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

Singapore Telecommunications Limited (SGX: Z74) reported its first-quarter earnings for its fiscal year ending 31 March 2017 (FY2017) this morning. The reporting period was for 1 April 2016 to 30 June 2016.

As a quick background, 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: Group Consumer, Group Enterprise, and Group Digital Life.

The Group Consumer division is made up of Singtel’s 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 more.

The Group Enterprise Division is the second in line in terms of size and it mainly covers Singtel’s infocomm technology (ICT) solutions for corporate clients. The final and smallest division, Group Digital Life, 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 results from the previous quarter in here.

Financial highlights

The following’s a quick rundown on some of the latest financial figures for Singtel:

  1. Revenue for the quarter was down over 7% year-on-year to S$3.91 billion.
  2. But, net profit attributable to shareholders was up 0.3% to S$944.3 million. Underlying net profit was up 6.6% to S$954 million.
  3. Diluted earnings per share (EPS) was up by 0.2% year-on-year to S$0.0591.
  4. For the reporting quarter, cash flow from operations came in at S$1.74 billion with capital expenditure clocking in at S$504.5 million. The combination resulted in Singtel generating over S$1.2 billion in free cash flow. This is a good improvement from the S$973 million in free cash flow generated a year ago (S$1.48 billion in cash flow from operations and S$508.5 million in capex).
  5. As of 30 June 2016, the telco had S$965.7 million in cash and equivalents and S$9.2 billion in debt. This is a decline from the S$1.4 billion in cash and equivalents and S$8.7 billion in debt recorded on the same date last year.

In all, Singtel’s revenue fell but underlying profit was up 6.6%. The telco also did well in the free cash flow department, showing a healthy improvement from a year ago.

Growth in free cash flow could be important for Singtel due to the increased level of debt on its balance sheet compared to the first-quarter of FY2016.

Operational highlights and the road ahead

The Group Consumer division’s revenue down 16% year-on-year for the reporting quarter. The division ended the first-quarter with S$2.20 billion in sales.

Singtel’s Australian subsidiary, Optus, saw its revenue fall by 15% in constant currency terms. The Optus division recorded A$1.62 billion in revenue. Lower mobile termination rates had an impact of A$185 million for FY2017’s first quarter. The Singapore Consumer segment also experienced a 9% decrease in revenue to S$558 million.

To round off the Group Consumer division, Singtel’s share of pre-tax earnings from its regional mobile associates was up 14% year on year to S$714 million for the reporting quarter. The profit before tax (PBT) contributed by Telkomsel was up 31% year-on-year, making it the strongest contributor.

On the Group Enterprise side, revenue rose 5% compared to the same quarter last year. Cyber security drove much of the increases, contributing S$109 million in revenue for the reporting quarter. Overall Group Enterprise revenue came in with revenue of S$1.58 billion for the first-quarter.

Last but not least, the Group Digital Life division’s revenue was up 34% to S$154 million. Amobee had led most of the top-line growth. The division, though, posted negative EBITDA (earnings before interest, taxes, depreciation, and amortisation) of S$36 million for the reporting quarter, down from the negative EBITDA of S$31 million seen a year ago. Revenue from HOOQ, its online video streaming service, and Dataspark was $4 million for the reporting quarter.

Chua Sock Koong, Singtel’s Chief Executive Officer added a few words on the quarter:

“The recurring theme across all our markets is mobile data. Having invested extensively in 3G and 4G networks and services and with the rise of smartphone adoption, our associates were well-positioned to successfully drive data usage and customer growth. Across Singapore and Australia, our quality networks, differentiated content and flexible data pricing plans also helped us stand out from competitors.

Our ICT [Cloud and Cybersecurity] business is getting a solid boost from new opportunities in cyber security which has emerged as a critical issue for both governments and businesses. Our capabilities and expertise in this global field, together with our trusted partners’ capabilities, are winning new business.”

Singtel also reaffirmed its outlook for FY2017. Singtel had previously said that it expects to grow its revenue and EBITDA by low single digits in the current fiscal year.

At its opening share price today of S$4.22, Singtel traded at 17.4 times trailing earnings and has 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.