Singtel stumbles towards lowest profit in 16 years, faces cost pressure

Singapore

SINGTEL is set to post its lowest annual profit in 16 years on Wednesday morning, underscoring the challenges that South-east Asia's largest telecoms firm faces as its rivals strike deals in a highly competitive industry.

Slowing demand at home and intense competition in its key overseas markets have capped Singtel's profit growth in recent years.

Analysts say that Singapore's second-biggest firm by market capitalisation faces pressure to cut costs and find new sources of revenue, as other telcos seek ways to boost margins through measures such as job cuts and mergers.

Its regional rival, Malaysia's Axiata Group, said earlier this month that it was in talks with Norway's Telenor to combine their telecoms business in South and South-east Asia to create a telecoms giant with nearly 300 million customers.

Singapore competitor StarHub last year cut about 12 per cent of its workforce, while M1 was taken private by its major shareholders. To counter slowing growth, Singtel has been making forays into areas like cyber-security, digital marketing, mobile payments and online gaming.

"(Such moves) don't move the needle because relative to the business, these are very incremental initiatives," said Ramakrishna Maruvada, a Daiwa analyst, referring to the company's efforts in payments and e-sports. It would have to look to cut costs to boost margins, he added.

Singtel is likely to report a net income of S$3.08 billion for the fiscal year ending March 2019, according to an average estimate of 12 analysts by Refinitiv. The result would mark its lowest headline profit since its 2003 fiscal year.

That compares with a record net profit of S$5.45 billion a year earlier when it benefited from a divestment gain from the listing of its broadband unit NetLink NBN Trust.

Singtel has forecast group earnings before interest, tax, depreciation and amortisation (Ebitda) for the full year to decline by a low single digit.

Contributions from Singtel's regional associates will be dragged down mainly by Bharti Airtel in India, where the telecom industry is grappling with a price war triggered by the entry of Reliance Jio Infocomm.

Singtel announced a US$525 million capital injection to Bharti Airtel to shore up its balance sheet earlier this year.

While the Indian market has started showing early signs of bottoming out, competition remains tough in its other countries, including Australia and Singapore.

In Singapore, it is facing more structural issues, with revenue from its higher-margin traditional carrier business declining as consumers switch to cheaper data to make calls and send messages.

Singtel had expected cost savings of about S$500 million for the just-concluded financial year.

Its shares are up 7 per cent so far this year, still about 30 per cent lower than their peak in early 2015. REUTERS