It will not be true to say that there will be lesser dividend this year (FY 08) as SPH would need to conserve more cash for building the Next Generation Network (NGN). This is because SPH was only awarded the project yesterday and it is unlikely to hold back dividends to anticipate the award of this project.
SPH’s SGX announcement was as follows:
The project will be funded by a combination of shareholders’ equity, government grant, operating cashflow and external funding. OpenNet forecasts its shareholder investment requirements to be in the range of S$120 million to S$160 million, which will be required during the construction and commissioning phase. SPH’s share will range from S$30 million to S$40 million.
According to the press release, it will cost at least $2B to build the network.
Assuming government grant’s of $700M, SPH’s 25% stake will require it to come out with at least $325M over 4 years.
A last check on SPH’s 3Q 08 financial statements, there is about $216M of free cash sitting in the bank accounts. The current liabilities are only $333M VS the current assets of $1B.
The quick ratio stands at a healthy 3.07.
I do not foresee SPH issuing rights to fund the NGN. There might be a lower dividend payout from 2010 onwards as SKY ELEVEN will stop contributing profits when it is completed in end-2009 and management conserve cash to fund NGN. The prospects of bumper dividends in 2009 will also be dimmer upon the final completion of SKY ELEVEN.
However, I do see that SPH’s share in broadband business is a good strategy to tap on the expertise of Singtel networks and earn itself a perpetual cash cow. Do not forget, the profit margins of broadband business hovers between 25%-35%. With SPH’s stake of 13.97% in M1, it can be assured a steady income from the communications sector, almost a recession proof business.
Starhub’s position as the highest speed provider in broadband will be challenged. It might have to end up leasing the networks from Open Net.
The NGN will also aid SPH aggressive marketing efforts into virtual advertising and information network to compliment its newspapers and magazines.
Back to its dividend payout this year, I do hope to receive at least 16 cents per share or $7840 tax exempt dividend from SPH in Dec. Anything lesser than that will likely to cause its share price to plummet below $3.60 when it goes XD in Dec.
Good luck to all vested!