Singapore Telecommunications Limited’s Latest Earnings: What Investors Should Know

Singapore Telecommunications Limited (SGX: Z74), or Singtel for short, reported its fiscal third quarter earnings today for the year ending 31 March 2015 (FY2015). The reporting period was for 1 October 2014 to 31 December 2014.

Singtel is one of the largest telecommunications companies in Asia with operations primarily in Singapore and Australia. You can also look up the telco’s results for the last quarter in here.

Singtel’s business can be divided into three major buckets.

The Group Consumer division is made out of its mobile, Singtel TV, fibre broadband, ADSL and fixed voice services. This division also has contributions from Singtel’s regional mobile associates such as Telkomsel , Airtel, AIS and Globe.

The second bucket is the Group Enterprise Division which mainly covers  infocomm technology (ICT) solutions for corporate clients.

The final and smallest division, is Group Digital Life. This division focuses on new growth opportunities and revenue platforms in a mobile-led internet world.

With these as a backdrop, let’s dig into the telco’s latest earnings release.

Financial highlights

Here’s a quick rundown on the financial figures:

  1. Overall revenue for Singtel for the fiscal third quarter was up 3.8% on a year-on-year comparison, coming in at $4.43 billion. Revenue benefited from higher equipment sales and TV revenue, and higher revenue from acquisitions in the Group Digital Life division. On a constant currency basis, revenue was up 7%.
  2. Quarterly profit leapt by 11.1% to $970 million compared to a year ago on lower tax expense and higher contribution from share of results from associates and joint ventures.
  3. Earnings per share (EPS) followed suit with an 11.1% jump from 5.46 cents in the fiscal third quarter last year to 6.07 cents in the reporting quarter.
  4. Cashflow from operations came in at $1.22 billion for the fiscal third quarter with capital expenditure clocking in at $548 million. The low capex gave Singtel a healthy $668 million in free cash flow.
  5. As of 31 December 2014, the group had $629 million in cash and equivalents and $8.7 billion in debt.

In short, Singtel’s profit was up nicely again for this quarter. Foolish investors will need to take into account that some items are not always repeatable in the future though. For instance, Singtel TV recorded $19m in revenue in the first quarter this year from the World Cup which is held once every four years.

Free cash flow also came in at $2.59 billion for the first nine months of FY2015, indicating that Singtel’s $8.7 billion in debt, while certainly high, might be manageable.

Operational highlights

Singapore’s Group Consumer division sales benefited from higher sales of equipment, and increase in Singtel TV sales. The company’s continuing effort to upgrade its existing ADSL consumer base to fibre showed gains of 21,000 new fibre broadband customers on a quarter-on-quarter comparison. Singtel was also able to improve its churn rate (the rate of customers leaving) to 1.0%.

Singtel’s Australian Optus mobile service also grew from the strong take-up in its new mobile data plans. The Australian arm gained more than 100,000 new mobile handset customers, and benefited from a 9% year-on-year increase in mobile revenue (in constant dollar terms).

To round it off, Singtel’s share of pre-tax earnings for the fiscal third quarter from its regional mobile associates grew an impressive 28.6% to $683 million. The main contributors were Telkomsel and Airtel India.

On the Group Enterprise side, Singtel gained momentum in cloud services with six government agencies adopting G-Cloud in Singapore. The companny’s Optus business also acquired Ensyst, a cloud IT professional and managed services company located in Australia. The division had a steady 3.4% increase in revenue overall compared to the same quarter last year.

Last but not least, revenue from the Group Digital Life division leap by 128% to $118 million, boosted by its acquisitions in Adconion and Kontera. On 30 January 2015, Singtel partnered with Sony Pictures Entertainment and Warner Bros. Entertainment to launch HOOQ – a regional over-the-top video service. Despite the impressive revenue growth for the division, it’s still in the red as it recorded negative earnings of S$49 million for the quarter.

As an outlook, Singtel expects its revenue and its free cash flow to be stable for the entire FY2015. The mobile business in Singapore and Australia is expected to increase by mid-single digits and low single digits respectively.

Foolish summary

At its closing price yesterday of $4.14, Singtel traded at around 17.7 times trailing earnings with a trailing dividend yield of 4.1%.

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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.