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Singapore Telecommunications Limited’s Mobile Business: 2 Big Trends Investors Should Know

Singapore Telecommunications Limited (SGX: Z74) reported its fiscal first-quarter results in early August.

For the reporting quarter, Singtel reported an 8% rise in revenue, posting S$4.3 billion in sales. The solid growth in the topline was credited to strong growth in the Australian consumer segment and the digital businesses.

However, the telco’s profit fell 5.6% year-on-year, dragged down by weaker earnings from its regional associates.

Let’s take a look at the two opposing trends.

1. The Australian turnaround – click here

2. The Indian dilemma

Singtel has stakes in regional telcos such as Indonesia’s Telkomsel, India’s Bharti Airtel, Globe from the Philippines and Thailand’s AIS and Intouch.

Over time, Singtel’s collection of regional associates has grown in importance. In the first-quarter, dividends from its associates accounted for almost 67% of the telco’s free cash flow. The contribution is significant, and also important as free cash flow is the source of Singtel’s dividends, and future investments.

Source: Singtel’s earnings briefing presentation

For the fiscal first quarter of the financial year ending 31 March 2018 (FY17/18), regional associates posted profits before taxes (PBT) of $673 million, a 4% decline from a year ago. Much of the decline was caused by lower profits at Bharti Airtel which posted a PBT fall of 42% year-on-year.

The summary of the associate performance is shown below.

Source: Singtel’s earnings presentation

The most telling sign of Bharti Airtel’s impact is that Singtel would have posted a 9% increase in PBT if not for the Indian telco’s profit decline.  

In a recent earnings briefing, Singtel’s chief executive Chua Sock Koong, said:

“Associates’ earnings were affected by intense market competition, especially in India. The associates made significant investments in networks and spectrum and recorded higher depreciation and amortisation costs.

This is partially mitigated by strong results from Telkomsel.”

Bharti Airtel recorded an increase in its mobile subscriber base, but lost market share as Reliance Jio, an aggressive competitor, entered the Indian telco market with cut-price offers. At the moment, it is unclear how long the competition in the Indian market will drag on. Until then, Singtel’s profits might take a sting.

W e will have to continue watching developments in this space.

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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.