SingTel Dials Up Higher Profit

Singtel1 Telecommunications operator SingTel (SGX: Z74) released its first quarter results earlier today. It posted a 5.3% decline in quarterly revenue to S$4.29b compared to a year ago while profit was up 7% to S$1.01b.

The broad picture for the top-line dip was due to lower revenue coming in from the company’s Australian operations as well as a weaker Australian dollar relative to our local currency. SingTel’s Australian business is headed by its wholly-owned subsidiary, Optus, which lags behind Australia’s largest telco, Telstra (SGX: TLS).

As for the profit growth, the main contributor was a 14% year-on-year increase in pre-tax profit to S$578m from SingTel’s associates. These associates, which are mainly foreign telcos in which SingTel has a stake in, includes: Telkomsel in Indonesia; AIS in Thailand; Bharti AirTel from India; and Globe Telecom in Philippines, among others.

The other factor was the 4.3% year-on-year growth to S$1.3b in SingTel’s quarterly earnings before interest, taxes, depreciation & amortisation (EBITDA), exclusive of pre-tax profits from associates.

SingTel splits its business operations into three segments: Group Consumer; Group Enterprise; and Group Digital Life.

Group Consumer contributes more than 60% of SingTel’s revenue and EBITDA, so it’s an important segment for the company. It comprises SingTel’s consumer businesses across Singapore and Australia (represented by Optus) as well as the company’s investments in its previously-mentioned associates.

For the quarter, the segment saw a 6.3% year-on-year slip in revenue to S$2.7b driven mainly by a fall in revenue from Optus as the Australian business continues to reposition itself to grow in mobile data services. EBITDA for the segment actually moved up 4.6% to S$808m due to lower costs in Australia.

Group Enterprise is focused on the enterprise markets (i.e. corporate customers) in Singapore and Australia and its key services include: mobile; voice & data infrastructure; managed services; cloud computing; IT services; and professional consulting.

The segment brought in S$1.56b in sales for the quarter, down 4.1% from a year ago. Management cited a “more cautious business environment and weaker Australian dollar” as reasons for the decline. On a brighter note, EBITDA for the segment actually grew by 3% year-on-year to S$532m due to better cost management and sale of submarine cable assets.

Lastly, Group Digital Life, the smallest business segment, saw revenue increase by 50% to S$30m from a year ago. It focuses on SingTel’s digital and internet-related businesses, such as e-commerce and mobile advertising.

The segment’s EBITDA contribution was a negative S$32m, down from last year’s negative S$24m.

SingTel’s chief executive, Chua Sock Koong, commented on the quarter, “It was a strong quarter. We continue to make progress in strengthening our high performance core business and create next-generation growth engines in the digital space. We made good strides in our transformational initiatives, improving yield and capturing value from increased data usage trends.

Due to the diversity of our business, we are subject to foreign exchange volatility and have updated our guidance in view of the weakening Australian Dollar. Notwithstanding the currency impact, our business remains strong and we continue to execute strongly on our strategy to deliver long term growth.”

The company provided some guidance for the rest of the year and expects to see mid-single-digit decline in revenues and a low-single-digit decline in EBITDA. That’s in contrast to SingTel’s guidance for the current financial year given in its previous earnings release where it initially expected to see stable revenues and single-digit growth in EBITDA.

The market does not seem too happy with SingTel’s results as it’s down by 1.6% to S$3.76 at 1:30pm, even as the broader market, represented by the Straits Times Index (SGX: ^STI), only dipped by 0.1% to 3,241 points.

At S$3.76, shares of SingTel are selling for 17 times trailing earnings and carry a dividend yield of 4.5% based on the full-year pay-out for its last completed financial year.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.