Singapore Telecommunications Limited’s Latest Earnings: Can It Continue To Grow?

Singapore Telecommunications Limited (SGX: Z74) released its first-quarter earnings for its fiscal year ending 31 March 2016 (FY2016) this morning. The reporting period was for 1 April 2015 to 30 June 2015.

The company, which is more popularly known as Singtel, is one of the largest telecommunications companies in Asia and it has operations mainly in Singapore and Australia.

Singtel’s business can be divided into three major divisions. The Group Consumer division is made up of its mobile, mio 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.

Group Enterprise Division is the second in line and it mainly covers Singtel’s 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.

You can read more about Singtel in here and here or catch up with its previous quarter’s earnings in here.

Financial highlights

The following’s a quick take on Singtel’s latest financial figures:

  1. Quarterly revenue for Singtel crawled higher by 2% on a year-on-year comparison, coming in at S$4.21 billion. The firm did better on a constant currency basis though with revenue up 8% year-on-year.
  2. Net profit jumped by 13% to S$942 million year-on-year due to a higher contribution from associates and joint ventures and a one-off divestment gain.
  3. Earnings per share (EPS) followed suit with a 13% increase. EPS for the reporting was 5.90 cents.
  4. For the first-quarter of FY2016, cash flow from operations came in at S$1.5 billion with capital expenditures clocking in at S$509 million. The lower capex gave Singtel a healthy S$974 million in free cash flow. This was down from the S$1.2 billion in free cash flow ($1.73 billion in cash flow from operations and $545.7 million in capital expenditures) recorded in the corresponding quarter last year.
  5. As of 30 June 2015, the global telecommunications outfit had S$1.39 billion in cash and equivalents and S$8.7 billion in debt. This is down from the $649 million in cash and equivalents and S$7.1 billion in borrowings that was recorded on the same date last year.

In all, both Singtel’s revenue and profit had increased nicely for the quarter. The telco’s free cash flow is still sizable, although it is lower compared to the year before. It’s important for Singtel to keep its free cash flow strong as it has a high level of debt on its balance sheet.

Operational highlights

Singtel’s Group Consumer division contributed a 2% year-on-year growth in revenue for the reporting quarter. Like the quarter before this, Singtel’s Group Consumer division revenue had benefited from higher sales of equipment and higher use of mobile data. The division ended the first-quarter with S$2.6 billion in sales.

Growth was strong at Singtel’s Australian Optus arm – revenue there in constant currency terms had jumped by 13% year-on-year. Optus gained 37,000 new postpaid mobile customers and subsequently benefited from a 6% year-on-year increase in mobile revenue.

To round off the Group Consumer division, Singtel’s share of pre-tax earnings from its regional mobile associates grew by 5% to S$625 million during the reporting quarter. The main contributors were Telkomsel, AIS and Globe.

On the Group Enterprise side, revenue was flat compared to the same quarter last year. Revenue growth was partly hampered by currency headwinds and came in at S$1.5 billion for the first-quarter.

Last but not least, revenue from the Group Digital Life division leapt by a stupendous 162% to S$115 million, boosted by its acquisitions of Adconion and Kontera. The division, though, still posted EBITDA (earnings before interest, taxes, depreciation, and amortisation) losses worth S$31 million for the reporting quarter, up from an EBITDA loss of S$37 million a year ago.

There was no change to Singtel’s outlook for FY2016 which was provided in the previous quarter. Singtel expects its core business revenue to increase at mid-single digit levels and EBITDA to grow at a low single digit level.

Foolish summary

At its opening price today of S$3.89, Singtel traded at 15.9 times its trailing earnings with a trailing dividend yield of 4.5%.

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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.