Published December 6, 2008

SingTel has leeway on payout

By SIOW LI SEN
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A FALL in earnings at Singapore Telecommunications does not necessarily mean a lower dividend payout for investors. Analysts say although SingTel's guidance is to pay 45-60 per cent of underlying net profit as dividends, the telco has the flexibility to go beyond this ratio to maintain its dividend payout.

SingTel chief executive Chua Sock Koong is understood to have told analysts earlier this week that the board has the flexibility on the final dividend payout. 'In general, the board has the flexibility to recommend to the shareholders the final dividend payout,' spokesman Peter Heng said yesterday.

SingTel's payout ratio was raised from 40-50 per cent to 45-60 per cent only in May this year.

The issue of SingTel's dividend payout was raised during its annual Investor Day event on Dec 3 as analysts wondered if current forex volatility would affect its payout per share.

For its first half ended Sept 30, 2008, even as underlying net profit fell 6.5 per cent to $1.666 billion, SingTel approved an interim dividend of 5.6 cents a share, unchanged from the previous corresponding period, amounting to $892 million.

SingTel said the lower earnings were due to several factors including weaker regional currencies and the depreciation of the Australian dollar. Some 73 per cent of SingTel's earnings come from its regional associates and its Australian unit.

On the outlook for the second half, SingTel said it expects the overall pre-tax earnings contributions of its regional mobile associates for the year ending March 31, 2009, to be lower than for the previous year. It also expects earnings of the group to be negatively impacted by the depreciation in the Australian dollar.

If the company decides to approve for the final dividend a similar 6.9 cents a share, it would amount to a total of $2 billion for the full year. And if underlying net earnings in the second half are, say, the same or lower than the $1.666 billion of the first half, maintaining the same dividend payout per share would exceed the 45-60 per cent payout ratio guidance.

SingTel is careful about maintaining its cash dividend in order not to worry the market, analysts say. In addition, it can alter capital expenditure to protect cash flows.

Given that the current forex volatility is an exceptional circumstance pressuring profits, SingTel could potentially provide better than the 45-60 per cent payout guidance, said JPMorgan, in a note after the event. 'We believe that management is cognizant that the market is wary of risks to cash dividends and will act accordingly to stem such worries,' said JPMorgan.

'No tangible signs of slowdown are as yet seen but almost all businesses emphasised that they retain very good flexibility to alter capex to protect cash flows,' said Marquarie Research.