Singtel H1 profit jumps 104.7% to S$954m; JVs, associates back to black with S$770m contribution

SINGTEL Z74 on Thursday (Nov 11) teased a possible dividend upgrade, while reporting a 104.7 per cent jump in earnings to S$954 million from S$466.1 million in the year-ago period for the first half of its financial year ended Sep 30, 2021. (see amendment note)

Earnings were driven by the improved share of results of associates and joint ventures, reversing a loss of S$290.8 million to a gain of S$770.3 million in H1 FY2022.

Underlying net profit also increased 17 per cent to S$983 million in the same period, excluding exceptional losses of S$29 million comprising mainly a share of one-off items from Airtel and Telkomsel, and staff restructuring costs.

An interim dividend of S$0.045 per share was approved for the half year ended Sep 30, 2021, lower than the S$0.051 cents declared for the same period last year.

However, the company also said that its FY2022 dividends are expected to be at the upper half of its 60 to 80 per cent dividend policy range. Singtel group chief financial officer Arthur Lang said at an earnings call on Thursday that, assuming continued momentum in the company's business, this could represent a 20 per cent year-on-year jump in full year dividends.

He also expressed confidence in the company's strategic reset that was announced earlier in May this year. The reset focused on reinvigorating the telco business to capture 5G market share, developing new growth engines in ICT and digital services, and unlocking the value of its infrastructure assets.

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"I also want to highlight that this is the first time in many years at Singtel that we are coming out with some form of guidance on dividends so I hope that would suggest the confidence that we have in this strategic reset," he said.

Operating revenue for the half-year period edged up 3.1 per cent to S$7.7 billion from S$7.4 billion a year prior, driven mainly by the Australia consumer business rising 2 per cent to A$3.3 billion (S$3.3 billion) due to mobile service revenue growing 9.8 per cent on stronger postpaid revenue. 

Kelly Bayer Rosmarin, CEO of Singel's Australian subsidiary Optus, attributed this to higher average revenue per user (ARPU) of 13 per cent generated year-on-year in H1 FY2022 with 5G included in its mobile plans. She added that while the Australian market remains competitive as other telcos cut prices to gain market share, Optus has continued to operate with "enormous" price discipline. 

Meanwhile, pre-tax profit for Singtel associate Bharti Airtel grew 81.9 per cent to S$376 million in India and South Asia while in Africa, Airtel's pre-tax profit rose 34.2 per cent to S$239 million.

The previously-crowded Indian market had led to a price war that dragged on Airtel's earnings. Additionally, the Indian government provided the telecoms sector with a relief package in September. Significantly, adjusted gross revenue (AGR) had been redefined to count only telecoms revenue, reducing the amount of AGR payments from telcos to the government. 

Lang noted that Airtel's ARPU has remained higher than its competition at 153 rupees (S$2.78), and has been rising over the last few quarters as well. He added that the telco is in the midst of running cashback programmes on 150 different phone models to drive consumers to upgrade from 2G to 4G service and increase ARPU.

Furthermore, he said the pandemic has driven a surge in digital use cases and demand for broadband and mobile in India. The country's users now consume an average of 20 gigabytes per user per month, one of the highest mobile data consumption figures in the world.

Singtel's technology services arm NCS also posted a 4.5 per cent increase in operating revenue to S$1.1 billion for the half-year ended Sep 30, 2021. This was led by growth in its cybersecurity, applications and infrastructure segments which grew 30.5 per cent, 14.2 per cent and 9.8 per cent respectively. However, the engineering segment declined by 26.5 per cent to S$69 million.

Meanwhile, the company's group enterprise segment saw revenue rise 0.3 per cent to S$1.9 billion for the half-year. ICT revenue grew 9.6 per cent year-on-year to S$546 million, led by cybersecurity and managed services growth of 14.8 per cent and 8.4 per cent to S$105 million and S$441 million respectively. 

However, this was offset by a 3.1 per cent decline in carriage revenue to S$1.3 billion, led by fixed voice which lost 16.1 per cent to S$157 million. 

As part of Singtel's strategic reset and its focus on return on invested capital to deliver profitable growth and sustainable dividends, the company also elaborated on its desire to expand its data centre platform regionally.

Currently, the company makes more than S$250 million in revenue from its data centre business with an earnings before interest, taxes, depreciation and amortisation (Ebitda) of more than 60 per cent with its current data centre capacity of more than 70 megawatts. 

Singtel expects to add an additional 30 to 40 megawatts of capacity at the new 1.1 hectare integrated landing station and data centre adjacent to the current Tuas cable landing station. Planning, design and construction of the data centre is expected to take 3 to 4 years, and the company is currently appointing consultants for the project.

The Singapore consumer segment saw operating revenue fall 1.3 per cent to S$867 million. In particular, revenue from the sale of equipment lost 7.9 per cent to S$179 million.

CEO of Singtel's Singapore consumer business Anna Yip said that while the company is confident that it has secured the best stock that it can have, the chip shortage is a global issue and global mobile phone supply could remain squeezed in the next 6 months.

Singapore consumer mobile revenue also slipped 3.1 per cent for the half-year to S$852 million. This was amid a decline in prepaid users by 8.9 per cent to 1.3 million customers, while postpaid users grew 2.4 per cent to 2.8 million. Singapore postpaid mobile ARPU was stable year on year at S$29, while prepaid mobile ARPU was flat at S$13.

Yuen noted that the company now has more than 200,000 5G customers in Singapore who have been observed to use more data and generate higher ARPU for the company, even as it is still "early days" for 5G adoption in Singapore. 

Yip noted that typically, consumers generate S$10 more in ARPU on 5G plans, although this depends on the plan and equipment that they are using. She also cited increased ARPU generated from packages such as the company's unlimited Zoom data packages that have been "reasonably popular". 

"The trend in terms of 5G migration remains pretty healthy, and with roaming gradually coming back, we now have 17 destinations that are also 5G-enabled," she said, adding that she expects sustained data usage locally and abroad going forward.

Singtel shares were down 0.4 per cent or S$0.01 to S$2.54 as at the midday break on Thursday.   

READ MORE:

• Singtel divests payment card compliance business for US$80m
• Singtel to form regional data centre platform with partners in South-east Asia
• Singtel to sell 70% stake in Australian tower assets for A$1.9b; enters new regional tie-ups

Amendment note: An earlier version of this article stated that Singtel's earnings jumped 109.2 per cent instead of 104.7 per cent.