What Investors Should Know About Singtel’s Latest Earnings

Singapore Telecommunications Limited (SGX:Z74) or Singtel, reported in its second-quarter earnings for 2015 today. The reporting period was for 1 July 2014 to 30 September 2014. Singtel is one of the largest telecommunication companies in Asia with operations mainly in Singapore and Australia. You can also read last year’s financials here.

Singtel’s business can be divided into three major buckets. The Group Consumer division is made out of its mobile, mio TV, fibre broadband, ADSL and fixed voice services. This division also has contributions from its regional mobile associates such as Telkomsel, Airtel, AIS and Globe. The second bucket is the Group Enterprise Division where it mainly covers  infocomm technology (ICT) solutions for corporate clients. The final and smallest division, is Group Digital Life. This division is focuses on new growth opportunities and revenue platforms in an mobile-led internet world.

Financial highlights

Here’s a rundown on the financial figures:

  1. Overall revenue for Singtel was up 3.5% on a year-on-year comparison, coming in at $4.3 billion. The revenue benefited from mobile data growth in Australia, increased Group Enterprise sales, and higher revenue from acquisitions in their Group Digital Life division.
  2. Net profit leapt by 19.3% to $1.9 billion, mainly from a one-off $65 million gain from a reduction in its stake in Singapore Post Limited (SGX:S08).
  3. Earnings per share (EPS) followed suit with a 19.3% from 5.45 cents in the second quarter last year to 6.50 cents in the past quarter.
  4. Cashflow from operations came in at $1.3 billion for 2015’s second quarter with capital expenditure clocking in at $582 million. The low capex gave Singtel a healthy $732 million in free cash flow.
  5. An interim dividend of 6.8 cents per share was also declared during the quarter.
  6. As of 30 September 2014, the group had $523 million in cash and equivalents and $9.1 billion in debt.

In short, Singtel’s revenue and profit was up nicely for this quarter. Foolish investors will need to take into account that some items are not repeatable next year. For instance, mio TV recorded $19m in revenue in the first quarter this year from the World Cup (held once every four years). Free cash flow also came in at $1.9 billion for the first half of the financial year, indicating that Singtel should be able to manage its $9.1 billion in debt.

Operational Highlights

Singapore’s Group Consumer division sales benefited from its targeted fibre broadband and mioTV strategies. The company’s effort to upgrade its existing ADSL consumer base to fibre bore fruit when it gained 22 thousand new fibre broadband customers on a quarter to quarter comparison. Singtel was also able to improve its churn rate (rate of customers leaving) to 1.2%. Similarly, its Australian Optus mobile service also grew from the strong take-up in its new mobile data plans. However, this was offset by lower mobile broadband sales. The Australian arm gained 60 thousand new mobile handset customers, and benefited from a 7% increase in data revenue. To round it off, Singtel’s share of pre-tax earnings from its regional mobile associates grew an impressive 26% to $629 million.

On the Group Enterprise side, Singtel launched new cyber-security solutions which is geared towards enterprises and government customers in Asia Pacific. The division enjoyed a steady 3% increase in revenue overall compared to the same quarter last year.

Last but not least, revenue from the Group Digital Life division rose by 142%, boosted by its acquisitions in Adconion and Kontera. While the Group Digital Life division’s revenue is projected to hit $300 million for 2015’s financial year, it also expects to have a negative earnings before interest, taxes, depreciation, and amortization (EBITDA) of approximately $200 million to 250 million in the same period.

Forward looking, Singtel plans to issue $500 million in guaranteed bonds on 13 November 2014 with a due date of 2019. Singtel also expects its revenue and its EBITDA to be stable for the full financial year.

Foolish summary

At its closing price yesterday of $3.85, Singtel traded at around 16.9 times trailing earnings with a dividend yield of 4.4%. With the dividend current payout ratio of 58%, it would be reasonable to expect that the dividend pay-out can be maintained at the current levels in the foreseeable future.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.