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Nikkei Markets

Associates, currency losses erode Singtel's profits

Diversification strategy yet to pay off for telecom operator

Singtel expects EBITDA to remain stable if currency movements are excluded in the current financial year ending March.   © Reuters

SINGAPORE (Nikkei Markets) -- Singapore Telecommunications continued to face pressure in its various markets as quarterly earnings fell to the lowest level in at least five years, underlining its dependence on associates despite ventures in new areas.

While the company remained relatively confident about its prospects ahead, the stock, valued for its defensive nature and low volatility, fell after the results. It was down 1.6% by early afternoon, counter to the trend in the benchmark index.

Singtel's businesses include sizable stakes in various regional operators, including Bharti Airtel in India, Telkomsel in Indonesia, AIS in Thailand and Globe in the Philippines. In Australia, it owns Optus, the country's second-largest telecom operator.

In a bid to add more sources of revenue, the telecom operator, the city-state's largest, has diversified into areas such as cyber security, mobile payments and online advertising.

DBS Group Research said in a report last week that the new growth businesses could account for around 70% of Singtel's revenue in five years' time from about 45% currently.

For now, though, Singtel, like its peers, is feeling the heat of intensifying competition in its core business. Mobile revenue is falling as consumers switch from pricey international direct dialling calls and other voice services to free data-based calls over Wi-Fi networks. A fourth operator, Australia's TPG Telecom, is scheduled to enter the saturated Singapore market soon, adding to the pressure on price plans.

Competition has also escalated in Singtel's overseas markets, especially India, where the entry of Reliance Jio Infocomm has forced a brutal price war. Added to that, the erosion in the Indian rupee and the Indonesian rupiah, among the worst performing Asian currencies this year, as well as the decline in the Australian dollar, have swelled currency exchange losses for the company.

Singtel blamed both the performance of its associates and the strength of the Singapore dollar for the 77% year-on-year plunge in net profit for the three months ended September although it added that the year-ago figure was helped by a one-off gain of nearly 2 billion Singapore dollars ($1.46 billion) after the sale of a controlling stake in NetLink Trust.

The divestment of NetLink Trust, which manages and operates Singapore's nationwide broadband network, was a condition imposed on Singtel by authorities in the city-state.

The company's latest quarter also showed a fall in migration payments from Australia's national broadband operator NBN and one-off charges totaling S$48 million due primarily to staff restructuring.

Underlying net profit, which excludes one-off items, tumbled 22% on year to S$733 million during the quarter, the lowest since its 2012-13 financial year, bucking forecasts of a rebound from its first-quarter performance.

Operating revenue was barely changed at S$4.27 billion.

Excluding currency movements, Singtel's underlying net profit would have fallen by 18% while operating revenue would have grown by about 4%.

Nevertheless, the company reiterated its guidance for revenues to grow by a low single digit in the current financial year ending March. It expects earnings before interest, tax and depreciation and amortization, or EBITDA, to remain stable if currency movements are excluded.

According to CEO Chua Sock Koong, the various businesses remain resilient. At a media briefing after the results, Chua said Singtel continued to add post-paid mobile customers in Singapore and Australia, while its information and communications technology businesses would likely show better results in coming quarters due to a strong order book.

She also said that the reduced payments from NBN were due to the temporary suspension of new internet connections and that the Australian broadband operator is progressively resuming service.

As for Singtel's regional associates, Chua said they continue to benefit from the growing demand for data and that she remains positive.

On Bharti, Singtel's CEO for international operations Arthur Lang said that while the situation in India continues to be challenging, Bharti has managed to grow its share of higher value 4G mobile business.

He added that Bharti's debt has fallen to more manageable levels after its Africa unit raised $1.25 billion from six global investors last month, including Singtel, which pumped in $250 million.

The initial public offering of that unit remains on track despite the Tanzania government's concerns that the offer would alter the shareholding structure of the local entity. Bharti is in the process of resolving the issue, he said.

--Kevin Lim

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