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

Singapore Telecommunications Limited (SGX: Z74) reported its second-quarter earnings for its fiscal year ending 31 March 2016 (FY2016) this morning. The reporting period was for 1 July 2015 to 30 September 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 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.

The 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 the previous quarter’s earnings here.

Financial highlights

The following’s a quick rundown on the latest financial figures from Singtel:

  1. Quarterly revenue for Singtel was down 3% year-on-year, coming in at S$4.18 billion. On a constant currency basis, revenue was up 5% year-on-year instead.
  2. Net profit dipped by 1% from a year ago to S$1.03 billion. The decline in sales was offset by higher contribution and an exceptional item gain from its associates and joint ventures.
  3. With the lower net profit, Singtel’s earnings per share (EPS) also fell by about 1% year-on-year. The telco’s EPS for the second-quarter of FY2016 was S$0.0645.
  4. For the reporting quarter, cashflow from operations came in at S$949.7 million with capital expenditures clocking in at S$472.7 million. The lower capex gave Singtel S$477 million in free cash flow. While the presence of free cash flow is always welcome, the number is down from the S$732 million that was recorded in the corresponding quarter a year ago.
  5. As of 30 September 2015, the global telecommunications outfit had S$732.8 million in cash and equivalents and S$10.8 billion in debt. This is down from a year ago when the selfsame figures were $524 million and S$9.1 billion respectively.

In all, both Singtel’s revenue and profit had decreased for the reporting quarter. The telco was free cash flow positive, although the important financial metric came in much lower compared to the year before.

It’s important for Singtel to keep its free cash flow strong due to the increased level of debt on its balance sheet. During the quarter, Singtel acquired 98% of the share capital of Trustwave for S$1.08 billion. The new acquisition is consolidated into Singtel with effect from 30 September 2015.

Singtel’s board of directors had approved an interim dividend of S$0.068 per share for the reporting quarter, unchanged from the year before.

Operational highlights

The Group Consumer division’s revenue fell 4% year-on-year for the fiscal second-quarter. On a constant currency basis, revenue would have gone up by 7%. The division’s sales for the reporting period was S$2.54 billion.

Singtel’s Australian Optus arm recorded good revenue growth in constant currency terms, jumping by 9% year-on-year. Optus gained 60,000 new postpaid mobile customers and subsequently benefited from a 3% year-on-year increase in mobile revenue, also in constant currency terms. The weak Australian dollar, though, pushed the figures into negative-growth territory when converted to Singapore dollars.

To round off the Group Consumer division, Singtel’s share of pre-tax earnings from its regional mobile associates was relatively unchanged, coming in at S$632 million during the reporting quarter. Revenue from Telkomsel did well, but was held back by weak profits from Airtel.

On the Group Enterprise side, revenue fell 1% to S$1.56 billion compared to the same quarter last year with currency headwinds being a culprit here as well.

Last but not least, the Group Digital Life division’s revenue leapt by 34% to S$126 million, boosted by its acquisition of Adconion. The division, though, still posted negative EBITDA (earnings before interest, taxes, depreciation, and amortisation) of S$34 million for the reporting quarter. The consolation is that this is a better performance from the negative EBITDA of S$40 million seen a year ago.

Based on its performance in the first-half of FY2016, Singtel has lowered its outlook for FY2016. The telecommunications firm now expects its core business revenue to increase at low single-digit levels. It was previously expected to grow at the mid-single digit level.

Foolish summary

At its closing price today of S$3.87, Singtel traded at 15.9 times its trailing earnings and carries 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.