Singtel Q1 profits plunge 35% on India price war

Singapore

BHARTI Airtel's continual struggles in India, where the domestic telcos are engaged in a fierce price war, once again weighed heavily on the results of mainboard-listed Singtel, which on Thursday reported its lowest quarterly earnings since 2003.

Singtel's first quarter net profit plunged by 34.9 per cent to S$541.1 million, on the back of a 14.1 per cent drop in share of pre-tax profits from regional associates, including a wider S$162.2 million loss at Airtel.

Singtel also took a S$109.2 million one-off loss related to the listing of Airtel's Africa unit, though this was partly offset by a S$87.2 million gain from the dilution of Singtel's stake in Airtel following a rights issue in May.

If Airtel's results were excluded, the quarter's profit decline would have been a much milder 3.4 per cent, Singtel noted in its statement.

"The headline number is likely to shock," said Arthur Pineda, analyst at Citi. "But we need to point out the direction in the underlying assets, particularly Bharti, is actually positive."

Operating revenue for the three months to June 30 dipped 0.5 per cent year on year to S$4.11 billion, as takings at key subsidiary Optus were eroded by a softer Australian dollar.

Airtel aside, Singtel is playing the long game with its investments in new business lines - digital advertiser Amobee and cyber security unit Trustwave. In its statement, Singtel described them as "digital businesses, which continued to scale".

Singapore's two mainboard-listed telcos, Singtel and StarHub, have made high-profile plays in cyber security; StarHub reported earlier this week that it has continued to chalk up operating expenses in its cyber security business, which dragged down its bottom line.

Asked in a media briefing about the profitability outlook in cyber security, Singtel enterprise group chief Bill Chang chose to focus on other aspects of the business. He described technology and consulting services, and managed security in the Asia-Pacific as "the two stars" for Singtel in this arena.

"In professional services consulting, there is pretty good scope to grow and we continue to invest in that," he said. "Obviously, Trustwave does not just have a services component. They've got technologies and products, and... we're investing in the (research and development) to boost the capability of those products as well."

Cyber security revenue rose by 5.8 per cent to S$120 million, with Singtel holding to a forecast that the unit's top line will grow "by low teens" for the full year. Growth in security outpaced the rest of Singtel's enterprise businesses, where overall revenue declined by 5.1 per cent, and earnings before interest, tax, depreciation and amortisation declined by 7 per cent.

Meanwhile, Singtel's fledgling digital life arm - which comprises advertising, data analytics and streaming units - notched turnover growth of 16.5 per cent, to S$301.3 million, and saw its losses shrink. Group chief executive Chua Sock Koong said: "I think it would be helpful if the value that we have created in these digital businesses is made visible."

Singtel leadership had said in its last annual report that it wants to get valuations for its digital businesses, such as in an initial public offering or by taking on new investors.

The consumer segment held steady overall, as contributions from Optus - up by 3.3 per cent in constant currency terms - eased the pain from contractions in Singapore.

Singapore mobile service revenue dropped by 6.3 per cent in the quarter, while post-paid average revenue per user fell to S$40 a month, from S$46 before, in the wake of the launch of digital-only brand GOMO in March.

Earnings per share for the quarter came in at 3.32 Singapore cents, down from 5.09 cents a year ago.

No dividend was recommended for the quarter, unchanged from previously, but Singtel has pledged to pay dividends of 17.5 Singapore cents a share for the full year.

The counter ended S$0.03, or 0.91 per cent, lower at S$3.26 on Thursday, after the results came out.