Investors have been closely watching for details regarding the 4th telco operator in Singapore. Shares of telcos have fallen after TPG Telecom was selected to become Singapore's 4th service provider.
Both StarHub and M1 are currently trading just above their 52-week lows of $2.73 and $1.90 respectively. Meanwhile, SingTel remains relatively stable, well above its 52-week low. The main reason why SingTel has been least affected compared to the other service providers is because net income from Singapore only makes up 29% of its total net profits. The upcoming 4th service provider for Singapore, TPG Telecom, would affect SingTel the least among the incumbents.
SingTel can count on opportunities in emerging markets
The proportion of profits from mobile customers in Singapore for the three service providers are shown below:
SingTel StarHub M1 Mobile Customer Base (millions) 4.10 2.31 2.02 Market Share (%) 49.0 27.3 23.7
SingTel remains well diversified, as it owns stakes in leading telcos in emerging markets such as Thailand, India, Indonesia and Philippines. The best opportunity for growth comes from these emerging markets, as the mobile penetration rates there are relatively low. As large numbers of the population in emerging markets climb out of poverty, demand for mobile phones and mobile data would get stronger. SingTel has a 36.5% effective interest in India's leading telco, Bharti Airtel, which currently has 80 million mobile customers in various African nations, and the number of customers is set to rise.
Smart Cities to drive demand for IT services
SingTel's Group Enterprise business segment would potentially benefit from Singapore's target to build a Smart Nation. For the third quarter ending Dec 16, EBITDA from SingTel's Group Enterprise business segment accounted for S$455 million out of a total of S$1221 million. Building a Smart Nation requires would increase demand for SingTel's services that include solutions for data infrastructure, cloud computing and cyber security. Recently, Singtel has also set-up a new security operations centre in Tokyo to provide cyber security solutions.
Telecommunications are generally defensive stocks, and most investors buy them as income stocks, for their high and stable dividends. In addition to distributing stable dividends, SingTel still has the potential to expand into emerging markets and benefit from Singapore's ambition to develop a Smart Nation.
As an income stock, we can expect SingTel to fall slightly if the Federal Reserve raises interest rates this month, because investors would seek a higher yield. Personally, I'm looking to accumulate SingTel whenever its P/E goes below 15, giving a dividend yield of around 5%, as I believe that SingTel is the best pick among the three telcos here.