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Profits Grow 5.5% At Singapore Telecommunications Limited

Singapore Telecommunications (SGX: Z74), or “SingTel” for short, announced its third quarter earnings this morning and delivered single-digit bottom-line growth even as revenues dipped.

Here in Singapore, we have three telecommunication operators in SingTel, Starhub (SGX: CC3), and M1 (SGX: B2F). SingTel’s the largest here, and it also has dominant positions in the telecommunications industry in a number of foreign countries like Australia, Africa, India, Indonesia, Thailand, and The Philippines through ownership stakes in its associates and subsidiaries.

Company

Country of Operation

Rank in Country

SingTel’s ownership stake

Bharti Airtel

India & Africa

First in India

32%

AIS

Thailand

First

23%

Globe

Philippines

Second

47%

Telkomsel

Indonesia

First

35%

Optus

Australia

Second

100%

SingTel

Singapore

First

100%

Source: SingTel’s CLSA Investor’s Forum 2013 Presentation

SingTel underwent an organisational restructure back in April 2013 and now has three business segments: Group Consumer, Group Enterprise, and Group Digital Life.

The first segment includes the company’s consumer businesses in Singapore and Australia as well as those of its foreign associates and subsidiaries. It deals with the provision of the core of the telecommunication carriage business – mobile, residential pay TV, fixed-line, and equipment sales.

The next segment groups together SingTel’s enterprise market in Singapore and Australia, which deals with services such as mobile, voice & data infrastructure, managed services, cloud computing, IT services, and professional consulting.

Rounding up the trio of segments, we have Group Digital Life. SingTel describes the segment as “focus[ing] on using the latest internet technologies and the assets of [SingTel’s] operating companies to develop new revenue growth engines by entering adjacent businesses where it has a competitive advantage.”

Some basic numbers

For the three months ended 31 Dec 2013, SingTel’s revenue had slipped by 7.3% year-on-year to S$4.26 billion while profits were up by 5.5% to S$872 million.

During the quarter, the Australian dollar, Indonesian rupiah, and Indian rupee had dropped by 9%, 18%, and 12% respectively against the Singapore dollar. Without the negative swings in the currencies, SingTel’s profits could have improved by 13% instead of the reported 5.5%.

But while profits went up, the company’s operating cash flows had gone down by 15% year-on-year to S$1.03 billion. As SingTel spent S$460 million on capital expenditures during the quarter, it ended with free cash flow of S$570 million, a decline of 14% from S$666 million a year ago.

Operational highlights and the balance sheet

SingTel ended its third quarter with 501 million mobile customers around the world, up 6% from 473 million customers a year ago as its foreign associates all saw strong growth in customer numbers.

The company’s Group Consumer business segment saw its quarterly revenue drop 11.4% year-on-year to S$2.67 billion predominantly due to lower mobile revenue in Australia and a “generally cautious business climate” there which was exacerbated by the falling Australian dollar. On the other hand, the segment’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) had inched up 0.8% from S$799 million a year ago to S$805 million, partly due to growth in mobile communications and home services in Singapore.

Group Enterprise had a better showing than the Group Consumer segment as its operating revenue dipped slightly by 0.2% year-on-year to S$1.55 billion on the back of a weaker Australian dollar. On constant currency terms, SingTel would have recorded a 2.5% growth in operating revenue for the segment instead.

Meanwhile, EBITDA for the segment had grown 2.8% year-on-year to S$513 million as the segment started recognising deferred revenue from a fibre rollout as well as write-back of provisions.

Group Enterprise also had some good news to share as it had secured “major customer wins” which include infocomm technology contracts in Singapore, Hong Kong, and Australia, among others.

Group Digital Life once again grew operating revenue at a breakneck pace – a 40% jump to be exact – to S$48 million. But, its EBITDA losses widened to S$42 million from S$15 million a year ago. It’s a familiar story for this particular segment; in SingTel’s second quarter, revenue for the segment grew 44%, only to see EBITAD losses worsen from S$31 million to S$40 million.

Let’s take a look at some of SingTel’s customer statistics:

Number of Customers

Year-on-year change

Singapore mobile customers

3.96 million

5.3%

Pay-TV customers

418,000

5.0%

Australian mobile customers

9.43 million

-1.5%

Source: SingTel’s third quarter earnings presentation

Moving on to SingTel’s balance sheet, it has improved compared to a year ago as its net debt position (total debt minus total cash) had gone down from S$6.91 billion to S$6.80 billion.

What’s next for SingTel

The company’s guidance for its overall revenues and EBITDA for the current financial year remains the same as it was during its second quarter earnings release. SingTel’s forecasting revenue to “decline by mid-single digit level[s]” while EBITDA would drop by a “low single digit level”.

SingTel also reaffirmed its stance to invest up to S$2 billion to “support growth in the digital business over the next three years.” This would bear watching as the company’s recent results with its Group Digital Life segment haven’t exactly been stellar with all the EBITDA losses.

Valuation

The market seems happy with SingTel’s results, given that its shares are up 1.7% to S$3.57 currently even as the Straits Times Index (SGX: ^STI) has only increased by 0.2% to 3,045 points.

At that price, SingTel’s shares are selling for 15.7 times trailing earnings and carry a dividend yield of 4.7% based on its 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 writer Chong Ser Jing doesn’t own shares in any companies mentioned.