푑푒푛푑) (17.5 − 15.8) 2015 퐷푖푣푖푑푒푛푑 퐺푟표푤푡ℎ 푅푎푡푒 = = = 0.04167 ≈ 4.17% 2014 퐷푖푣푖푑푒푛푑 15.8 푆푢푚 표푓 퐷푖푣푖푑푒푛푑 퐺푟표푤푡ℎ 푅푎푡푒 푆푖푛푔푇푒푙 퐴푟푖푡ℎ푚푒푡푖푐 퐴푣푒푟푎푔푒 퐷푖푣푖푑푒푛푑 퐺푟표푤푡ℎ 푅푎푡푒 = 5 (0.11267 + 0 + 0.06329 + 0 + 0.04167) = = 0.04353 ≈ 4.35% 5
SingTel Forecasted Dividends 2016 퐷푖푣푖푑푒푛푑푠 = 2015 퐷푖푣푖푑푒푛푑푠 × (1 + 퐴푟푖푡ℎ푚푒푡푖푐 퐴푣푒푟푎푔푒 퐷푖푣푖푑푒푛푑 퐺푟표푤푡ℎ 푅푎푡푒) = 0.175 × (1 + 0.04353) = 0.1826 ≈ 18.3₵ 2017 퐷푖푣푖푑푒푛푑푠 = 2016 퐷푖푣푖푑푒푛푑푠 × (1 + 퐴푟푖푡ℎ푚푒푡푖푐 퐴푣푒푟푎푔푒 퐷푖푣푖푑푒푛푑 퐺푟표푤푡ℎ 푅푎푡푒) = 0.1826 × (1 + 0.04353) = 0.1905 ≈ 19.1₵ 2018 퐷푖푣푖푑푒푛푑푠 = 2017 퐷푖푣푖푑푒푛푑푠 × (1 + 퐴푟푖푡ℎ푚푒푡푖푐 퐴푣푒푟푎푔푒 퐷푖푣푖푑푒푛푑 퐺푟표푤푡ℎ 푅푎푡푒) = 0.1905 × (1 + 0.04353) = 0.1988 ≈ 19.9₵ 2019 퐷푖푣푖푑푒푛푑푠 = 2018 퐷푖푣푖푑푒푛푑푠 × (1 + 퐴푟푖푡ℎ푚푒푡푖푐 퐴푣푒푟푎푔푒 퐷푖푣푖푑푒푛푑 퐺푟표푤푡ℎ 푅푎푡푒) = 0.1988 × (1 + 0.04353) = 0.2075 ≈ 20.8₵ 2020 퐷푖푣푖푑푒푛푑푠 = 2019 퐷푖푣푖푑푒푛푑푠 × (1 + 퐴푟푖푡ℎ푚푒푡푖푐 퐴푣푒푟푎푔푒 퐷푖푣푖푑푒푛푑 퐺푟표푤푡ℎ 푅푎푡푒) = 0.2075 × (1 + 0.04353) = 0.2165 ≈ 21.7₵ SingTel DDM Value 2015 퐷푖푣푖푑푒푛푑 2015 퐷퐷푀 푉푎푙푢푒 표푓 푆ℎ푎푟푒 = 퐸푥푝푒푐푡푒푑 푅푒푡푢푟푛 − 퐴푟푖푡ℎ푚푒푡푖푐 퐴푣푒푟푎푔푒 퐷푖푣푖푑푒푛푑 퐺푟표푤푡ℎ 푅푎푡푒 0.175 0.175 = = = 4.420 ≈ $4.42 0.083125 − 0.04353 0.039595
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15.5 Appendix #5: Free Cash Flow to Equity Model Calculations 15.5.1 FCFE Workings
2010 FCFE 퐹퐶퐹퐸 = 푁푒푡 퐼푛푐표푚푒 + 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 − 퐶푎푝푖푡푎푙 퐸푥 − ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 + 푁푒푡 퐵표푟푟표푤푖푛푔, 푖푛 푤ℎ푖푐ℎ: − 푁푒푡 퐼푛푐표푚푒 = 3907.3 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 = 1878.0 퐶푎푝푖푡푎푙 퐸푥 = 1920.0 ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 = 2009 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 − 2010 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 = (2009 퐶푢푟푟푒푛푡 퐴푠푠푒푡푠 − 2009 퐶푢푟푟푒푛푡 퐿푖푎푏푖푙푖푡푖푒푠) − (2010 퐶푢푟푟푒푛푡 퐴푠푠푒푡푠 − 2010 퐶푢푟푟푒푛푡 퐿푖푎푏푖푙푖푡푖푒푠) = (3793.6 − 5102.5) − (5144.3 − 6834.8) = (−1308.9) − (−1690.5) = 381.6 푁푒푡 퐵표푟푟표푤푖푛푔 = 퐼푛푐푟푒푎푠푒푠 푖푛 퐵표푟푟표푤푖푛푔 − 퐷푒푐푟푒푎푠푒푠 푖푛 퐵표푟푟표푤푖푛푔 = 3930.7 − 4135.1 = (−204.4) 2010 퐹퐶퐹퐸 = 푁푒푡 퐼푛푐표푚푒 + 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 − 퐶푎푝푖푡푎푙 퐸푥 − ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 + 푁푒푡 퐵표푟푟표푤푖푛푔 = 3907.3 + 1878.0 − 1920.0 − 381.6 + (−204.4) = 3297.3
2011 FCFE 퐹퐶퐹퐸 = 푁푒푡 퐼푛푐표푚푒 + 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 − 퐶푎푝푖푡푎푙 퐸푥 − ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 + 푁푒푡 퐵표푟푟표푤푖푛푔, 푖푛 푤ℎ푖푐ℎ: − 푁푒푡 퐼푛푐표푚푒 = 3825.3 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 = 1968.7 퐶푎푝푖푡푎푙 퐸푥 = 2004.6 ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 = 2010 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 − 2011 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 = (2010 퐶푢푟푟푒푛푡 퐴푠푠푒푡푠 − 2010 퐶푢푟푟푒푛푡 퐿푖푎푏푖푙푖푡푖푒푠) − (2011 퐶푢푟푟푒푛푡 퐴푠푠푒푡푠 − 2011 퐶푢푟푟푒푛푡 퐿푖푎푏푖푙푖푡푖푒푠) = (5144.3 − 6834.8) − (6555.2 − 8540.8) = (−1690.5) − (−1985.6) = 295.1 푁푒푡 퐵표푟푟표푤푖푛푔 = 퐼푛푐푟푒푎푠푒푠 푖푛 퐵표푟푟표푤푖푛푔 − 퐷푒푐푟푒푎푠푒푠 푖푛 퐵표푟푟표푤푖푛푔 = 3394.2 − 4135.1 = (−740.9) 2011 퐹퐶퐹퐸 = 푁푒푡 퐼푛푐표푚푒 + 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 − 퐶푎푝푖푡푎푙 퐸푥 − ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 + 푁푒푡 퐵표푟푟표푤푖푛푔 = 3825.3 + 1968.7 − 2004.6 − 295.1 + (−740.9) = 2753.4
2012 FCFE 퐹퐶퐹퐸 = 푁푒푡 퐼푛푐표푚푒 + 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 − 퐶푎푝푖푡푎푙 퐸푥 − ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 + 푁푒푡 퐵표푟푟표푤푖푛푔, 푖푛 푤ℎ푖푐ℎ: − 푁푒푡 퐼푛푐표푚푒 = 3988.7 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 = 2001.6 퐶푎푝푖푡푎푙 퐸푥 = 2249.0
42 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 = 2011 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 − 2012 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 = (2011 퐶푢푟푟푒푛푡 퐴푠푠푒푡푠 − 2011 퐶푢푟푟푒푛푡 퐿푖푎푏푖푙푖푡푖푒푠) − (2012 퐶푢푟푟푒푛푡 퐴푠푠푒푡푠 − 2012 퐶푢푟푟푒푛푡 퐿푖푎푏푖푙푖푡푖푒푠) = (6555.2 − 8540.8) − (5818.5 − 5535.4) = (−1985.6) − 283.1 = (−2268.7) 푁푒푡 퐵표푟푟표푤푖푛푔 = 퐼푛푐푟푒푎푠푒푠 푖푛 퐵표푟푟표푤푖푛푔 − 퐷푒푐푟푒푎푠푒푠 푖푛 퐵표푟푟표푤푖푛푔 = 5888.1 − 4699.3 = 1188.8 2012 퐹퐶퐹퐸 = 푁푒푡 퐼푛푐표푚푒 + 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 − 퐶푎푝푖푡푎푙 퐸푥 − ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 + 푁푒푡 퐵표푟푟표푤푖푛푔 = 3988.7 + 2001.6 − 2249.0 − (−2268.7) + 1188.8 = 7198.8
2013 FCFE 퐹퐶퐹퐸 = 푁푒푡 퐼푛푐표푚푒 + 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 − 퐶푎푝푖푡푎푙 퐸푥 − ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 + 푁푒푡 퐵표푟푟표푤푖푛푔, 푖푛 푤ℎ푖푐ℎ: − 푁푒푡 퐼푛푐표푚푒 = 3508.3 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 = 2127.4 퐶푎푝푖푡푎푙 퐸푥 = 2059.0 ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 = 2012 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 − 2013 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 = (2012 퐶푢푟푟푒푛푡 퐴푠푠푒푡푠 − 2012 퐶푢푟푟푒푛푡 퐿푖푎푏푖푙푖푡푖푒푠) − (2013 퐶푢푟푟푒푛푡 퐴푠푠푒푡푠 − 2013 퐶푢푟푟푒푛푡 퐿푖푎푏푖푙푖푡푖푒푠) = (5818.5 − 5535.4) − (4805.8 − 5791.8) = 283.1 − (−986.0) = 1269.1 푁푒푡 퐵표푟푟표푤푖푛푔 = 퐼푛푐푟푒푎푠푒푠 푖푛 퐵표푟푟표푤푖푛푔 − 퐷푒푐푟푒푎푠푒푠 푖푛 퐵표푟푟표푤푖푛푔 = 3882.6 − 4688 = (−805.4) 2013 퐹퐶퐹퐸 = 푁푒푡 퐼푛푐표푚푒 + 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 − 퐶푎푝푖푡푎푙 퐸푥 − ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 + 푁푒푡 퐵표푟푟표푤푖푛푔 = 3508.3 + 2127.4 − 2059.0 − 1269.1 + (−805.4) = 1502.2
2014 FCFE 퐹퐶퐹퐸 = 푁푒푡 퐼푛푐표푚푒 + 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 − 퐶푎푝푖푡푎푙 퐸푥 − ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 + 푁푒푡 퐵표푟푟표푤푖푛푔, 푖푛 푤ℎ푖푐ℎ: − 푁푒푡 퐼푛푐표푚푒 = 3652.0 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 = 2132.7 퐶푎푝푖푡푎푙 퐸푥 = 2102.0 ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 = 2013 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 − 2014 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 = (2013 퐶푢푟푟푒푛푡 퐴푠푠푒푡푠 − 2013 퐶푢푟푟푒푛푡 퐿푖푎푏푖푙푖푡푖푒푠) − (2014 퐶푢푟푟푒푛푡 퐴푠푠푒푡푠 − 2014 퐶푢푟푟푒푛푡 퐿푖푎푏푖푙푖푡푖푒푠) = (4805.8 − 5791.8) − (4351.3 − 5690.0) = (−986.0) − (−1338.7) = 352.7 푁푒푡 퐵표푟푟표푤푖푛푔 = 퐼푛푐푟푒푎푠푒푠 푖푛 퐵표푟푟표푤푖푛푔 − 퐷푒푐푟푒푎푠푒푠 푖푛 퐵표푟푟표푤푖푛푔 = 3475.3 − 3270.2 = 205.1 2014 퐹퐶퐹퐸 = 푁푒푡 퐼푛푐표푚푒 + 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 − 퐶푎푝푖푡푎푙 퐸푥 − ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 + 푁푒푡 퐵표푟푟표푤푖푛푔 = 3652.0 + 2132.7 − 2102.0 − 352.7 + 205.1 = 3535.1
2015 FCFE 퐹퐶퐹퐸 = 푁푒푡 퐼푛푐표푚푒 + 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 − 퐶푎푝푖푡푎푙 퐸푥 − ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 + 푁푒푡 퐵표푟푟표푤푖푛푔, 푖푛 푤ℎ푖푐ℎ: − 푁푒푡 퐼푛푐표푚푒 = 3781.5 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 = 2161.4 43 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
퐶푎푝푖푡푎푙 퐸푥 = 2238.0 ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 = 2014 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 − 2015 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 = (2014 퐶푢푟푟푒푛푡 퐴푠푠푒푡푠 − 2014 퐶푢푟푟푒푛푡 퐿푖푎푏푖푙푖푡푖푒푠) − (2015 퐶푢푟푟푒푛푡 퐴푠푠푒푡푠 − 2015 퐶푢푟푟푒푛푡 퐿푖푎푏푖푙푖푡푖푒푠) = (4351.3 − 5690.0) − (4767.6 − 5756.8) = (−1338.7) − (−989.2) = 349.5
푁푒푡 퐵표푟푟표푤푖푛푔 = 퐼푛푐푟푒푎푠푒푠 푖푛 퐵표푟푟표푤푖푛푔 − 퐷푒푐푟푒푎푠푒푠 푖푛 퐵표푟푟표푤푖푛푔 = 5245.5 − 4508.2 = 737.3
2015 퐹퐶퐹퐸 = 푁푒푡 퐼푛푐표푚푒 + 퐷푒푝푟푒푐푖푎푡푖표푛 & 퐴푚표푟푡푖푠푎푡푖표푛 − 퐶푎푝푖푡푎푙 퐸푥 − ∆ 푖푛 푊표푟푘푖푛푔 퐶푎푝푖푡푎푙 + 푁푒푡 퐵표푟푟표푤푖푛푔 = 3781.5 + 2161.4 − 2238.0 − 349.5 + 737.3 = 4791.7
15.5.2 FCFE Growth Workings
Yearly FCFE Growth Rate (2011 퐹퐶퐹퐸 − 2010 퐹퐶퐹퐸) (2753.4 − 3297.3) 2011 퐹퐶퐹퐸 퐺푟표푤푡ℎ 푅푎푡푒 = = = (−0.16495) ≈ (−16.50%) 2010 퐹퐶퐹퐸 3297.3
(2012 퐹퐶퐹퐸 − 2011 퐹퐶퐹퐸) (7198.8 − 2753.4) 2012 퐹퐶퐹퐸 퐺푟표푤푡ℎ 푅푎푡푒 = = = 1.61451 ≈ 161.45% 2011 퐹퐶퐹퐸 2753.4
(2013 퐹퐶퐹퐸 − 2012 퐹퐶퐹퐸) (1502.2 − 7198.8) 2013 퐹퐶퐹퐸 퐺푟표푤푡ℎ 푅푎푡푒 = = = (−0.79133) ≈ (−79.13%) 2012 퐹퐶퐹퐸 7198.8
(2014 퐹퐶퐹퐸 − 2013 퐹퐶퐹퐸) (3535.1 − 1502.2) 2014 퐹퐶퐹퐸 퐺푟표푤푡ℎ 푅푎푡푒 = = = 1.35328 ≈ 135.33% 2013 퐹퐶퐹퐸 1502.2
(2015 퐹퐶퐹퐸 − 2014 퐹퐶퐹퐸) (4791.7 − 3535.1) 2015 퐹퐶퐹퐸 퐺푟표푤푡ℎ 푅푎푡푒 = = = 0.35546 ≈ 35.55% 2014 퐹퐶퐹퐸 3535.1
Annual FCFE Compound Growth Rate
1 퐸푛푑푖푛푔 푌푒푎푟 퐹퐶퐹퐸 푁표.표푓 푌푒푎푟푠 2010 − 2015 퐴푛푛푢푎푙 퐹퐶퐹퐸 퐶표푚푝표푢푛푑 퐺푟표푤푡ℎ 푅푎푡푒 = (( ) ) − 1 퐵푒푔푖푛푛푖푛푔 푌푒푎푟 퐹퐶퐹퐸
1 1 2015 퐹퐶퐹퐸 6 4791.7 6 = (( ) ) − 1 = (( ) ) − 1 = 0.06525 ≈ 6.53% 2010 퐹퐶퐹퐸 3279.3
44 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
15.5.3 FCFE Valuation Workings Yearly Discounted Forecasted FCFE 2016 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 3266.03 2016 퐷푖푠푐표푢푛푡푒푑 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 = = (1 + 퐶표푚푝푎푛푦′푠 퐷푖푠푐표푢푛푡 푅푎푡푒)푁표.표푓 푌푒푎푟푠 (1 + 0.083125)1 3266.03 = = 3015.379 ≈ $3015.38 1.0831 2017 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 3404.09 2017 퐷푖푠푐표푢푛푡푒푑 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 = = (1 + 퐶표푚푝푎푛푦′푠 퐷푖푠푐표푢푛푡 푅푎푡푒)푁표.표푓 푌푒푎푟푠 (1 + 0.083125)2 3404.09 = = 2901.646 ≈ $2901.65 1.1732 2018 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 3553.59 2018 퐷푖푠푐표푢푛푡푒푑 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 = = (1 + 퐶표푚푝푎푛푦′푠 퐷푖푠푐표푢푛푡 푅푎푡푒)푁표.표푓 푌푒푎푟푠 (1 + 0.083125)3 3553.59 = = 2796.604 ≈ $2796.60 1.2707 2019 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 3715.43 2019 퐷푖푠푐표푢푛푡푒푑 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 = = (1 + 퐶표푚푝푎푛푦′푠 퐷푖푠푐표푢푛푡 푅푎푡푒)푁표.표푓 푌푒푎푟푠 (1 + 0.083125)4 3715.43 = = 2699.571 ≈ $2699.57 1.3763 2020 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 3890.67 2020 퐷푖푠푐표푢푛푡푒푑 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 = = (1 + 퐶표푚푝푎푛푦′푠 퐷푖푠푐표푢푛푡 푅푎푡푒)푁표.표푓 푌푒푎푟푠 (1 + 0.083125)5 3890.67 = = 2609.946 ≈ $2609.95 1.4907
Forecasted FCFE Valuation 퐼푚푝푙푖푒푑 푇푒푟푚푖푛푎푙 퐹퐶퐹퐸 푉푎푙푢푒 푎푡 2020 (1 + 푇푒푟푚푖푛푎푙 퐺푟표푤푡ℎ 푅푎푡푒) 2020 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 × ( ) (퐶표푚푝푎푛푦′푠 퐷푖푠푐표푢푛푡 푅푎푡푒 − 푇푒푟푚푖푛푎푙 퐺푟표푤푡ℎ 푅푎푡푒) = (1 + 퐶표푚푝푎푛푦′푠 퐷푖푠푐표푢푛푡 푅푎푡푒)푁표.표푓 푌푒푎푟푠 (1 + 0.04) 3890.67 × ( ) (0.083125 − 0.04) 3890.67 × 24.1159 = = = 62941.577 ≈ $62941.58 (1 + 0.083125)5 1.4907 푆푢푚 표푓 푎푙푙 퐹푢푡푢푟푒 퐷푖푠푐표푢푛푡푒푑 퐹퐶퐹퐸 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 푉푎푙푢푎푡푖표푛 푉푎푙푢푒 = , 푖푛 푤ℎ푖푐ℎ: − 푁푢푚푏푒푟 표푓 푂푢푡푠푡푎푛푑푖푛푔 푆ℎ푎푟푒푠 푆푢푚 표푓 푎푙푙 퐹푢푡푢푟푒 퐷푖푠푐표푢푛푡푒푑 퐹퐶퐹퐸 = 2016 퐷푖푠푐표푢푛푡푒푑 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 + 2017 퐷푖푠푐표푢푛푡푒푑 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 + 2018 퐷푖푠푐표푢푛푡푒푑 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 + 2019 퐷푖푠푐표푢푛푡푒푑 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 + 2020 퐷푖푠푐표푢푛푡푒푑 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 + 퐼푚푝푙푖푒푑 푇푒푟푚푖푛푎푙 퐹퐶퐹퐸 푉푎푙푢푒 푎푡 2020 푆푢푚 표푓 푎푙푙 퐹푢푡푢푟푒 퐷푖푠푐표푢푛푡푒푑 퐹퐶퐹퐸 2016 퐹표푟푒푐푎푠푡푒푑 퐹퐶퐹퐸 푉푎푙푢푎푡푖표푛 푉푎푙푢푒 = 푁푢푚푏푒푟 표푓 푂푢푡푠푡푎푛푑푖푛푔 푆ℎ푎푟푒푠 (3015.379 + 2901.646 + 2796.604 + 2699.571 + 2609.946 + 62941.577) 76964.723 = = 15943.9 15943.9 = 4.827 ≈ $4.83
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45 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
15.6 Appendix #6: Price/Earnings Ratio Calculations 15.6.1 SingTel Earnings per Share Ratio
2011 푁푒푡 퐼푛푐표푚푒 2011 퐸푃푆 = 퐴푣푒푟푎푔푒 퐵푎푠푖푐 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑푖푛푔 2011 푁푒푡 퐼푛푐표푚푒 = 2010 퐵푎푠푖푐 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑푖푛푔 + 2011 퐵푎푠푖푐 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑푖푛푔 ( ) 2 3907.3 3907.3 = = = 0.2453 ≈ 24.5₵ 15922.1 + 15935.5 ( ) 15928.8 2 2012 푁푒푡 퐼푛푐표푚푒 2012 퐸푃푆 = 퐴푣푒푟푎푔푒 퐵푎푠푖푐 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑푖푛푔 2012 푁푒푡 퐼푛푐표푚푒 = 2011 퐵푎푠푖푐 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑푖푛푔 + 2012 퐵푎푠푖푐 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑푖푛푔 ( ) 2 3988.7 3988.7 = = = 0.2504 ≈ 25.0₵ 15935.5 + 15928.5 ( ) 15932.0 2 2013 푁푒푡 퐼푛푐표푚푒 2013 퐸푃푆 = 퐴푣푒푟푎푔푒 퐵푎푠푖푐 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑푖푛푔 2013 푁푒푡 퐼푛푐표푚푒 = 2012 퐵푎푠푖푐 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑푖푛푔 + 2013 퐵푎푠푖푐 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑푖푛푔 ( ) 2 3508.3 3508.3 = = = 0.2202 ≈ 22.0₵ 15928.5 + 15931.2 ( ) 15929.85 2
2014 푁푒푡 퐼푛푐표푚푒 2014 퐸푃푆 = 퐴푣푒푟푎푔푒 퐵푎푠푖푐 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑푖푛푔 2014 푁푒푡 퐼푛푐표푚푒 = 2013 퐵푎푠푖푐 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑푖푛푔 + 2014 퐵푎푠푖푐 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑푖푛푔 ( ) 2 3652.0 3652.0 = = = 0.2292 ≈ 22.9₵ 15931.2 + 15933.4 ( ) 15932.3 2 2015 푁푒푡 퐼푛푐표푚푒 2015 퐸푃푆 = 퐴푣푒푟푎푔푒 퐵푎푠푖푐 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑푖푛푔 2015 푁푒푡 퐼푛푐표푚푒 = 2014 퐵푎푠푖푐 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑푖푛푔 + 2015 퐵푎푠푖푐 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑푖푛푔 ( ) 2 3781.5 3781.5 = = = 0.2373 ≈ 23.7₵ 15933.4 + 15934.9 ( ) 15934.15 2
46 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
15.6.2 SingTel P/E Ratio 2011 푀푎푟푘푒푡 푉푎푙푢푒 3.02 2011 푃/퐸 푅푎푡푖표 = = = 12.312 ≈ 12.31 2011 퐸푃푆 0.2453
2012 푀푎푟푘푒푡 푉푎푙푢푒 3.15 2012 푃/퐸 푅푎푡푖표 = = = 12.580 ≈ 12.58 2012 퐸푃푆 0.2504
2013 푀푎푟푘푒푡 푉푎푙푢푒 3.59 2013 푃/퐸 푅푎푡푖표 = = = 16.303 ≈ 16.30 2013 퐸푃푆 0.2202
2014 푀푎푟푘푒푡 푉푎푙푢푒 3.65 2014 푃/퐸 푅푎푡푖표 = = = 15.925 ≈ 15.93 2014 퐸푃푆 0.2292
2015 푀푎푟푘푒푡 푉푎푙푢푒 3.68 2015 푃/퐸 푅푎푡푖표 = = = 15.508 ≈ 15.51 2015 퐸푃푆 0.2373
15.6.3 SingTel Sustainable Growth Rate 2011 푆푢푠푡푎푖푛푎푏푙푒 퐺푟표푤푡ℎ 푅푎푡푒 = 2011 푅푂퐸 × (1 − 2011 퐷푖푣푖푑푒푛푑 푃푎푦표푢푡 푅푎푡푖표) = 16.54 × (1 − 1.0752) = (−1.244) ≈ (−1.24%)
2012 푆푢푠푡푎푖푛푎푏푙푒 퐺푟표푤푡ℎ 푅푎푡푒 = 2012 푅푂퐸 × (1 − 2012 퐷푖푣푖푑푒푛푑 푃푎푦표푢푡 푅푎푡푖표) = 16.71 × (1 − 0.6302) = 6.179 ≈ 6.18%
2013 푆푢푠푡푎푖푛푎푏푙푒 퐺푟표푤푡ℎ 푅푎푡푒 = 2013 푅푂퐸 × (1 − 2013 퐷푖푣푖푑푒푛푑 푃푎푦표푢푡 푅푎푡푖표) = 14.79 × (1 − 0.7621) = 3.519 ≈ 3.52%
2014 푆푢푠푡푎푖푛푎푏푙푒 퐺푟표푤푡ℎ 푅푎푡푒 = 2014 푅푂퐸 × (1 − 2014 퐷푖푣푖푑푒푛푑 푃푎푦표푢푡 푅푎푡푖표) = 14.12 × (1 − 0.7321) = 3.783 ≈ 3.78%
2015 푆푢푠푡푎푖푛푎푏푙푒 퐺푟표푤푡ℎ 푅푎푡푒 = 2015 푅푂퐸 × (1 − 2015 퐷푖푣푖푑푒푛푑 푃푎푦표푢푡 푅푎푡푖표) = 15.982 × (1 − 0.7388) = 4.175 ≈ 4.18%
푆푢푚 표푓 푆푢푠푡푎푖푛푎푏푙푒 퐺푟표푤푡ℎ 푅푎푡푒 푆푖푛푔푇푒푙 퐴푣푒푟푎푔푒 푆푢푠푡푎푖푛푎푏푙푒 퐺푟표푤푡ℎ 푅푎푡푒 = 5 ((−1.244) + 6.179 + 3.519 + 3.783 + 4.175) = = 3.282 ≈ 3.28% 5 15.6.4 SingTel P/E Ratio Valuation 푃/퐸 푅푎푡푖표 푉푎푙푢푎푡푖표푛 퐼푛푡푟푖푛푠푖푐 푉푎푙푢푒 = 푃/퐸 푅푎푡푖표 × 퐸푥푝푒푐푡푒푑 퐸푃푆, 푖푛 푤ℎ푖푐ℎ: − 퐸푥푝푒푐푡푒푑 퐸푃푆 = 퐶푢푟푟푒푛푡 퐸푃푆 × (1 + 퐴푣푒푟푎푔푒 푆푢푠푡푎푖푛푎푏푙푒 퐺푟표푤푡ℎ 푅푎푡푒) 2015 푃/퐸 푅푎푡푖표 푉푎푙푢푎푡푖표푛 퐼푛푡푟푖푛푠푖푐 푉푎푙푢푒 = 2015 푃/퐸 푅푎푡푖표 × (2015 퐸푃푆 × (1 + 퐴푣푒푟푎푔푒 푆푢푠푡푎푖푛푎푏푙푒 퐺푟표푤푡ℎ 푅푎푡푒)) = 15.51 × (0.2373 × (1 + 0.03282)) = 15.51 × 0.2451 = 3.801 ≈ $3.80 If you clicked a link to get here, click here to go back to where you were!
47 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
15.7 Appendix #7: Price/Book Ratio Calculation 15.7.1 SingTel 2015 P/B Ratio 푃 퐶푢푟푟푒푛푡 푃푟푖푐푒 표푓 푆푡표푐푘 푅푎푡푖표 = , 푖푛 푤ℎ푖푐ℎ: − 퐵 퐵표표푘 푉푎푙푢푒 푝푒푟 푆ℎ푎푟푒 퐵표표푘 푉푎푙푢푒 퐵표표푘 푉푎푙푢푒 푝푒푟 푆ℎ푎푟푒 = 푁푢푚푏푒푟 표푓 푆ℎ푎푟푒푠 퐶푢푟푟푒푛푡 푃푟푖푐푒 표푓 푆푡표푐푘 3.68 푆푖푛푔푇푒푙 푃⁄퐵 푅푎푡푖표 = = = 2.369 ≈ 2.37 퐵표표푘 푉푎푙푢푒 24, 767.9 ( ) ( ) 푁푢푚푏푒푟 표푓 푂푢푡푠푡푎푛푑푖푛푔 푆ℎ푎푟푒푠 15, 943.9
15.7.2 SingTel Average P/B Ratio Growth Rate (2011 푃/퐵 푅푎푡푖표 − 2010 푃/퐵 푅푎푡푖표) (1.98 − 2.15) 2011 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = = = (−0.07907) 2010 푃/퐵 푅푎푡푖표 2.15 ≈ (−7.91%) (2012 푃/퐵 푅푎푡푖표 − 2011 푃/퐵 푅푎푡푖표) (2.14 − 1.98) 2012 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = = = 0.08080 ≈ 8.08% 2011 푃/퐵 푅푎푡푖표 1.98 (2013 푃/퐵 푅푎푡푖표 − 2012 푃/퐵 푅푎푡푖표) (2.39 − 2.14) 2013 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = = = 0.11682 ≈ 11.68% 2012 푃/퐵 푅푎푡푖표 2.14
(2014 푃/퐵 푅푎푡푖표 − 2013 푃/퐵 푅푎푡푖표) (2.44 − 2.39) 2014 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = = = 0.02092 ≈ 2.09% 2013 푃/퐵 푅푎푡푖표 2.39
(2015 푃/퐵 푅푎푡푖표 − 2014 푃/퐵 푅푎푡푖표) (2.369 − 2.44) 2015 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = = = (−0.02910) 2014 푃/퐵 푅푎푡푖표 2.44 ≈ (−2.91%)
푆푢푚 표푓 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 퐴푣푒푟푎푔푒 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = 5 ((−0.07907) + 0.08080 + 0.11682 + 0.02092 + (−0.02910)) = = 0.02207 ≈ 2.21% 5
15.7.3 M1 2015 P/B Ratio 퐶푢푟푟푒푛푡 푃푟푖푐푒 표푓 푆푡표푐푘 푃/퐵 푅푎푡푖표 = , 푖푛 푤ℎ푖푐ℎ: − 퐵표표푘 푉푎푙푢푒 푝푒푟 푆ℎ푎푟푒 퐵표표푘 푉푎푙푢푒 퐵표표푘 푉푎푙푢푒 푝푒푟 푆ℎ푎푟푒 = 푁푢푚푏푒푟 표푓 푆ℎ푎푟푒푠 퐶푢푟푟푒푛푡 푃푟푖푐푒 표푓 푆푡표푐푘 3.61 푀1 푃/퐵 푅푎푡푖표 = = = 8.522 ≈ 8.52 퐵표표푘 푉푎푙푢푒 394.5 ( ) ( ) 푁푢푚푏푒푟 표푓 푂푢푡푠푡푎푛푑푖푛푔 푆ℎ푎푟푒푠 931.3 15.7.4 M1 Average P/B Ratio Growth Rate (2011 푃/퐵 푅푎푡푖표 − 2010 푃/퐵 푅푎푡푖표) (6.98 − 6.61) 2011 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = = = 0.05598 ≈ 5.60% 2010 푃/퐵 푅푎푡푖표 6.61 (2012 푃/퐵 푅푎푡푖표 − 2011 푃/퐵 푅푎푡푖표) (7.04 − 6.98) 2012 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = = = 0.00860 ≈ 0.86% 2011 푃/퐵 푅푎푡푖표 6.98 (2013 푃/퐵 푅푎푡푖표 − 2012 푃/퐵 푅푎푡푖표) (7.11 − 7.04) 2013 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = = = 0.00994 ≈ 0.99% 2012 푃/퐵 푅푎푡푖표 7.04
(2014 푃/퐵 푅푎푡푖표 − 2013 푃/퐵 푅푎푡푖표) (7.64 − 7.11) 2014 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = = = 0.07454 ≈ 7.45% 2013 푃/퐵 푅푎푡푖표 7.11
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(2015 푃/퐵 푅푎푡푖표 − 2014 푃/퐵 푅푎푡푖표) (8.522 − 7.64) 2015 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = = = 0.11545 ≈ 11.55% 2014 푃/퐵 푅푎푡푖표 7.64
푆푢푚 표푓 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 퐴푣푒푟푎푔푒 5 푦푒푎푟 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = 5 (0.05598 + 0.00860 + 0.00994 + 0.07454 + 0.11545) = = 0.05290 ≈ 5.29% 5
15.7.5 StarHub 2015 P/B Ratio 퐶푢푟푟푒푛푡 푃푟푖푐푒 표푓 푆푡표푐푘 푃/퐵 푅푎푡푖표 = , 푖푛 푤ℎ푖푐ℎ: − 퐵표표푘 푉푎푙푢푒 푝푒푟 푆ℎ푎푟푒 퐵표표푘 푉푎푙푢푒 퐵표표푘 푉푎푙푢푒 푝푒푟 푆ℎ푎푟푒 = 푁푢푚푏푒푟 표푓 푆ℎ푎푟푒푠 퐶푢푟푟푒푛푡 푃푟푖푐푒 표푓 푆푡표푐푘 4.15 푆푡푎푟퐻푢푏 푃/퐵 푅푎푡푖표 = = = 48.115 ≈ 48.12 퐵표표푘 푉푎푙푢푒 149.0 ( ) ( ) 푁푢푚푏푒푟 표푓 푂푢푡푠푡푎푛푑푖푛푔 푆ℎ푎푟푒푠 1727.5 15.7.6 StarHub Average P/B Ratio Growth Rate (2011 푃/퐵 푅푎푡푖표 − 2010 푃/퐵 푅푎푡푖표) (83.57 − 29.27) 2011 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = = = 1.85514 2010 푃/퐵 푅푎푡푖표 29.27 ≈ 185.51% (2012 푃/퐵 푅푎푡푖표 − 2011 푃/퐵 푅푎푡푖표) (220.87 − 83.57) 2012 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = = = 1.64293 2011 푃/퐵 푅푎푡푖표 83.57 ≈ 164.29% (2013 푃/퐵 푅푎푡푖표 − 2012 푃/퐵 푅푎푡푖표) (149.64 − 220.87) 2013 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = = = (−0.32249) 2012 푃/퐵 푅푎푡푖표 220.87 ≈ (−32.25%)
(2014 푃/퐵 푅푎푡푖표 − 2013 푃/퐵 푅푎푡푖표) (66.77 − 149.64) 2014 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = = = (−0.55379) 2013 푃/퐵 푅푎푡푖표 149.64 ≈ (−55.38%)
(2015 푃/퐵 푅푎푡푖표 − 2014 푃/퐵 푅푎푡푖표) (48.115 − 66.77) 2015 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = = = (−0.27939) 2014 푃/퐵 푅푎푡푖표 66.77 ≈ (−27.94%)
푆푢푚 표푓 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 퐴푣푒푟푎푔푒 5 푦푒푎푟 푃/퐵 푅푎푡푖표 퐺푟표푤푡ℎ 푅푎푡푒 = 5 (1.85514 + 1.64293 + (−0.32249) + (−0.55379) + (−0.27939)) = = 0.46848 ≈ 46.85% 5
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49 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
15.8 Appendix #8: Comparison of Mobile service plan prices 15.8.1 SingTel (viewed 15th September 2015):
50 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
15.8.2 Starhub (viewed 15th September 2015):
51 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
15.8.3 M1 (viewed 15th September 2015):
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15.9 Appendix #9: SingTel Financial Statements 15.9.1 SingTel Income Statement Singapore Telecommunications Ltd (ST SP) - Standardized
In Millions of SGD except Per Share FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Last 12M FY 2016 Est FY 2017 Est 12 Months Ending 03/31/2009 03/31/2010 03/31/2011 03/31/2012 03/31/2013 03/31/2014 03/31/2015 06/30/2015 03/31/2016 03/31/2017 Revenue 14,934.4 16,870.9 18,070.6 18,825.3 18,183.0 16,848.1 17,222.9 17,283.8 17,281.2 17,725.0 Product/Brand Segments 14,934.4 16,870.9 18,070.6 18,825.3 18,183.0 16,848.1 17,222.9 Mobile Communications 5,936.0 7,042.7 7,719.8 8,173.6 7,836.6 7,249.9 7,242.3 Data and Internet 3,110.0 3,341.9 3,486.7 3,577.2 3,506.1 3,414.1 3,099.6 IT & Engineering 1,557.0 1,960.1 2,026.6 2,067.1 2,140.4 2,146.1 2,404.4 Sale of Equipment 1,221.0 1,452.2 1,557.4 1,705.6 1,485.7 1,244.0 1,554.6 National Telephone 1,862.0 1,893.7 1,886.4 1,850.7 1,723.3 1,502.5 1,356.8 Others Inc. Satellite and Pay Television 449.0 478.1 540.9 633.0 731.4 602.6 937.6 Others -- 327.7 356.6 427.8 513.5 350.9 635.8 Digital ------164.6 333.2 Others ------186.3 302.6 Pay Television -- 150.4 184.3 205.2 217.9 251.7 301.8 International Telephone 800.0 702.2 852.8 818.1 759.5 688.9 627.6 Wireline ------Wireless ------Sub-Sea Cable Storage & Investment Activity ------Reconciliation -0.6 ------Geographic Segments 14,934.4 16,870.9 18,070.6 18,825.3 18,183.0 16,848.0 17,223.0 Australia 9,469.4 10,875.9 11,670.0 12,274.5 11,450.9 9,936.0 9,875.0 Singapore 5,224.3 5,995.0 6,400.6 6,550.8 6,732.1 6,912.0 7,348.0 Others 240.7 ------Eliminations ------Cost of Revenue 1,681.6 2,795.5 2,980.2 3,151.1 2,993.0 2,649.1 2,933.8 3,155.0 Gross Profit 13,252.8 14,075.4 15,090.4 15,674.2 15,190.0 14,199.0 14,289.1 14,128.8 9,112.9 9,400.1 + Other Operating Income 114.1 107.2 116.5 99.6 114.3 108.4 145.5 158.9 - Operating Expenses 10,638.1 11,185.9 12,095.1 12,589.7 12,231.8 11,280.9 11,519.0 11,396.4 Operating Income 2,728.8 2,996.7 3,111.8 3,184.1 3,072.5 3,026.5 2,915.6 2,891.3 2,958.3 3,091.0 Geographic Segments -- 2,973.3 3,020.4 3,113.9 2,955.6 -- -- Corp -- -59.7 -75.0 -104.7 ------Singapore -- 1,769.7 1,654.0 1,619.4 1,435.2 -- -- Australia -- 1,263.3 1,441.4 1,599.2 1,520.4 -- -- - Interest Expense 372.4 325.9 398.3 427.6 329.9 287.5 304.5 312.8 - Foreign Exchange Losses (Gains) 28.0 41.4 -7.3 -10.3 15.8 10.4 -7.6 -7.3 - Net Non-Operating Losses (Gains) -1,663.4 -1,871.7 -1,725.6 -1,547.6 -1,404.5 -1,619.3 -1,844.3 -1,979.8 Pretax Income 3,991.8 4,501.1 4,446.4 4,314.4 4,131.3 4,347.9 4,463.0 4,565.6 5,293.1 5,655.1 - Income Tax Expense 497.5 594.6 623.7 324.9 620.7 691.0 678.5 675.9 Income Before XO Items 3,494.3 3,906.5 3,822.7 3,989.5 3,510.6 3,656.9 3,784.5 3,889.7 3,872.6 4,163.9 - Extraordinary Loss Net of Tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Minority Interests 0.8 -0.8 -2.6 0.8 2.3 4.9 3.0 1.2 Net Income 3,448.4 3,907.3 3,825.3 3,988.7 3,508.3 3,652.0 3,781.5 3,888.5 3,872.9 4,142.2 - Total Cash Preferred Dividends 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Other Adjustments ------0.0 0.0 0.0 Net Inc Avail to Common Shareholders 3,448.4 3,907.3 3,825.3 3,988.7 3,508.3 3,652.0 3,781.5 3,888.5 3,872.6 4,163.9
Abnormal Losses (Gains) 134.4 -592.2 130.1 0.5 -5.1 -297.2 -137.1 6.2 Tax Effect on Abnormal Items -16.9 -- -- -0.1 0.8 22.6 11.6 -1.0 Normalized Income 3,611.0 3,315.1 3,955.4 3,989.1 3,504.0 3,377.4 3,656.0 3,893.7
Basic EPS Before Abnormal Items 0.23 0.21 0.25 0.25 0.22 0.21 0.23 0.24 Basic EPS Before XO Items 0.22 0.25 0.24 0.25 0.22 0.23 0.24 0.24 0.24 0.26 Basic EPS 0.22 0.25 0.24 0.25 0.22 0.23 0.24 0.24 0.24 0.26 Basic Weighted Avg Shares 15,911.8 15,918.3 15,925.8 15,928.8 15,932.1 15,934.0 15,936.7 15,934.0 Diluted EPS Before Abnormal Items 0.22 0.21 0.25 0.25 0.22 0.21 0.23 0.24 Diluted EPS Before XO Items 0.22 0.24 0.24 0.25 0.22 0.23 0.24 0.24 Diluted EPS 0.22 0.24 0.24 0.25 0.22 0.23 0.24 0.24 Diluted Weighted Avg Shares 15,964.5 15,969.7 15,949.3 15,971.9 15,975.6 15,969.8 15,977.0 15,964.4
Reference Items Accounting Standard SG GAAP IAS/IFRS IAS/IFRS IAS/IFRS IAS/IFRS IAS/IFRS IAS/IFRS EBITDA 4,461.5 4,874.7 5,080.5 5,185.7 5,199.9 5,159.2 5,077.0 5,055.2 5,059.7 5,244.3 Product/Brand Segments 4,431.0 4,847.0 5,114.7 5,219.0 5,199.8 5,155.4 5,077.0 Consumer ------3,330.6 3,345.2 3,316.6 Enterprise ------2,062.6 2,032.2 2,061.2 Reconciliation ------13.7 Corporate ------89.4 -52.2 -71.2 Digital Life ------104.0 -169.8 -215.9 Group 4,431.0 4,847.0 5,114.7 5,219.0 ------Group and Int'l Business Net Corporate Costs-52.0 -69.0 -71.0 -114.0 ------SingTel 2,162.0 2,293.0 2,253.0 2,242.0 ------IT and Engineering Business 110.0 203.0 267.0 268.0 ------Telecom Business 2,052.0 2,090.0 1,986.0 1,974.0 ------Optus 2,343.5 2,623.0 2,932.7 3,091.0 ------Customer and Small and Medium Businesses232.4 (SMB) Fixed253.6 363.1 305.2 ------Business and Wholesale Fixed 537.4 594.6 855.6 715.2 ------Mobile 1,573.7 1,765.5 2,465.6 2,067.0 ------EBITDA Margin (T12M) 29.87 28.89 28.11 27.55 28.60 30.62 29.48 29.25 29.28 29.59 Gross Margin 88.74 83.43 83.51 83.26 83.54 84.28 82.97 81.75 52.73 53.03 Operating Margin 18.27 17.76 17.22 16.91 16.90 17.96 16.93 16.73 17.12 17.44 Profit Margin 23.09 23.16 21.17 21.19 19.29 21.68 21.96 22.50 22.41 23.49 Revenue Per Employee 649,321.74 731,989.76 784,620.73 812,275.63 838,119.38 771,786.53 749,897.68 Dividends per Share 0.13 0.14 0.16 0.16 0.17 0.17 0.18 0.18 0.20 Total Cash Common Dividends 1,991.3 2,257.0 4,112.9 2,513.5 2,673.7 2,673.6 2,793.7 Interest Income 132.4 16.7 43.5 54.0 46.8 49.2 46.2 46.4 Capitalized Interest Expense 0.0 7.2 0.0 4.3 16.8 18.1 6.7 2.6 Research & Development Expense 0.6 0.5 2.2 2.8 0.3 0.0 0.0 0.0 Personnel Expense 1,965.7 2,122.1 2,196.6 2,312.6 2,346.6 2,285.3 2,461.1 2,462.0 Depreciation Expense 1,685.8 1,818.5 1,863.6 1,875.4 1,967.6 1,964.4 1,964.8 1,952.5 Geographic Segments 1,685.8 ------Others 15.7 ------Singapore 454.1 ------Australia 1,216.0 ------Rental Expense 226.9 258.6 283.6 315.1 378.8 380.6 398.9 Source: Bloomberg
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15.9.2 SingTel Balance Sheet Singapore Telecommunications Ltd (ST SP) - Standardized
In Millions of SGD except Per Share FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 12 Months Ending 03/31/2006 03/31/2007 03/31/2008 03/31/2009 03/31/2010 03/31/2011 03/31/2012 03/31/2013 03/31/2014 03/31/2015 Assets + Cash & Near Cash Items 2,768.6 1,390.1 1,370.5 1,072.4 1,608.6 2,738.0 1,346.4 911.0 622.5 562.8 + Short-Term Investments 860.3 341.5 1.5 14.4 5.0 0.0 0.0 0.0 0.0 0.0 + Accounts & Notes Receivable 1,900.8 1,913.1 1,994.5 2,033.4 2,425.6 2,476.6 2,865.5 2,747.4 2,360.2 2,735.8 + Inventories 186.3 93.4 123.6 173.4 345.8 299.3 208.1 213.7 169.6 289.8 + Other Current Assets 515.7 535.0 559.9 500.0 759.3 1,041.3 1,398.5 933.7 1,199.0 1,179.2 Total Current Assets 6,231.7 4,273.1 4,050.0 3,793.6 5,144.3 6,555.2 5,818.5 4,805.8 4,351.3 4,767.6 + LT Investments & LT Receivables 51.7 42.4 352.6 236.3 255.8 309.1 1,473.7 1,570.9 1,621.8 1,878.8 + Net Fixed Assets 9,464.7 9,729.6 10,124.2 9,122.6 10,750.2 11,112.5 11,580.0 11,724.9 11,096.3 10,683.2 + Gross Fixed Assets 19,120.7 21,040.6 23,330.9 22,251.1 27,067.5 29,118.0 31,116.8 29,734.6 29,502.3 29,256.5 - Accumulated Depreciation 9,656.0 11,311.0 13,206.7 13,128.5 16,317.3 18,005.5 19,536.8 18,009.7 18,406.0 18,573.3 + Other Long-Term Assets 17,858.1 18,602.2 20,187.5 20,102.2 21,801.2 21,305.5 21,545.4 21,881.9 22,250.6 24,737.2 Total Long-Term Assets 27,374.5 28,374.2 30,664.3 29,461.1 32,807.2 32,727.1 34,599.1 35,177.7 34,968.7 37,299.2 Total Assets 33,606.2 32,647.3 34,714.3 33,254.7 37,951.5 39,282.3 40,417.6 39,983.5 39,320.0 42,066.8 Product/Brand Segments 33,606.2 32,647.3 34,714.3 33,254.7 ------39,983.5 39,320.0 42,066.8 Consumer ------29,448.6 29,085.6 30,554.7 Enterprise ------5,635.0 5,513.0 5,073.0 Corporate ------4,121.5 3,856.1 4,901.3 Digital Life ------778.4 865.3 1,537.8 Wireline 13,984.7 14,220.6 15,523.5 9,198.8 ------Wireless 13,879.3 14,721.8 15,143.3 11,051.5 ------Sub-Sea Cable Storage 229.7 148.0 245.9 357.2 ------Unallocated Assets 5,070.8 3,009.8 3,167.3 11,766.8 ------IT & Engineering 441.7 547.1 634.3 880.4 ------Geographic Segments 33,606.2 32,647.3 34,714.3 33,254.7 37,951.5 39,282.3 40,417.6 39,983.5 -- -- Others 6,571.9 7,131.2 8,517.3 8,687.0 ------Corporate ------2,735.2 1,859.3 ------Eliminations -- -- 12.9 22.7 -2,938.3 -3,793.6 -4,975.1 -4,674.9 -- -- Assoc & JV ------10,411.5 10,196.9 10,180.5 9,886.5 -- -- Corp 5,070.8 3,009.8 3,167.3 11,766.8 2,178.4 ------Singapore 3,780.0 3,634.4 3,835.1 4,476.6 4,788.6 5,090.2 6,697.5 8,760.8 -- -- Australia 18,183.5 18,871.9 19,181.7 8,301.6 23,511.3 25,053.6 26,655.4 26,011.1 -- --
Liabilities & Shareholders' Equity + Accounts Payable 1,696.2 1,766.6 2,013.1 1,955.6 2,515.2 2,747.7 3,205.6 2,981.0 2,759.0 3,305.6 + Short-Term Borrowings 1,493.5 196.9 1,874.6 1,433.8 1,528.0 2,698.9 131.1 391.8 1,457.1 788.4 + Other Short-Term Liabilities 1,938.1 1,711.8 1,868.0 1,713.1 2,791.6 3,094.2 2,198.7 2,419.0 1,473.9 1,662.8 Total Current Liabilities 5,127.8 3,675.3 5,755.7 5,102.5 6,834.8 8,540.8 5,535.4 5,791.8 5,690.0 5,756.8 + Long-Term Borrowings 5,907.2 6,271.5 5,668.2 6,061.2 5,351.1 4,586.7 8,662.7 7,536.9 7,226.6 8,804.4 + Other Long-Term Liabilities 1,478.0 1,850.5 2,288.1 1,590.7 2,249.6 1,804.5 2,771.6 2,665.6 2,510.8 2,737.7 Total Long-Term Liabilities 7,385.2 8,122.0 7,956.3 7,651.9 7,600.7 6,391.2 11,434.3 10,202.5 9,737.4 11,542.1 Total Liabilities 12,513.0 11,797.3 13,712.0 12,754.4 14,435.5 14,932.0 16,969.7 15,994.3 15,427.4 17,298.9 Geographic Segments 12,513.0 11,797.3 13,712.0 12,754.4 ------Others 86.1 189.4 92.5 100.1 ------Eliminations -- -- 1,145.8 1,246.5 ------Unallocated Liabilities 9,068.1 8,446.1 9,722.6 8,941.0 ------Singapore 1,332.8 1,106.1 1,751.6 1,714.4 ------Australia 2,026.0 2,055.7 999.5 752.4 ------+ Total Preferred Equity 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Minority Interest 2.6 2.8 2.8 24.1 23.2 22.0 20.4 24.6 24.4 34.6 + Share Capital & APIC 4,774.7 2,562.1 2,593.7 2,605.6 2,616.3 2,622.8 2,632.2 2,634.0 2,634.0 2,634.0 + Retained Earnings & Other Equity 16,315.9 18,285.1 18,405.8 17,870.6 20,876.5 21,705.5 20,795.3 21,330.6 21,234.2 22,099.3 Total Equity 21,093.2 20,850.0 21,002.3 20,500.3 23,516.0 24,350.3 23,447.9 23,989.2 23,892.6 24,767.9 Total Liabilities & Equity 33,606.2 32,647.3 34,714.3 33,254.7 37,951.5 39,282.3 40,417.6 39,983.5 39,320.0 42,066.8
Reference Items Accounting Standard SG GAAP SG GAAP SG GAAP SG GAAP IAS/IFRS IAS/IFRS IAS/IFRS IAS/IFRS IAS/IFRS IAS/IFRS Shares Outstanding 15,868.1 15,889.3 15,917.5 15,923.1 15,922.1 15,935.5 15,928.5 15,931.2 15,933.4 15,934.9 Number of Treasury Shares -- 16.3 3.3 3.7 10.1 0.2 13.7 12.3 10.1 8.6 Amount of Treasury Shares 38.1 42.4 50.1 43.7 30.5 27.1 42.3 42.1 38.6 39.2 Pension Obligations ------0.0 0.0 0.0 0.0 0.0 Operating Leases 3,233.4 3,190.5 3,609.0 2,769.2 3,233.9 3,421.6 3,356.4 3,147.9 2,899.3 3,101.9 Capital Leases - Short Term -- -- 0.3 6.4 -- 26.3 25.3 41.8 38.9 24.4 Capital Leases - Long Term ------13.7 -- 42.6 192.3 207.2 179.7 180.7 Capital Leases - Total -- -- 0.3 20.1 -- 68.9 217.6 249.0 218.6 205.1 Number Of Shareholders 334,343.00 338,993.00 333,352.00 337,855.00 343,608.00 338,069.00 332,632.00 323,008.00 323,386.00 298,709.00 Options Granted During Period -- 0.0 0.0 -- 0.0 0.0 0.0 0.0 -- -- Options Outstanding at Period End 70.9 40.7 25.3 19.0 12.5 8.6 1.5 0.0 0.0 0.0 Net Debt 3,771.8 4,736.8 6,170.8 6,408.2 5,265.5 4,547.6 7,447.4 7,017.7 8,061.2 9,030.0 Net Debt to Equity 17.88 22.72 29.38 31.26 22.39 18.68 31.76 29.25 33.74 36.46 Tangible Common Equity Ratio 46.72 47.69 44.38 44.98 47.90 48.55 43.82 45.28 45.94 42.45 Current Ratio 1.22 1.16 0.70 0.74 0.75 0.77 1.05 0.83 0.76 0.83 Cash Conversion Cycle -467.32 -529.40 -416.43 -336.87 -192.79 -238.38 -274.64 -294.47 -320.40 -279.83 Inventory - Raw Materials -- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Inventory - Work in Progress 64.4 1.0 1.8 4.5 121.5 34.7 2.8 5.3 0.2 1.0 Inventory - Finished Goods 73.9 85.1 101.6 132.8 191.1 228.7 178.3 187.7 152.5 266.6 Other Inventory 48.0 7.3 20.2 36.1 33.2 35.9 27.0 20.7 16.9 22.2 Pure Retained Earnings 17,429.2 19,277.2 19,800.7 21,259.6 23,082.1 24,550.0 24,434.4 25,424.8 26,366.5 27,471.1 Goodwill 9,553.2 9,563.5 9,569.1 9,620.0 9,654.6 9,657.2 9,658.1 9,699.2 9,703.6 10,123.0 Investments in Associated Companies 6,596.9 7,171.4 8,539.9 8,659.2 10,411.5 10,196.9 10,180.5 9,886.5 10,128.2 10,846.2 Number of Employees 19,962.00 19,000.00 20,000.00 23,000.00 23,048.00 23,031.00 23,176.00 21,695.00 21,830.00 22,967.00 Source: Bloomberg
54 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
15.9.3 SingTel Cash Flow Statement Singapore Telecommunications Ltd (ST SP) - Standardized
In Millions of SGD except Per Share FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Last 12M 12 Months Ending 03/31/2007 03/31/2008 03/31/2009 03/31/2010 03/31/2011 03/31/2012 03/31/2013 03/31/2014 03/31/2015 06/30/2015 Cash From Operating Activities + Net Income 3,778.8 3,960.2 3,448.4 3,907.3 3,825.3 3,988.7 3,508.3 3,652.0 3,781.5 3,888.5 + Depreciation & Amortization 1,854.6 1,886.9 1,732.7 1,878.0 1,968.7 2,001.6 2,127.4 2,132.7 2,161.4 2,163.9 Product/Brand Segments ------2,127.4 2,132.7 2,161.4 Consumer ------1,423.9 1,403.9 1,478.0 Enterprise ------665.7 679.7 608.4 Digital Life ------41.3 47.5 72.9 Corporate ------3.5 1.6 2.1 Geographic Segments ------1,878.0 1,968.7 2,001.6 2,127.4 -- -- Singapore ------518.2 550.5 577.3 666.0 -- -- Australia ------1,359.8 1,418.2 1,424.3 1,461.4 -- -- + Other Non-Cash Adjustments -1,252.9 -854.4 -309.0 -601.2 -62.5 -660.1 -25.3 -385.8 -504.3 -610.5 + Changes in Non-Cash Capital -77.7 104.1 -28.1 -135.9 15.4 11.3 -91.8 -305.2 86.2 -154.8 Cash From Operations 4,302.8 5,096.8 4,844.0 5,048.2 5,746.9 5,341.5 5,518.6 5,093.7 5,524.8 5,287.1
Cash From Investing Activities + Disposal of Fixed Assets 304.8 0.9 1.3 17.2 23.8 14.6 10.0 7.1 15.2 14.4 + Capital Expenditures -1,789.8 -1,954.0 -1,918.3 -1,923.0 -2,004.6 -2,248.7 -2,058.6 -2,101.5 -2,237.6 -2,200.4 Product/Brand Segments -1,771.4 -1,878.7 -1,890.2 -1,924.8 -2,004.9 -2,245.8 ------Wireline -875.4 ------Wireless -459.3 ------Sub-Sea Cable Storage & Investment Activity -416.2 ------SingTel -- -432.0 -710.0 -652.0 -726.0 -818.0 ------Optus -- -1,446.7 -1,180.2 -1,272.8 -1,278.9 -1,427.8 ------Mobile -- -386.6 -561.2 -650.4 -722.4 -784.6 ------Business and Wholesale Fixed -- -519.8 -290.2 -248.7 -204.8 -245.0 ------Other -- -373.8 -206.3 -263.3 -265.1 -301.3 ------Customer and SMB (Small and Medium Business)-- -165.2 -121.3 -110.4 -86.7 -96.9 ------IT & Engineering -20.5 ------Geographic Segments -1,771.4 -2,045.3 -1,889.6 -2,294.7 -2,207.3 -2,481.3 -2,347.7 -- -- Others -15.5 -34.5 -33.2 ------Singapore -315.3 -524.9 -607.7 -722.0 -1,364.5 -1,599.1 -772.5 -- -- Australia -1,440.6 -1,485.9 -1,248.7 -1,572.7 -842.8 -882.2 -1,575.2 -- -- + Increase in Investments -1.0 -1.1 -0.9 -0.2 -20.0 -86.2 -56.0 -49.6 -23.1 -27.5 + Decrease in Investments 12.0 15.3 2.6 14.4 0.8 0.2 337.4 12.8 75.0 53.5 + Other Investing Activities 685.3 -863.3 -529.9 -321.8 -810.8 -533.9 -834.2 -722.2 -1,431.9 -1,383.6 Cash From Investing Activities -788.7 -2,802.2 -2,445.2 -2,213.4 -2,810.8 -2,854.0 -2,601.4 -2,853.4 -3,602.4 -3,543.6
Cash from Financing Activities + Dividends Paid -1,920.9 -3,435.4 -1,989.4 -2,084.0 -2,356.6 -4,111.4 -2,517.7 -2,677.8 -2,677.5 -2,677.5 + Change in Short-Term Borrowings 0.0 0.0 0.0 0.0 0.0 0.0 ------+ Increase in Long-Term Borrowings 0.0 4,927.7 2,815.1 3,930.7 3,394.2 5,888.1 3,882.6 3,475.3 5,245.4 6,525.4 + Decrease In Long-Term Borrowings -624.0 -3,761.5 -3,280.7 -4,135.1 -2,554.3 -4,699.3 -4,688.0 -3,270.2 -4,508.2 -4,813.2 + Increase in Capital Stocks 59.0 31.6 11.9 10.7 6.5 9.4 1.8 0.0 0.0 0.0 + Decrease in Capital Stocks -2,323.1 -62.5 -63.1 -64.4 -39.4 -20.0 -36.8 -36.6 -54.7 -48.3 + Other Financing Activities -85.4 -12.6 -188.7 45.0 -262.0 -945.9 5.5 -19.5 12.9 10.8 Cash from Financing Activities -4,894.4 -2,312.7 -2,694.9 -2,297.1 -1,811.6 -3,879.1 -3,352.6 -2,528.8 -1,982.1 -1,002.8 Net Changes in Cash -1,380.3 -18.1 -296.1 537.7 1,124.5 -1,391.6 -435.4 -288.5 -59.7 740.7
Reference Items EBITDA 4,273.0 4,419.2 4,461.5 4,874.7 5,080.5 5,185.7 5,199.9 5,159.2 5,077.0 5,055.2 Product/Brand Segments -- 4,530.0 4,431.0 4,847.0 5,114.7 5,219.0 5,199.8 5,155.4 5,077.0 Consumer ------3,330.6 3,345.2 3,316.6 Enterprise ------2,062.6 2,032.2 2,061.2 Reconciliation ------13.7 Corporate ------89.4 -52.2 -71.2 Digital Life ------104.0 -169.8 -215.9 Group -- 4,530.0 4,431.0 4,847.0 5,114.7 5,219.0 ------Group and Int'l Business Net Corporate Costs -- -44.0 -52.0 -69.0 -71.0 -114.0 ------SingTel -- 2,011.0 2,162.0 2,293.0 2,253.0 2,242.0 ------IT and Engineering Business -- 72.0 110.0 203.0 267.0 268.0 ------Telecom Business -- 1,939.0 2,052.0 2,090.0 1,986.0 1,974.0 ------Optus -- 2,582.0 2,343.5 2,623.0 2,932.7 3,091.0 ------Customer and Small and Medium Businesses (SMB)-- Fixed209.0 232.4 253.6 363.1 305.2 ------Business and Wholesale Fixed -- 539.0 537.4 594.6 855.6 715.2 ------Mobile -- 1,834.0 1,573.7 1,765.5 2,465.6 2,067.0 ------Trailing 12M EBITDA Margin 32.49 29.77 29.87 28.89 28.11 27.55 28.60 30.62 29.48 29.25 Cash Paid for Taxes 335.4 335.0 338.8 369.8 300.5 451.3 252.7 660.8 598.2 626.5 Cash Paid for Interest 412.6 410.9 373.6 314.8 347.8 413.9 343.5 308.8 307.3 298.2 Interest Received 125.9 -- -- 16.7 34.0 -- 41.6 49.1 42.3 42.7 Net Cash Paid for Acquisitions 0.2 0.0 194.0 0.0 0.0 0.0 697.9 50.7 452.4 439.4 Free Cash Flow 2,513.0 3,142.8 2,925.7 3,125.2 3,742.3 3,092.8 3,460.0 2,992.2 3,287.2 3,086.7 Free Cash Flow to Firm 2,890.3 3,501.9 3,251.7 3,408.0 4,084.7 3,488.2 3,740.3 3,234.0 3,545.4 3,353.4 Free Cash Flow to Equity 2,193.8 4,309.9 2,461.4 2,938.0 4,606.0 4,296.2 2,664.6 3,204.4 4,039.6 4,813.3 Free Cash Flow per Basic Share 0.15 0.20 0.18 0.20 0.23 0.19 0.22 0.19 0.21 0.19 Price to Free Cash Flow 21.22 19.78 13.76 16.15 12.85 16.22 16.53 19.44 21.23 19.05 Cash Flow to Net Income 1.14 1.29 1.40 1.29 1.50 1.34 1.57 1.39 1.46 1.51
Direct Method Cashflow Source: Bloomberg
55 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
15.10 Appendix #10: Starhub Financial Statements 15.10.1 Starhub Income Statement StarHub Ltd (STH SP) - Standardized
In Millions of SGD except Per Share FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Last 12M FY 2015 Est FY 2016 Est 12 Months Ending 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 06/30/2015 12/31/2015 12/31/2016 Revenue 2,127.6 2,150.0 2,237.7 2,312.0 2,421.6 2,369.6 2,387.2 2,446.8 2,436.5 2,482.8 Product/Brand Segments 2,127.6 2,150.0 2,237.4 2,312.0 2,421.6 2,369.6 2,387.2 Mobile Service Revenue 1,079.0 1,094.0 1,181.0 1,217.6 1,224.2 1,243.4 1,247.6 Prepaid 243.7 258.6 264.0 249.4 243.3 -- -- Postpaid 835.3 835.4 917.0 968.2 980.9 -- -- Pay TV Revenue 398.2 405.5 395.4 376.0 396.3 386.0 389.7 Fixed Network Service Revenue 299.9 317.5 331.7 336.7 357.7 368.3 378.3 Data & Internet 247.0 269.1 278.0 281.1 295.0 303.6 320.9 Voice Services 52.9 48.5 53.7 55.6 62.7 64.7 57.4 Broadband 253.2 240.5 236.0 241.7 249.4 241.8 201.9 Sale of Equipment 97.3 92.6 93.3 140.0 194.0 130.1 169.7 Geographic Segments 2,127.6 2,150.0 2,237.7 2,312.0 2,421.6 2,369.6 2,387.2 Singapore 2,127.6 2,150.0 2,237.7 2,312.0 2,421.6 2,369.6 2,387.2 - Cost of Revenue 782.4 829.7 912.8 928.5 1,010.9 941.5 949.0 870.7 Product/Brand Segments 782.4 829.7 912.8 928.5 1,010.9 941.5 949.0 Cost of Equipment Sold 239.6 230.4 312.3 383.4 440.7 376.7 411.4 Cost of Services 300.7 333.4 338.8 298.3 339.7 364.3 382.9 Traffic Expenses 242.1 265.9 261.7 246.8 230.5 200.5 154.7 Gross Profit 1,345.2 1,320.3 1,324.9 1,383.5 1,410.7 1,428.1 1,438.2 1,576.1 1,039.5 1,058.5 + Other Operating Income 0.0 0.0 6.0 21.4 26.7 49.9 46.6 49.3 - Operating Expenses 936.0 911.9 988.6 1,006.7 989.5 1,004.5 1,008.1 1,156.5 Operating Income 409.3 408.4 342.3 398.2 447.9 473.5 476.7 468.9 458.0 458.0 - Interest Expense 27.3 24.1 26.6 20.5 20.0 18.8 22.6 21.0 - Foreign Exchange Losses (Gains) 0.7 -- 1.2 -8.1 -4.9 2.7 3.1 - Net Non-Operating Losses (Gains) -1.5 -0.8 -3.0 6.0 1.4 -5.5 -5.1 -1.4 Pretax Income 382.8 385.2 317.5 379.8 431.4 457.5 456.1 446.4 444.7 447.1 - Income Tax Expense 71.5 65.5 54.3 64.3 72.1 78.0 85.6 81.7 Income Before XO Items 311.3 319.7 263.2 315.5 359.3 379.5 370.5 364.7 363.9 370.3 - Extraordinary Loss Net of Tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Minority Interests 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Income 311.3 319.7 263.2 315.5 359.3 379.5 370.5 364.7 367.8 368.7 - Total Cash Preferred Dividends 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Other Adjustments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Inc Avail to Common Shareholders 311.3 319.7 263.2 315.5 359.3 379.5 370.5 364.7 363.9 370.3
Abnormal Losses (Gains) 2.7 0.2 3.4 1.8 0.4 0.0 0.0 0.0 Tax Effect on Abnormal Items -0.5 0.0 -0.6 -0.3 -0.1 0.0 0.0 0.0 Normalized Income 313.5 319.9 266.0 317.0 359.6 379.5 370.5 364.7
Basic EPS Before Abnormal Items 0.18 0.19 0.16 0.18 0.21 0.22 0.22 0.21 Basic EPS Before XO Items 0.18 0.19 0.15 0.18 0.21 0.22 0.22 0.21 0.21 0.21 Basic EPS 0.18 0.19 0.15 0.18 0.21 0.22 0.22 0.21 0.21 0.21 Basic Weighted Avg Shares 1,703.3 1,711.8 1,715.3 1,716.2 1,716.8 1,720.7 1,725.4 1,729.7 Diluted EPS Before Abnormal Items 0.18 0.19 0.15 0.18 0.21 0.22 0.21 0.21 Diluted EPS Before XO Items 0.18 0.19 0.15 0.18 0.21 0.22 0.21 0.21 Diluted EPS 0.18 0.19 0.15 0.18 0.21 0.22 0.21 0.21 Diluted Weighted Avg Shares 1,714.1 1,720.8 1,723.6 1,725.1 1,725.8 1,728.3 1,732.4 1,736.6
Reference Items Accounting Standard SG GAAP SG GAAP IAS/IFRS IAS/IFRS IAS/IFRS IAS/IFRS IAS/IFRS EBITDA 644.4 653.5 601.8 676.0 720.4 743.0 747.9 743.0 739.0 753.2 EBITDA Margin (T12M) 30.29 30.39 26.89 29.24 29.75 31.36 31.33 30.37 30.33 30.34 Gross Margin 63.23 61.41 59.21 59.84 58.25 60.27 60.25 64.41 42.67 42.63 Operating Margin 19.24 19.00 15.30 17.22 18.50 19.98 19.97 19.16 18.80 18.45 Profit Margin 14.63 14.87 11.76 13.65 14.84 16.02 15.52 14.91 14.94 14.91 Revenue Per Employee ------Dividends per Share 0.18 0.19 0.20 0.20 0.20 0.20 0.20 0.15 0.20 0.21 Total Cash Common Dividends 307.7 325.3 343.4 343.3 343.5 344.3 345.2 259.2 Interest Income 0.8 0.8 1.8 2.1 4.1 2.8 2.0 Capitalized Interest Expense 0.0 0.0 0.0 0.0 0.0 -- -- Research & Development Expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Personnel Expense 216.3 201.6 249.9 266.9 265.9 276.6 275.0 273.0 Export sales 0.0 0.0 0.0 0.0 ------Depreciation Expense 220.1 227.0 231.0 230.3 226.4 219.4 216.3 Product/Brand Segments 216.0 ------Telecommunications 135.8 ------Internet, Interactive Multi-Media and Miscellaneous0.0 ------Cable TV and Broadband 80.2 ------Geographic Segments 216.0 ------Singapore 216.0 ------Rental Expense 128.9 144.8 146.2 135.5 131.3 129.1 128.4 32.7 Source: Bloomberg
56 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
15.10.2 Starhub Balance Sheet StarHub Ltd (STH SP) - Standardized
In Millions of SGD except Per Share FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 12 Months Ending 12/31/2005 12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 Assets + Cash & Near Cash Items 174.5 50.2 138.0 128.3 234.2 237.5 179.2 312.0 266.9 264.2 + Short-Term Investments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Accounts & Notes Receivable 99.3 111.5 113.5 127.8 125.4 173.9 152.0 154.3 156.2 161.7 + Inventories 13.1 13.0 19.8 20.5 28.2 31.8 37.2 28.1 43.2 42.4 + Other Current Assets 123.4 127.3 110.3 132.9 138.7 118.2 166.4 123.6 178.4 203.3 Total Current Assets 410.3 301.9 381.6 409.5 526.4 561.4 534.8 618.0 644.7 671.6 + LT Investments & LT Receivables 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Net Fixed Assets 957.4 919.5 894.0 845.7 785.1 776.0 761.9 791.1 857.4 911.1 + Gross Fixed Assets 2,422.5 2,550.5 2,666.0 2,822.7 2,910.9 3,083.6 3,173.7 3,352.1 3,326.2 3,560.3 - Accumulated Depreciation 1,465.0 1,631.0 1,772.1 1,977.0 2,125.8 2,307.6 2,411.8 2,561.0 2,468.8 2,649.2 + Other Long-Term Assets 472.6 505.2 443.9 406.1 421.1 456.1 426.4 399.5 380.6 404.5 Total Long-Term Assets 1,430.1 1,424.7 1,337.9 1,251.7 1,206.2 1,232.1 1,188.3 1,190.6 1,238.0 1,315.6 Total Assets 1,840.4 1,726.6 1,719.5 1,661.3 1,732.6 1,793.5 1,723.1 1,808.6 1,882.7 1,987.2 Product/Brand Segments 1,840.4 1,726.6 1,719.5 1,661.3 ------Elimination -66.8 -612.6 -123.8 -160.0 ------Unallocated Assets 368.2 385.7 312.3 245.4 ------Telecommunications 1,058.8 1,482.7 1,103.5 1,181.8 ------Internet, Interactive Multi-Media and Miscellaneous9.8 31.4 5.1 11.1 ------Cable TV and Broadband 470.4 439.2 422.3 382.9 ------Geographic Segments 1,840.4 1,726.6 1,719.5 1,661.3 ------Singapore 1,840.4 1,726.6 1,719.5 1,661.3 ------
Liabilities & Shareholders' Equity + Accounts Payable 325.2 388.2 416.5 339.0 377.1 437.7 448.1 59.4 38.2 60.3 + Short-Term Borrowings 110.5 0.0 124.3 217.9 290.4 330.4 75.0 0.0 0.0 200.0 + Other Short-Term Liabilities 242.1 155.0 178.6 251.0 257.9 305.0 380.2 819.8 867.8 932.6 Total Current Liabilities 677.8 543.3 719.4 807.9 925.5 1,073.1 903.3 879.2 906.0 1,192.9 + Long-Term Borrowings 132.5 633.0 843.7 695.8 605.4 475.0 587.5 687.5 687.5 487.5 + Other Long-Term Liabilities 53.2 62.8 48.7 49.5 75.9 191.4 209.7 198.4 178.6 157.8 Total Long-Term Liabilities 185.7 695.8 892.4 745.3 681.3 666.4 797.2 885.9 866.1 645.3 Total Liabilities 863.5 1,239.1 1,611.8 1,553.2 1,606.8 1,739.5 1,700.5 1,765.1 1,772.1 1,838.2 Product/Brand Segments 863.5 1,239.1 1,611.8 1,553.2 ------Loans -- -- 968.0 913.7 ------Elimination -347.3 -612.6 -123.8 -160.0 ------Unallocated Liabilities 31.4 44.2 33.9 38.8 ------Telecommunications 451.2 1,014.3 461.1 476.7 ------Internet, Interactive Multi-Media and Miscellaneous1.8 2.3 2.1 2.0 ------Cable TV and Broadband 726.4 790.8 270.5 282.0 ------Geographic Segments 863.5 1,239.1 1,611.8 1,553.2 ------Singapore 863.5 1,239.1 1,611.8 1,553.2 ------+ Total Preferred Equity 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Share Capital & APIC 873.3 236.4 247.2 255.1 257.5 260.3 262.8 263.1 271.4 282.6 + Retained Earnings & Other Equity 103.6 251.1 -139.6 -147.1 -131.7 -206.3 -240.2 -219.6 -160.8 -133.6 Total Equity 976.9 487.5 107.7 108.1 125.8 54.0 22.6 43.5 110.6 149.0 Total Liabilities & Equity 1,840.4 1,726.6 1,719.5 1,661.3 1,732.6 1,793.5 1,723.1 1,808.6 1,882.7 1,987.2
Reference Items Accounting Standard SG GAAP SG GAAP SG GAAP SG GAAP SG GAAP IAS/IFRS IAS/IFRS IAS/IFRS IAS/IFRS IAS/IFRS Shares Outstanding 1,679.0 1,696.1 1,699.8 1,709.7 1,712.8 1,716.0 1,715.3 1,717.5 1,721.4 1,727.5 Number of Treasury Shares 0.0 0.0 5.5 2.2 1.1 0.0 2.0 0.1 0.1 0.0 Amount of Treasury Shares 0.0 0.0 16.2 6.0 3.0 0.1 5.5 0.2 0.2 0.0 Pension Obligations 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Operating Leases 678.1 617.7 629.4 567.3 502.7 453.2 389.0 322.4 261.0 293.8 Capital Leases - Short Term -- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Capital Leases - Long Term -- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Capital Leases - Total -- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Number Of Shareholders 6,347.00 5,627.00 5,905.00 7,751.00 14,688.00 14,179.00 14,614.00 13,059.00 14,517.00 15,384.00 Options Granted During Period 11.7 -- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Options Outstanding at Period End 38.8 23.6 15.0 8.0 6.0 4.0 2.7 1.6 0.8 0.2 Net Debt 68.5 582.8 830.0 785.4 661.6 567.9 483.3 375.5 420.6 423.3 Net Debt to Equity 7.01 119.56 770.99 726.82 525.84 1,051.67 2,138.50 863.22 380.29 284.09 Tangible Common Equity Ratio 42.92 10.65 -17.86 -21.32 -22.02 -29.63 -30.86 -25.04 -17.97 -16.14 Current Ratio 0.61 0.56 0.53 0.51 0.57 0.52 0.59 0.70 0.71 0.56 Cash Conversion Cycle -215.89 -205.31 -179.96 -146.37 -123.88 -125.87 -133.81 -57.74 19.11 21.81 Inventory - Raw Materials 0.0 0.0 ------0.0 ------Inventory - Work in Progress 0.0 0.0 ------0.0 ------Inventory - Finished Goods 0.0 0.0 ------Other Inventory ------31.5 ------Pure Retained Earnings -35.9 107.8 135.3 139.0 142.0 62.1 34.3 50.2 104.6 129.9 Goodwill 223.2 220.3 220.3 220.3 220.3 220.3 220.3 220.3 220.3 220.3 Investments in Associated Companies 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Number of Employees ------Source: Bloomberg
57 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
15.10.3 Starhub Cash Flow Statement
StarHub Ltd (STH SP) - Standardized
In Millions of SGD except Per Share FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Last 12M 12 Months Ending 12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 06/30/2015 Cash From Operating Activities + Net Income 360.2 330.3 311.3 319.7 263.2 315.5 359.3 379.5 370.5 364.7 + Depreciation & Amortization 211.0 226.1 235.1 245.1 259.5 277.8 272.5 269.5 271.2 274.1 + Other Non-Cash Adjustments 16.1 89.2 95.5 71.4 118.4 49.7 -0.2 -31.5 12.7 -33.3 + Changes in Non-Cash Capital -9.8 31.5 -72.1 32.6 63.5 38.3 42.0 -17.5 8.1 -71.2 Cash From Operations 577.5 677.2 569.8 668.8 704.6 681.3 673.6 600.0 662.5 534.3
Cash From Investing Activities + Disposal of Fixed Assets 9.1 2.1 0.1 0.7 2.1 0.5 1.0 0.6 0.8 0.7 + Capital Expenditures -247.6 -212.9 -219.8 -231.4 -272.1 -246.5 -272.7 -302.8 -321.6 -317.9 Product/Brand Segments -200.3 -219.9 -222.2 ------Elimination -- -0.2 -0.3 ------Telecommunications -133.9 -172.7 -163.9 ------Internet, Interactive Multi-Media and Miscellaneous ------Cable TV and Broadband -66.3 -47.0 -57.9 ------Geographic Segments -200.3 -219.5 -221.6 ------Singapore -200.3 -219.5 -221.6 ------+ Increase in Investments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Decrease in Investments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Other Investing Activities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Cash From Investing Activities -238.5 -210.8 -219.6 -230.7 -270.0 -246.0 -271.7 -302.2 -320.8 -317.2
Cash from Financing Activities + Dividends Paid -216.5 -265.9 -307.7 -316.7 -343.1 -343.3 -343.4 -344.2 -345.2 -345.6 + Change in Short-Term Borrowings 0.0 0.0 0.0 0.0 0.0 0.0 ------+ Increase in Long-Term Borrowings 633.0 335.0 0.0 200.0 200.0 187.5 300.0 0.0 0.0 0.0 + Decrease In Long-Term Borrowings -243.0 0.0 -54.3 -217.9 -290.4 -330.4 -275.0 0.0 0.0 0.0 + Increase in Capital Stocks 18.8 10.8 7.9 2.4 2.2 1.7 1.1 0.8 0.6 0.6 + Decrease in Capital Stocks -655.7 -458.5 -5.8 0.0 0.0 -9.1 -2.3 0.0 0.0 0.0 + Other Financing Activities 0.0 0.0 0.0 0.0 0.0 0.0 50.5 0.5 0.2 14.1 Cash from Financing Activities -463.3 -378.7 -359.9 -332.2 -431.3 -493.6 -269.1 -342.9 -344.4 -330.9 Net Changes in Cash -124.3 87.8 -9.6 105.9 3.3 -58.3 132.8 -45.1 -2.7 -113.8
Reference Items EBITDA 566.0 639.1 644.4 653.5 601.8 676.0 720.4 743.0 747.9 743.0 Trailing 12M EBITDA Margin 31.36 31.74 30.29 30.39 26.89 29.24 29.75 31.36 31.33 30.37 Cash Paid for Taxes 0.0 0.0 -0.3 0.0 0.0 0.0 54.0 89.0 65.3 89.0 Cash Paid for Interest 10.8 22.1 28.5 24.4 26.8 21.8 19.9 19.2 22.5 21.3 Interest Received 5.8 3.0 0.9 0.8 1.8 2.0 4.0 2.8 2.0 1.7 Free Cash Flow 329.9 464.3 350.1 437.4 432.5 434.8 400.9 297.2 340.9 216.4 Free Cash Flow to Firm -- 486.4 372.3 457.4 454.6 451.8 417.6 312.8 359.3 233.5 Free Cash Flow to Equity 729.0 801.4 295.9 420.2 344.2 292.4 426.9 297.8 341.7 217.1 Free Cash Flow per Basic Share 0.18 0.26 0.21 0.26 0.25 0.25 0.23 0.17 0.20 0.13 Price to Free Cash Flow 16.32 10.68 9.44 8.41 10.43 11.49 16.23 24.84 21.00 28.34 Cash Flow to Net Income 1.60 2.05 1.83 2.09 2.68 2.16 1.87 1.58 1.79 1.66
Direct Method Cashflow Source: Bloomberg
58 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
15.11 Appendix #11: M1 Financial Statements 15.11.1 M1 Income Statement M1 Ltd/Singapore (M1 SP) - Standardized
In Millions of SGD except Per Share FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Last 12M FY 2015 Est FY 2016 Est 12 Months Ending 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 06/30/2015 12/31/2015 12/31/2016 Revenue 800.6 781.6 979.2 1,026.6 1,076.8 1,007.9 1,076.3 1,168.2 1,099.4 1,122.7 Product/Brand Segments 800.6 781.6 979.2 1,064.9 1,076.8 1,007.9 1,076.4 Mobile Telecommunications Services 601.2 565.7 579.4 587.4 607.0 644.2 671.1 Postpaid 529.6 494.0 502.0 509.3 529.5 558.4 591.0 Prepaid 71.6 71.7 77.3 78.1 77.4 85.8 80.1 Handset Sales 62.1 80.9 246.3 314.4 305.2 188.1 245.3 International Call Services 137.1 128.4 129.0 124.8 116.5 114.0 89.4 Retail 124.0 114.6 118.5 115.3 103.9 93.8 75.2 Wholesale & Bilateral 13.1 13.8 10.5 9.6 12.5 20.2 14.2 Fixed Network Services 0.2 6.6 24.5 38.3 48.1 61.6 70.6 Geographic Segments 800.6 781.6 979.2 1,064.9 1,076.8 1,007.9 1,076.3 Singapore 800.6 781.6 979.2 1,064.9 1,076.8 1,007.9 1,076.3 - Cost of Revenue 0.3 326.7 491.9 565.6 515.3 424.0 452.9 539.2 Gross Profit 800.3 454.9 487.3 461.0 561.5 583.9 623.4 629.0 495.0 512.7 + Other Operating Income 0.6 1.8 2.3 1.7 0.7 1.7 1.8 2.2 - Operating Expenses 608.6 274.8 295.1 303.2 376.1 389.4 404.5 408.4 Operating Income 192.2 181.9 194.5 159.5 186.1 196.2 220.7 222.8 227.1 235.3 - Interest Expense 7.6 6.5 5.8 6.0 4.9 4.3 4.0 4.3 - Foreign Exchange Losses (Gains) 0.0 1.0 -1.3 -4.7 -2.7 0.0 0.3 - Net Non-Operating Losses (Gains) -0.4 -0.7 -0.5 4.7 0.4 -0.9 -0.7 -1.1 Pretax Income 185.0 175.1 190.5 153.6 183.4 192.8 217.1 218.7 224.3 232.7 - Income Tax Expense 34.9 24.8 33.4 33.3 36.9 32.6 41.3 39.6 Income Before XO Items 150.1 150.3 157.1 120.2 146.5 160.2 175.8 179.1 184.6 191.6 - Extraordinary Loss Net of Tax -- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Minority Interests -- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Income 150.1 150.3 157.1 120.2 146.5 160.2 175.8 179.1 184.7 192.2 - Total Cash Preferred Dividends -- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Other Adjustments ------0.0 -- -- 0.0 0.0 Net Inc Avail to Common Shareholders 150.1 150.3 157.1 120.2 146.5 160.2 175.8 179.1 184.6 191.6
Abnormal Losses (Gains) 0.0 -0.6 -0.5 -0.8 -0.2 -1.0 -0.6 -0.5 Tax Effect on Abnormal Items 0.0 0.1 0.1 0.1 0.0 0.2 0.1 0.1 Normalized Income 150.1 149.8 156.6 119.6 146.4 159.4 175.3 178.7
Basic EPS Before Abnormal Items 0.17 0.17 0.17 0.13 0.16 0.17 0.19 0.19 Basic EPS Before XO Items 0.17 0.17 0.18 0.18 0.16 0.17 0.19 0.19 0.20 0.20 Basic EPS 0.17 0.17 0.18 0.18 0.16 0.17 0.19 0.19 0.20 0.20 Basic Weighted Avg Shares 894.7 895.0 898.0 905.8 911.3 920.5 928.7 936.5 Diluted EPS Before Abnormal Items 0.17 0.17 0.17 0.13 0.16 0.17 0.19 0.19 Diluted EPS Before XO Items 0.17 0.17 0.18 0.18 0.16 0.17 0.19 0.19 Diluted EPS 0.17 0.17 0.18 0.18 0.16 0.17 0.19 0.19 Diluted Weighted Avg Shares 894.8 895.1 898.1 906.7 911.5 922.0 934.5 938.7
Reference Items Accounting Standard SG GAAP SG GAAP IAS/IFRS IAS/IFRS IAS/IFRS IAS/IFRS IAS/IFRS EBITDA 316.1 310.1 311.5 266.6 297.1 311.3 335.1 337.5 346.6 358.0 EBITDA Margin (T12M) 39.49 39.67 31.81 25.97 27.59 30.89 31.13 28.89 31.53 31.88 Gross Margin 99.96 58.20 49.77 44.90 52.15 57.94 57.92 53.84 45.02 45.67 Operating Margin 24.01 23.28 19.86 15.54 17.28 19.47 20.50 19.07 20.65 20.96 Profit Margin 18.75 19.23 16.04 11.71 13.60 15.90 16.33 15.33 16.79 17.06 Revenue Per Employee ------688,523.81 704,719.90 665,712.02 723,349.46 Dividends per Share 0.13 0.13 0.14 0.15 0.13 0.14 0.19 0.19 0.19 Total Cash Common Dividends 55.5 119.9 157.5 131.3 133.3 193.9 176.0 Interest Income 0.4 0.1 0.0 0.0 0.0 0.1 0.1 Capitalized Interest Expense -- 0.0 0.0 0.0 0.0 -- -- Research & Development Expense -- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Personnel Expense 84.2 75.1 88.7 96.9 97.0 108.2 5.4 117.0 Depreciation Expense 117.8 121.7 110.7 96.2 99.2 103.2 102.6 103.1 Rental Expense 23.2 23.4 25.5 28.3 31.0 30.9 30.5 Source: Bloomberg
59 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
15.11.2 M1 Balance Sheet
M1 Ltd/Singapore (M1 SP) - Standardized
In Millions of SGD except Per Share FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 12 Months Ending 12/31/2005 12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 Assets + Cash & Near Cash Items 175.4 168.6 23.1 17.8 7.4 8.8 11.8 11.6 54.5 22.8 + Short-Term Investments -- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Accounts & Notes Receivable 81.5 82.0 80.8 69.2 87.3 178.2 187.7 180.0 144.8 149.7 + Inventories 5.8 5.6 8.4 8.5 25.4 23.4 36.3 33.1 29.1 30.3 + Other Current Assets 20.1 19.7 14.3 15.1 20.6 23.3 24.7 21.5 20.8 23.2 Total Current Assets 282.9 275.8 126.6 110.7 140.7 233.7 260.6 246.2 249.1 225.9 + LT Investments & LT Receivables -- 0.7 0.8 0.9 0.8 0.9 -- 0.3 0.2 0.0 + Net Fixed Assets 743.1 690.9 636.7 612.9 611.4 600.6 606.8 629.9 649.4 685.9 + Gross Fixed Assets 1,338.7 1,384.9 1,440.3 1,525.8 1,645.5 1,736.7 1,834.0 1,950.5 2,071.6 2,208.0 - Accumulated Depreciation 595.6 694.0 803.6 913.0 1,034.1 1,136.1 1,227.2 1,320.7 1,422.1 1,522.1 + Other Long-Term Assets 95.1 88.6 82.6 79.3 84.6 99.3 124.3 98.8 87.7 116.0 Total Long-Term Assets 838.2 780.2 720.0 693.0 696.9 700.8 731.1 728.9 737.3 801.9 Total Assets 1,121.0 1,056.1 846.6 803.7 837.6 934.5 991.7 975.1 986.5 1,027.8
Liabilities & Shareholders' Equity + Accounts Payable 55.5 63.0 198.0 51.0 71.5 72.4 98.9 68.6 68.9 79.6 + Short-Term Borrowings 0.0 250.0 35.0 0.0 269.0 66.0 53.3 272.0 0.0 52.0 + Other Short-Term Liabilities 212.0 232.3 54.7 179.6 153.3 161.5 158.5 183.8 165.9 142.9 Total Current Liabilities 267.5 545.3 287.7 230.5 493.7 300.0 310.7 524.4 234.8 274.5 + Long-Term Borrowings 250.0 0.0 250.0 250.0 0.0 250.0 250.0 0.0 250.0 250.0 + Other Long-Term Liabilities 139.7 128.8 106.9 99.9 87.7 81.6 95.3 102.8 106.6 108.7 Total Long-Term Liabilities 389.7 128.8 356.9 349.9 87.7 331.6 345.3 102.8 356.6 358.7 Total Liabilities 657.1 674.1 644.7 580.4 581.4 631.6 656.0 627.2 591.4 633.3 + Total Preferred Equity -- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Minority Interest -- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Share Capital & APIC 203.4 212.0 114.4 116.2 116.5 127.6 144.7 155.9 179.8 200.6 + Retained Earnings & Other Equity 260.5 170.0 87.5 107.0 139.6 175.3 177.8 192.0 215.3 194.0 Total Equity 463.9 382.0 201.9 223.2 256.1 302.9 322.5 347.9 395.1 394.6 Total Liabilities & Equity 1,121.0 1,056.1 846.6 803.7 837.6 934.5 978.6 975.1 986.5 1,027.8
Reference Items Accounting Standard SG GAAP SG GAAP SG GAAP SG GAAP SG GAAP IAS/IFRS IAS/IFRS IAS/IFRS IAS/IFRS IAS/IFRS Shares Outstanding 885.6 891.1 893.9 894.9 895.1 899.9 908.0 913.2 923.4 931.3 Number of Treasury Shares -- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Amount of Treasury Shares -- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Pension Obligations ------0.0 0.0 -- 0.0 0.0 0.0 0.0 Operating Leases 34.4 38.7 40.5 41.6 30.6 33.8 32.7 37.1 29.7 32.3 Capital Leases - Short Term 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Capital Leases - Long Term 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Capital Leases - Total 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Number Of Shareholders 6,782.00 7,129.00 7,290.00 7,343.00 8,576.00 9,715.00 10,229.00 10,220.00 10,433.00 10,448.00 Options Granted During Period 6.4 6.2 7.0 -- 7.1 0.0 0.0 0.0 8.8 0.0 Options Outstanding at Period End 13.9 14.1 18.3 23.6 29.5 31.1 30.2 29.0 26.8 27.0 Net Debt 74.6 81.4 261.9 232.2 261.6 307.2 291.5 260.4 195.6 279.2 Net Debt to Equity 16.07 21.30 129.72 104.02 102.13 101.43 90.36 74.84 49.49 70.76 Tangible Common Equity Ratio 35.99 30.32 15.62 19.87 21.56 24.38 22.90 28.43 34.20 30.56 Current Ratio 1.06 0.51 0.44 0.48 0.28 0.78 0.84 0.47 1.06 0.82 Cash Conversion Cycle -13.78 -33.74 -113.65 -94,520.12 -9.56 13.99 30.28 27.30 25.82 14.18 Inventory - Raw Materials -- 0.0 0.0 ------0.0 0.0 0.0 0.0 Inventory - Work in Progress -- 0.0 0.0 ------0.0 0.0 0.0 0.0 Inventory - Finished Goods 5.8 5.6 8.4 8.5 25.4 23.4 36.3 33.1 29.1 30.3 Other Inventory -- 0.0 0.0 ------0.0 0.0 0.0 0.0 Pure Retained Earnings 260.4 166.6 82.7 103.1 133.4 169.3 172.0 186.3 210.2 189.1 Goodwill 0.0 0.0 0.0 0.0 11.7 12.7 13.2 13.2 13.2 13.2 Investments in Associated Companies -- 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Number of Employees ------1,491.00 1,528.00 1,514.00 1,488.00 Source: Bloomberg
60 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
15.11.3 M1 Cash Flow Statement
M1 Ltd/Singapore (M1 SP) - Standardized
In Millions of SGD except Per Share FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Last 12M 12 Months Ending 12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 06/30/2015 Cash From Operating Activities + Net Income 164.6 171.8 150.1 150.3 157.1 164.1 146.5 160.2 175.8 179.1 + Depreciation & Amortization 112.4 116.7 123.9 128.1 117.0 107.1 111.0 115.1 114.4 114.7 + Other Non-Cash Adjustments 46.1 -63.2 -11.2 -15.4 -2.9 0.3 10.0 3.3 13.6 7.5 + Changes in Non-Cash Capital -25.8 3.8 -8.3 -41.0 -83.8 14.2 7.4 23.5 -30.9 -27.9 Cash From Operations 297.3 229.0 254.5 222.0 187.4 285.6 274.9 302.0 272.9 273.4
Cash From Investing Activities + Disposal of Fixed Assets 0.2 0.0 0.1 0.6 0.5 0.6 1.0 3.6 1.3 + Capital Expenditures -54.6 -56.3 -94.1 -119.0 -99.9 -102.7 -122.5 -125.3 -139.7 -143.9 + Increase in Investments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Decrease in Investments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Other Investing Activities 0.0 0.0 -2.8 -13.3 -21.0 -22.2 0.0 -0.7 -40.0 -40.0 Cash From Investing Activities -54.4 -56.3 -96.8 -131.7 -120.3 -124.3 -121.5 -122.4 -178.4 -183.0
Cash from Financing Activities + Dividends Paid -258.4 -96.7 -129.8 -119.9 -121.2 -161.3 -132.2 -136.3 -196.9 -176.5 + Change in Short-Term Borrowings 0.0 0.0 0.0 0.0 0.0 -- -31.3 -- -- + Increase in Long-Term Borrowings 0.0 360.0 0.0 42.5 297.0 43.0 0.0 2.5 110.0 92.3 + Decrease In Long-Term Borrowings 0.0 -325.0 -35.0 -23.5 -250.0 -55.7 0.0 -24.5 -58.0 -99.3 + Increase in Capital Stocks 8.6 4.8 1.8 0.3 8.5 15.7 9.9 21.5 18.8 19.3 + Decrease in Capital Stocks 0.0 -261.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 + Other Financing Activities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Cash from Financing Activities -249.7 -318.2 -163.0 -100.7 -65.7 -158.3 -153.6 -136.8 -126.1 -73.8 Net Changes in Cash -6.8 -145.5 -5.3 -10.3 1.3 3.1 -0.2 42.8 -31.7 16.6
Reference Items EBITDA 326.5 317.9 316.1 310.1 311.5 266.6 297.1 311.3 335.1 337.5 Trailing 12M EBITDA Margin 42.24 39.58 39.49 39.67 31.81 25.97 27.59 30.89 31.13 28.89 Cash Paid for Taxes 0.0 87.4 47.0 40.8 37.1 34.9 26.5 29.7 29.0 33.8 Cash Paid for Interest 10.3 9.8 7.7 6.6 5.9 5.4 6.1 4.6 4.0 4.3 Interest Received ------0.0 -- 0.1 0.1 Net Cash Paid for Acquisitions ------13.3 1.0 0.5 0.0 -- -- Free Cash Flow 242.7 172.7 160.3 103.0 87.5 183.0 152.3 176.7 133.2 129.5 Free Cash Flow to Firm 250.8 181.1 166.5 108.6 92.4 187.6 156.3 180.2 136.5 133.0 Free Cash Flow to Equity -- 207.7 125.5 122.6 135.1 170.9 122.1 158.3 186.5 213.8 Free Cash Flow per Basic Share 0.27 0.19 0.18 0.12 0.10 0.20 0.17 0.19 0.14 0.14 Price to Free Cash Flow 8.76 10.23 8.26 16.42 24.11 12.38 16.21 17.04 25.17 20.81 Cash Flow to Net Income 1.81 1.33 1.70 1.48 1.19 2.38 1.88 1.88 1.55 1.60
Direct Method Cashflow Source: Bloomberg
61 Last edited 03-Oct-15 10:11 PM Equity Research - Singapore Telecommunications Limited (SGX: Z74)
15.12 Appendix #12: Forward Projections 15.12.1 Income Statement Projections Singtel - Income Statement Projections ($ in Millions SGD except per share data) Historical Projected 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total Revenue $ 18,071 $ 18,825 $ 18,183 $ 16,848 $ 17,223 $ 17,922 $ 18,680 $ 19,500 $ 20,388 $ 21,350 Mobile Communications 7719.8 8173.6 7836.6 7249.9 7242.3 7,604.4 7,984.6 8,383.9 8,803.1 9,243.2 Data and Internet 3486.7 3577.2 3506.1 3414.1 3099.6 3,254.6 3,417.3 3,588.2 3,767.6 3,956.0 IT & Engineering 2026.6 2067.1 2140.4 2146.1 2404.4 2,524.6 2,650.9 2,783.4 2,922.6 3,068.7 Sale of Equipment 1557.4 1705.6 1485.7 1244 1554.6 1,575.3 1,596.2 1,617.5 1,639.0 1,660.8 National Telephone 1886.4 1850.7 1723.3 1502.5 1356.8 1,289.0 1,224.5 1,163.3 1,105.1 1,049.9 Others Inc. Satellite and Pay Television 540.9 633 731.4 602.6 937.6 1,078.2 1,240.0 1,426.0 1,639.9 1,885.8 International Telephone 852.8 818.1 759.5 688.9 627.6 596.2 566.4 538.1 511.2 485.6 COGS 2980.2 3151.1 2993 2649.1 2933.8 2,975.0 3,100.8 3,237.0 3,384.4 3,544.0 Gross Profit $ 15,090 $ 15,674 $ 15,190 $ 14,199 $ 14,289 $ 14,947.3 $ 15,579.2 $ 16,263.3 $ 17,004.0 $ 17,806.0 Other Operating Revenue 116.5 99.6 114.3 108.4 145.5 114.0 118.8 124.0 129.7 135.8
Operating Expenses 12,095 12,590 12,232 11,281 11,519 11,993.5 12,500.5 13,049.4 13,643.7 14,287.3
Operating Income $ 3,112 $ 3,184 $ 3,073 $ 3,027 $ 2,916 $ 3,068 $ 3,197 $ 3,338 $ 3,490 $ 3,655
Interest Expenses 398 428 330 288 305 321.0 334.6 349.3 365.2 382.4
Foreign Exchange Losses (Gains) (7) (10) 16 10 (8) 1.6 1.6 1.7 1.8 1.9 Net Non-Operating Losses (Gains) (1,726) (1,548) (1,405) (1,619) (1,844) (1,624.9) (1,693.6) (1,767.9) (1,848.4) (1,935.6)
Profit Before Tax $ 4,446 $ 4,314 $ 4,131 $ 4,348 $ 4,463 $ 4,370 $ 4,555 $ 4,755 $ 4,971 $ 5,206
Income Taxes 623.7 324.9 620.7 691 678.5 660.5 688.4 718.6 751.4 786.8
Net Income $ 3,823 $ 3,990 $ 3,511 $ 3,657 $ 3,785 $ 3,710 $ 3,866 $ 4,036 $ 4,220 $ 4,419
Dividends Paid $ (2,357) $ (4,111) $ (2,518) $ (2,678) $ (2,678) $ (2,660) $ (2,773) $ (2,895) $ (3,026) $ (3,169) % Pay Out Ratio: -61.6% -103.1% -71.7% -73.2% -70.7% -71.7% -71.7% -71.7% -71.7% -71.7%
Additional to Retained Earnings $ 1,466 $ (122) $ 993 $ 979 $ 1,107 $ 1,049 $ 1,094 $ 1,142 $ 1,194 $ 1,250
EBITDA $ 5,080.50 $ 5,185.70 $ 5,199.90 $ 5,159.20 $ 5,077.00 $ 5,125.35 $ 5,342.01 $ 5,576.61 $ 5,830.59 $ 6,105.59 EBITDA Margin 28.11% 27.55% 28.60% 30.62% 29.48% 28.60% 28.60% 28.60% 28.60% 28.60%
Income Statement Assumptions Historical Projected 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Revenue Growth 4.2% -3.4% -7.3% 2.2% Mobile Communications 5.9% -4.1% -7.5% -0.1% 5.0% 5.0% 5.0% 5.0% 5.0% Data and Internet 2.6% -2.0% -2.6% -9.2% 5.0% 5.0% 5.0% 5.0% 5.0% IT & Engineering 2.0% 3.5% 0.3% 12.0% 5.0% 5.0% 5.0% 5.0% 5.0% Sale of Equipment 9.5% -12.9% -16.3% 25.0% 1.3% 1.3% 1.3% 1.3% 1.3% National Telephone -1.9% -6.9% -12.8% -9.7% -5.0% -5.0% -5.0% -5.0% -5.0% Others Inc. Satellite and Pay Television 17.0% 15.5% -17.6% 55.6% 15.0% 15.0% 15.0% 15.0% 15.0% International Telephone -4.1% -7.2% -9.3% -8.9% -5.0% -5.0% -5.0% -5.0% -5.0% COGS, % of Revenue 16.7% 16.5% 15.7% 17.0% 16.6% 16.6% 16.6% 16.6% 16.6% Other Operating Revenue, % of Revenue 0.5% 0.6% 0.6% 0.8% 0.6% 0.6% 0.6% 0.6% 0.6% Operating Exp, % of Revenue 66.9% 67.3% 67.0% 66.9% 66.9% 66.9% 66.9% 66.9% 66.9% Interest Expenses, % of Revenue 2.3% 1.8% 1.7% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% Foreign Exchange Losses (Gains), % of Revenue -0.1% 0.1% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Net Non-Operating Losses (Gains), % of Revenue -8.2% -7.7% -9.6% -10.7% -9.1% -9.1% -9.1% -9.1% -9.1% Effective Tax Rate 7.5% 15.0% 15.9% 15.2% 15.1% 15.1% 15.1% 15.1% 15.1% Depreciation & Amortisation $ 1,968.7 $ 2,001.6 $ 2,127.4 $ 2,132.7 $ 2,161.4 $ 2,096.90 $ 2,185.54 $ 2,281.52 $ 2,385.43 $ 2,497.94 D&A, % of Revenue 10.9% 10.6% 11.7% 12.7% 12.5% 11.7% 11.7% 11.7% 11.7% 11.7%
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15.12.2 Cash Flow Projections
Singtel - Cash Flow Projections ($ in Millions SGD except per share data) Historical Projected 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash From Operating Activities Net Income 3,825.30 3,988.70 3,508.30 3,652.00 3,781.50 3,709.61 3,866.42 4,036.22 4,220.04 4,419.09 Depreciation & Amortization 1,968.70 2,001.60 2,127.40 2,132.70 2,161.40 2,096.90 2,185.54 2,281.52 2,385.43 2,497.94 Other Non-Cash Adjustments (62.50) (660.10) (25.30) (385.80) (504.30) (410.40) (427.75) (446.53) (466.87) (488.89) Changes in Non-Cash Capital 15.40 11.30 (91.80) (305.20) 86.20 10.76 11.21 11.71 12.24 12.82 Cash From Operations 5,746.90 5,341.50 5,518.60 5,093.70 5,524.80 5,406.87 5,635.43 5,882.91 6,150.84 6,440.95
Cash From Investing Activities Disposal of Fixed Assets 23.80 14.60 10.00 7.10 15.20 14.14 14.14 14.14 14.14 14.14 Capital Expenditures (2,004.60) (2,248.70) (2,058.60) (2,101.50) (2,237.60) (2,140.84) (2,231.34) (2,329.33) (2,435.41) (2,550.28) Cash From Investing Activities (1,980.80) (2,234.10) (2,048.60) (2,094.40) (2,222.40) (2,126.70) (2,217.20) (2,315.19) (2,421.27) (2,536.14)
Cash from Financing Activities Dividends Paid (2,356.60) (4,111.40) (2,517.70) (2,677.80) (2,677.50) (2,677.50) (2,677.50) (2,677.50) (2,677.50) (2,677.50) Change in Short-Term Borrowings ------Increase in Long-Term Borrowings 3,394.20 5,888.10 3,882.60 3,475.30 5,245.40 4,377.12 4,377.12 4,377.12 4,377.12 4,377.12 Decrease in Long-term Borrowings (2,554.30) (4,699.30) (4,688.00) (3,270.20) (4,508.20) (3,944.00) (3,944.00) (3,944.00) (3,944.00) (3,944.00) Increase in Capital Stocks 6.50 9.40 1.80 - - Decrease in Capital Stocks (39.40) (20.00) (36.80) (36.60) (54.70) Other Financing Activities (262.00) (945.90) 5.50 (19.50) 12.90 Cash from Financing Activities (1,811.60) (3,879.10) (3,352.60) (2,528.80) (1,982.10) (2,244.38) (2,244.38) (2,244.38) (2,244.38) (2,244.38)
Net Changes in Cash 1,954.50 (771.70) 117.40 470.50 1,320.30 1,035.79 1,173.85 1,323.35 1,485.19 1,660.43
Cash Flow Assumptions Historical Projected 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Depreciation & Amortization 1,968.7 2,001.6 2,127.4 2,132.7 2,161.4 2,096.9 2,185.5 2,281.5 2,385.4 2,497.9 % of Revenue 10.9% 10.6% 11.7% 12.7% 12.5% 11.7% 11.7% 11.7% 11.7% 11.7% Other Non-Cash Adjustments (62.5) (660.1) (25.3) (385.8) (504.3) (410.4) (427.7) (446.5) (466.9) (488.9) % of Revenue -0.3% -3.5% -0.1% -2.3% -2.9% -2.3% -2.3% -2.3% -2.3% -2.3% Changes in Non-Cash Capital 15.4 11.3 (91.8) (305.2) 86.2 10.8 11.2 11.7 12.2 12.8 % of Revenue 0.1% 0.1% -0.5% -1.8% 0.5% 0.1% 0.1% 0.1% 0.1% 0.1% Capital Expenditures (2,004.6) (2,248.7) (2,058.6) (2,101.5) (2,237.6) (2,140.8) (2,231.3) (2,329.3) (2,435.4) (2,550.3) % of Revenue -11.1% -11.9% -11.3% -12.5% -13.0% -11.9% -11.9% -11.9% -11.9% -11.9%
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15.12.3 Balance Sheet Projections Singtel - Balance Sheet Projections ($ in Millions SGD except per share data) Historical Projected 2011 2012 2013 2014 2015 2016
Cash & Cash Equivalents $ 2,738.00 $ 1,346.40 $ 911.00 $ 622.50 $ 562.80 $ 1,598.59 Short Term Investments $ - $ - $ - $ - $ - $ - Accounts & Notes Receivable $ 2,476.60 $ 2,865.50 $ 2,747.40 $ 2,360.20 $ 2,735.80 $ 2,649.99 Inventories $ 299.30 $ 208.10 $ 213.70 $ 169.60 $ 289.80 $ 210.64 Other Current Assets $ 1,041.30 $ 1,398.50 $ 933.70 $ 1,199.00 $ 1,179.20 $ 210.64
Total Current Assets $ 6,555.20 $ 5,818.50 $ 4,805.80 $ 4,351.30 $ 4,767.60 $ 4,669.85
LT Investments & LT Receivables $ 309.10 $ 1,473.70 $ 1,570.90 $ 1,621.80 $ 1,878.80 $ 1,548.38 Net Fixed Assets $ 11,112.50 $ 11,580.00 $ 11,724.90 $ 11,096.30 $ 10,683.20 $ 11,137.54 Other Long-Term Assets $ 21,305.50 $ 21,545.40 $ 21,881.90 $ 22,250.60 $ 24,737.20 $ 24,737.20
Total Non Current Assets $ 32,727.10 $ 34,599.10 $ 35,177.70 $ 34,968.70 $ 37,299.20 $ 37,423.11
Total Assets $ 39,282.30 $ 40,417.60 $ 39,983.50 $ 39,320.00 $ 42,066.80 $ 42,092.96
Accounts Payable $ 2,747.70 $ 3,205.60 $ 2,981.00 $ 2,759.00 $ 3,305.60 $ 2,933.28 Short-Term Borrowings $ 2,698.90 $ 131.10 $ 391.80 $ 1,457.10 $ 788.40 $ 788.40 Other Short-Term Liabilities $ 3,094.20 $ 2,198.70 $ 2,419.00 $ 1,473.90 $ 1,662.80 $ 1,548.38
Total Current Liabilities $ 8,540.80 $ 5,535.40 $ 5,791.80 $ 5,690.00 $ 5,756.80 $ 5,270.05
Long-Term Borrowings $ 4,586.70 $ 8,662.70 $ 7,536.90 $ 7,226.60 $ 8,804.40 $ 8,193.45 Other Long-Term Liabilities $ 1,804.50 $ 2,771.60 $ 2,665.60 $ 2,510.80 $ 2,737.70 $ 2,812.37
Total LT Liabilities $ 6,391.20 $ 11,434.30 $ 10,202.50 $ 9,737.40 $ 11,542.10 $ 11,005.82
Total Liabilities $ 14,932.00 $ 16,969.70 $ 15,994.30 $ 15,427.40 $ 17,298.90 $ 16,275.88
Total Preferred Equity $ - $ - $ - $ - $ - Minority Interest $ 22.00 $ 20.40 $ 24.60 $ 24.40 $ 34.60 $ 34.60 Share Capital & APIC $ 2,622.80 $ 2,632.20 $ 2,634.00 $ 2,634.00 $ 2,634.00 $ 2,634.00 Retained Earnings & Other Equity $ 21,705.50 $ 20,795.30 $ 21,330.60 $ 21,234.20 $ 22,099.30 $ 23,148.49
Total Equity $ 24,350.30 $ 23,447.90 $ 23,989.20 $ 23,892.60 $ 24,767.90 $ 25,817.09
Total Liabilities & Equity $ 39,282.30 $ 40,417.60 $ 39,983.50 $ 39,320.00 $ 42,066.80 $ 42,092.96
Balance Sheet Assumptions Historical Forecasted 2011 2012 2013 2014 2015 2016 Total Revenue $ 18,070.6 $ 18,825.3 $ 18,183.0 $ 16,848.1 $ 17,222.9 $ 17,922.3 Operating Expenses $ 12,095.1 $ 12,589.7 $ 12,231.8 $ 11,280.9 $ 11,519.0 $ 11,993.5
Days Receivable Outstanding 50.0 55.6 55.2 51.1 58.0 54.0 Other Current Assets, % of Revenue 1.7% 1.1% 1.2% 1.0% 1.7% 1.2% Inventories, % of Revenue 1.7% 1.1% 1.2% 1.0% 1.7% 1.2% Days Payable Outstanding 82.9 92.9 89.0 89.3 104.7 89.3 Other Short term Liabilities, % of Revenue 17.1% 11.7% 13.3% 8.7% 9.7% 8.6% LT Investments/Receivables, % of Revenue 1.71% 7.83% 8.64% 9.63% 10.91% 8.64% Other Long-Term Assets, % of Revenue 117.90% 114.45% 120.34% 132.07% 143.63% 120.34% Short term borrowings, % of Revenue 14.94% 0.70% 2.15% 8.65% 4.58% 4.58% Long term borrowings, % of Revenue 25.38% 46.02% 41.45% 42.89% 51.12% 42.89% Other Long-Term Liabilities, % of Revenue 9.99% 14.72% 14.66% 14.90% 15.90% 14.72%
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15.13 Appendix #13: Contribution Statement
Section Content Name Header
Ng Ka Ho, Ho, Ka Ng Billy (3474928) YeeWei Lei (3475163) Yam Alvin KweeMing (3475158) Zhiren Lin (3475474) Goh Zhenping (3531540) 1 Overview 1 2 Share price performance 1
3 Financial performance 1 4 Competitive Analysis - Porter’s five forces 1 4.1 Market rivalry: Very High 1 4.2 New entrants: Medium 1 4.3 Substitutes: Low 1 4.4 Bargaining power of buyers: High 1 4.5 Bargaining power of suppliers: Low 1
5 Industry trends – Microeconomic factors 1 5.1 Competition 1 5.2 Directions 1 5.3 Operations 1 6 Industry trends – Macroeconomic factors 1 6.1 Market Trends 1 6.2 Income growth 1
6.3 Technology Advancements and Innovation 1 6.4 Population Growth 1 7 Investment Thesis 1 7.1 Tremendous institutional support 1 7.2 Market bears are cornered 1 7.3 Rock-solid fundamentals 1 8 ROE Analysis 1
9 DuPont Analysis 1 9.1 Operating Profit Margin (OPM) 1 9.2 Total Asset Turnover (TAT) 1 9.3 Interest Expense Rate 1 9.4 Financial Leverage Multiplier 1 9.5 Tax Retention Rate 1 9.6 Conclusion for DuPont Analysis 1 10 CAPM Estimation 1 1 1 10.1 Beta 1 1 1 10.2 Risk free rate 1 1 1 10.3 Market risk premium 1 1 1 10.4 CAPM estimation 1 1 1 11 Valuation 1 1 1 11.1 Dividend Discount Model 1 1 1 11.1.1 Assumptions 1 1 11.1.2 Target share price 1 1 11.1.3 Sensitivity Analysis of DDM 1 1 1 11.2 Free Cash Flow to Equity (FCFE) 1 1 1 11.2.1 Assumptions 1 1 1 11.2.2 FCFE Calculation & Terminal Value 1 1 1 11.2.3 Target share price 1 1 1 11.2.4 Sensitivity Analysis 1 1 1 11.3 Price/Earnings model (P/E) 1 1 1 11.3.1 Assumption 1 1 11.3.2 Target share price 1 1 11.3.3 Sensitivity Analysis 1 1 1 11.4 Price/Book model (P/B) 1 1 1 11.4.1 P/B Ratio Calculation 1 1 11.4.2 Industry P/B Ratio 1 1 11.4.3 Target share price 1 1 1 11.4.4 Sensitivity Analysis 1 1 1
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Section Content Name Header
Ng Ka Ho, Ho, Ka Ng Billy (3474928) YeeWei Lei (3475163) Yam Alvin KweeMing (3475158) Zhiren Lin (3475474) Goh Zhenping (3531540) 12 Key Investment Risks 1 12.1 Credit Risk 1 12.2 Interest Rate Risk 1 12.3 Currency Risk 1 12.4 Market Risk 1 12.5 Liquidity Risk 1 13 Evaluation 1 13.1 Discounted Cash Flow Models 1 13.1.1 Dividend Discount Model 1 13.1.2 Free Cash Flow to Equity Model 1 13.2 Relative Valuation Approaches 1 13.2.1 Price/Earnings Ratio 1 13.2.2 Price/Book Ratio 1 13.3 Conclusion 1 14 References 1 15 Appendices 1 1 1 1 15.1 Appendix #1: ROE and DuPont ROE Calculations 1 15.1.1 SingTel ROE & DuPont 1 15.1.2 M1 ROE & DuPont 1 15.1.3 StarHub ROE & DuPont 1 15.2 Appendix #2: Beta calculation 1 15.3 Appendix #3: CAPM Calculations 1 15.4 Appendix #4: Dividend Discount Model Calculations 1 15.5 Appendix #5: Free Cash Flow to Equity Model Calculations 1 15.5.1 FCFE Workings 1 15.5.2 FCFE Growth Workings 1 15.5.3 FCFE Valuation Workings 1 15.6 Appendix #6: Price/Earnings Ratio Calculations 1 1 15.6.1 SingTel Earnings per Share Ratio 1 1 15.6.2 SingTel P/E Ratio 1 1 15.6.3 SingTel Sustainable Growth Rate 1 1 15.6.4 SingTel P/E Ratio Valuation 1 1 15.7 Appendix #7: Price/Book Ratio Calculation 1 1 15.7.1 SingTel 2015 P/B Ratio 1 1 15.7.2 SingTel Average P/B Ratio Growth Rate 1 1 15.7.3 M1 2015 P/B Ratio 1 1 15.7.4 M1 Average P/B Ratio Growth Rate 1 1 15.7.5 StarHub 2015 P/B Ratio 1 1 15.7.6 StarHub Average P/B Ratio Growth Rate 1 1 15.8 Appendix #8: Comparison of Mobile service plan prices 1 15.8.1 Singtel (viewed 15th September 2015): 1 15.8.2 Starhub (viewed 15th September 2015): 1 15.8.3 M1 (viewed 15th September 2015): 1 15.9 Appendix #9: SingTel Financial Statements 1 15.9.1 SingTel Income Statement 1 15.9.2 SingTel Balance Sheet 1 15.9.3 SingTel Cash Flow Statement 1 15.1 Appendix #10: Starhub Financial Statements 1 15.10.1 Starhub Income Statement 1 15.10.2 Starhub Balance Sheet 1 15.10.3 Starhub Cash Flow Statement 1 15.11 Appendix #11: M1 Financial Statements 1 15.11.1 M1 Income Statement 1 15.11.2 M1 Balance Sheet 1 15.11.3 M1 Cash Flow Statement 1 15.12 Appendix #12: Forward Projections 1 15.12.1 Income Statement Projections 1 15.12.2 Cash Flow Projections 1 15.12.3 Balance Sheet Projections 1
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