SINGAPORE (Oct 14): Citi Research believes there is little likelihood for Singapore Telecommunications (Singtel) to cut FY21 dividends to 13-15 cents/share from the current 17.5 cents/share, despite worries raised by some quarters of the market recently.

In an Oct 10 report, DBS Group Research said Singtel may be forced to abandon its fixed dividend policy and peg dividend payouts to underlying earnings to relieve some burden off its balance sheet.

Earlier in March, ratings agency Moody’s Investors Service had also revised Singtel’s credit ratings outlook from “stable” to “negative” citing continued pressure on the telco’s EBITDA and cash flows.

See: Could Singtel be forced to end its fixed dividend policy?

However, in a recent report, Citi said there is more than enough room for Singtel to maintain its dividend policy. According to the research house, Singtel would generate cumulative $16.4 billion in OPCF (operating cashflow) including associate dividends, based on its estimates for FY21-23. This compares against cumulative capex -- including committed spectrum payments assuming the 700MHz is freed up and paid for in FY21 -- of $6.8 billion.

This should translate into FCF (free cashflow) of $9.6 billion or $3.2 billion per year compared to $2.85 billion annual cash outflow if Singtel were to keep the dividend at 17.5 cents/share.

“As such, we do see adequate leeway for the company to keep the dividend assuming no major unforeseen cash outlay,” says analyst Arthur Pineda in the Oct 10 report.

Meanwhile, Pineda said Singtel’s balance sheet is not stretched either. He estimates Singtel’s net debt to EBITDA (adjusted for associate dividends) to decline to 1.6x for FY20 from 1.8x in FY19. This is higher than region’s market cap weighted average of 1.5x and same as developed Asia’s 1.6x.

“We don’t find Singtel’s balance sheet to be particularly leveraged so as to trigger concern,” says Pineda, adding that while Singtel management is committed to retaining investment grade ratings, Singtel’s last ratings with Moody’s still lie six notches above investment grade.

In addition, Citi says the estimated FCF less dividend paid surplus of $1.1 billion for FY21-23 does not yet factor in the possibility of monetising assets such as Amobee. And assuming no major acquisitions, Pineda says this surplus can comfortably fund elements such as 5G builds or the gradual building of a digital bank.

However, Pineda warns that if Singtel does engage in an aggressive network build-out on 5G on its own and wins a digital bank licence with an aggressive roll-out or moves to acquire significant assets, dividends might be impacted if Singtel does not move to leverage its balance sheet or sell assets.

Year to date, shares in Singtel are up 9.4% at $3.15.