Singtel at $2.43: Is it Time to Buy?

Overview of the Market:

The broader market has seen mixed performances with companies grappling with macroeconomic challenges, currency fluctuations, and sector-specific issues. However, certain stocks have shown resilience, adapting their strategies to navigate these headwinds.

Singtel's Performance:

On May 23, Singtel $Singtel(Z74.SI)$  reported a significant 64% drop in full-year net profit due to a previously announced S$3.1 billion impairment charge, primarily from its Australian subsidiary Optus. The company's net profit for the year ending in March was S$795 million, down from S$2.23 billion the previous year, due to an exceptional loss of S$1.47 billion. This resulted in a net loss of S$1.3 billion, compared to a net profit of S$1.1 billion in the prior period.

Impairment and Legal Challenges:

The impairment charges included a S$2 billion provision on the goodwill of Optus and S$470 million for Optus' enterprise fixed access network assets. Additionally, Optus faced legal action from Australia's media regulator over a 2022 cyber attack and suffered a significant network-wide outage in November 2023.

Underlying Performance and Dividends:

Excluding the impairment charges, Singtel's underlying full-year net profit rose by 10% to S$2.26 billion, driven by increased regional associate contributions and higher interest income. On May 23, Singtel announced a new "value realisation dividend" (VRD) of three Singapore cents to six cents per share per annum, in addition to the core dividend, aiming to enhance shareholder returns over the medium term.

Dividend Increase:

The directors proposed a final dividend of 9.8 cents per share, consisting of a core dividend of six cents and a VRD of 3.8 cents. This compares to the 5.3 cents dividend from the previous year, resulting in a total dividend payout of 15 cents for fiscal 2024, a 52% year-on-year increase. This is the third dividend increase since Singtel's strategic reset three years ago. The VRD is expected to boost the telco's dividend yield to 6.3% at the last close price, up from approximately 4%.

Capital Recycling Program:

The VRD is funded from excess capital generated through Singtel's capital-recycling program, which has identified an additional S$6 billion in assets for potential monetisation, on top of the S$8 billion recycled in the past three years. This capital is intended to fund growth opportunities, reduce debt, and return excess capital to shareholders via the VRD.

Outlook and Insights:

Despite facing a challenging macro environment and significant currency headwinds, Singtel's underlying performance remains resilient. The increased dividends and strategic focus on capital recycling suggest a positive outlook for the company. However, potential legal challenges and operational setbacks, particularly with Optus, pose risks that need to be monitored.

Conclusion:

At a trading price of $2.43, Singtel presents an intriguing investment opportunity, especially with its enhanced dividend yield and strategic initiatives aimed at boosting shareholder returns. While the stock shows promise, investors should consider the associated risks and the broader market conditions before making a decision. The resilience in underlying performance and proactive capital management indicate that Singtel could be entering a buying zone, provided the potential challenges are kept in check.

$Singtel(Z74.SI)$