Singapore Telecommunications Limited’s Latest Earnings: Outlook is Revised Downwards

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

As a quick background, Singtel is one of the largest telecommunications companies in Asia and it has operations mainly in Singapore and Australia. The company’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.

The Group Enterprise Division 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 results from its previous quarter here.

Financial highlights

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

  1. Operating revenue for the reporting quarter for Singtel was down 2.3% year-on-year, coming in at S$4.09 billion. The telco said that revenue would have been up 2% excluding the mandated cuts in mobile termination rates in Australia.
  2. Net profit declined by 6% year-on-year to S$972 million. Singtel noted that the second-quarter last year included exceptional gains from Airtel and one-off gains from Globe.
  3. As such, earnings per share (EPS) fell by 5.6% year-on-year to S$0.0609.
  4. For the reporting quarter, cash flow from operations came in at S$1.12 billion with capital expenditure clocking in at S$479.7 million. The lower capex gave Singtel S$641 million in free cash flow. This is up from the S$477 million in free cash flow recorded in the corresponding quarter last year.
  5. As of 30 September 2016, the global telecommunications outfit has S$585.2 million in cash and equivalents and S$10.3 billion in debt. This is down slightly from the S$732.8 million in cash and equivalents and S$10.8 billion in debt recorded on the same date last year.

In all, both Singtel’s revenue and profit decreased for the quarter. But, the telco is free cash flow positive and also grew its free cash flow. It is important for Singtel to keep its free cash flow strong due to the level of debt on its balance sheet.

The board of directors approved an interim dividend of S$0.068 per share, unchanged from the year before.

Operational highlights and a future outlook

The Group Consumer division’s revenue fell 8% year-on-year in the reporting quarter. Singtel believes that revenue in the division would have been stable if the effects of mobile termination rates in Australia are removed. The Group Consumer division ended the second-quarter with S$2.34 billion in sales.

Singtel’s Australian arm, Optus, recorded an 11% year-on-year revenue decline in Australian dollars, ending with A$1.7 billion. Meanwhile, the Group Consumer division’s Singapore side recorded 3% lower revenue at S$576 million.

To round off the Group Consumer division, Singtel’s share of pre-tax earnings from its regional mobile associates was up a solid 7% year-on-year, coming in at S$679 million during the reporting quarter. Pre-tax earnings from Telkomsel and Airtel grew 19% each, but were partially held back by weaker contributions from AIS and Globe.

On the Group Enterprise side, revenue was up 5% to S$1.61 billion in the reporting quarter compared to the same quarter last year. Revenue growth was boosted by the division’s cyber security business.

Last but not least, the Group Digital Life division’s quarterly revenue leapt by 26% to S$158 million. The division, though, still posted negative EBITDA (earnings before interest, taxes, depreciation, and amortisation) of S$27 million. But this was a better performance from the negative EBITDA loss of S$34 million seen a year ago.

Chua Sock Koong, Singtel’s chief executive, shared the following comments in the earnings release on the company’s performance:

“In spite of the more subdued economic and business environment, our Singapore business held its ground this quarter as we enhanced our customer propositions in both mobile data and cyber security.

On the consumer side, we introduced innovative triple data add-on plans to cater to increased mobile video consumption. In Enterprise, we are actively building out our cyber capabilities – bolstering our global cyber network with a new advanced security operation centre in Sydney and launching the NUS-Singtel Cyber Security R&D Lab to innovate new technologies.

We’ve also initiated a cost management programme across our core business to review and ensure appropriate cost structures are in place to enhance our competitiveness and maintain revenue growth.”

Based on its performance in the first-half of FY2017, Singtel has lowered its outlook for the rest of the fiscal year. The telecommunications firm now expects its EBITDA to be stable and its revenue to decline by a low single digit percentage. The company had previously expected to grow its revenue and EBITDA at the low single-digit level.

At its opening share price of S$3.86 today, Singtel trades at 16.1 times trailing earnings and has 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.