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

Earlier today, Singapore Telecommunications Limited (SGX: Z74) reported its third quarter earnings for its fiscal year ending 31 March 2017 (FY2017). The reporting period was for 1 October 2016 to 31 December 2016.

As a quick background, Singtel is one of the largest telcos in Asia and it has operations mainly in Singapore and Australia.

The company divides its business 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. Revenue for the reporting quarter was down 2% year-on-year to S$4.41 billion. On a constant currency basis, revenue was down 4% year-on-year.
  2. But net profit increased by 2% year-on-year to S$973 million.
  3. Singtel’s diluted earnings per share (EPS) stepped up by 1% from S$0.0597 a year ago to S$0.0602.
  4. For the reporting quarter, cash flow from operations came in at S$1.04 billion with capital expenditure clocking in at around S$623.6 million. The lower capex gave Singtel S$416 million in free cash flow, down from the S$585 million in free cash flow recorded in the same quarter in FY2016.
  5. As of 31 December 2016, the global telecommunications outfit had about S$848 million in cash and equivalents and S$11.3 billion in debt. This is down from the S$685.9 million in cash and equivalents and S$10.2 billion in debt it had on the same date last year.

In all, Singtel’s revenue slipped in the reporting quarter but its profit held up well. The telco continues to generate positive free cash flow, though the figure came in 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. In the reporting quarter, Singtel acquired a 21% stake in Intouch Holdings Public Company Limited for S$1.59 billion and an additional 7.4% stake in Bharti Telecom Limited for S$884 million. The acquisitions were financed partly by the issuance of around 385 million new shares for S$1.6 billion.

Operational highlights

The Singapore Consumer segment from the Group Consumer division saw its revenue rise 4% year-on-year to S$657 million for the reporting quarter. The segment benefitted from higher fixed broadband and Pay TV sales as well as higher handset sales.

Singtel’s Australian Optus arm recorded a 10% year-on-year decline in revenue to A$1.8 billion. The segment was hampered by lower mobile termination rates which lopped off A$187 million of its revenue.

To round off the Group Consumer division, Singtel’s share of pre-tax earnings from its regional mobile associates was up 2% to S$660 million during the reporting quarter. Profit growth came from Telkomsel and AIS, but was offset by weaker results from Airtel and AIS. Intouch, a new acquisition as mentioned earlier, also delivered S$4 million in pre-tax earnings for Singtel in the reporting quarter.

On the Group Enterprise side, revenue was flat compared to the same quarter last year. Overall Group Enterprise revenue came in at S$1.69 billion for the reporting quarter.

Last but not least, the Group Digital Life division’s revenue leapt by 24% to S$167 million, boosted by strong revenue growth at Amobee. The division, though, still posted negative EBITDA (earnings before interest, taxes, depreciation, and amortisation) of S$23 million for the reporting quarter. But, this was an improvement from the negative EBITDA of S$33 million seen a year ago.

Management’s guidance remained unchanged from that given in the second fiscal quarter. Chua Sock Koong, Singtel’s chief executive, had some words to share in the earnings release on the company’s quarter:

“This is a resilient set of results. We have managed to hold good ground against the backdrop of a slowing Singapore economy and more challenging business environment all around. Our ICT [infocomm technology] business, particularly cyber security, has held us in good stead.

This quarter, we focused on building out our global network of security operation centres while increasing resources in sales and delivery to meet the growing demand for cyber security services.

Our consumer business also did well, due primarily to ongoing cost management, the sublicense of Premier League content rights in Singapore and significant growth in branded postpaid mobile customers migrating to higher-tier plans in Australia.”

Singtel’s shares closed at S$3.88 each today. At that price, 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.