Singtel's Q2 net profit falls 77% to S$667m

Singapore

DECLINES across Singtel's group businesses and regional associates, and adverse currency movements did no favours to the telco's earnings in the second quarter - and neither did the absence of an earlier one-off gain.

Net profit fell short of analyst expectations at S$667 million for the three months to Sept 30, down by 77 per cent on the year before, the telco reported on Thursday. Historical data suggests that it is the worst quarterly showing since 2003.

Underlying profit, shorn of exceptional items, was lower by 22 per cent at S$715 million. Revenue was flat at S$4.27 billion, although it would have risen by 4 per cent in constant currency terms.

Despite the day's overall gains on the Straits Times Index, Singtel shed S$0.06, or 1.91 per cent, to S$3.08, with 41.9 million shares traded.

At a morning briefing, group chief executive Chua Sock Koong was asked but would not be drawn into discussing whether she would follow rival telcos' leaders in heading for the exit. Karen Kooi of M1 retires next month while Peter Kaliaropoulos took over the reins at StarHub in July, after Tan Tong Hai quit.

"Clearly, the succession plans for the senior leadership team is something that the board and its HR (human resources) committee will look at very closely," Ms Chua said.

When asked about a timeline of her own, she replied: "I don't think it's a very appropriate question for you to ask me. Maybe something that you should address to the board."

Singtel said that its quarterly performance took a hit from negative currency movements, as well as challenges such as lower national broadband network migration revenues in Australia, and lower contributions from Airtel and Telkomsel, on intense competition in India and Indonesia.

The group also chalked up an exceptional loss of S$48 million for the three months to Sept 30, mainly on staff restructuring costs, compared with a one-off gain of S$1.94 billion in the year-ago period, fuelled by the sale of units in NetLink Trust.

Ebitda (earnings before interest, tax, depreciation and amortisation) took a tumble in the group consumer and enterprise segments, which make up Singtel's core business.

Consumer Ebitda was 8.7 per cent lower on the year before, to S$745 million, while enterprise fell by 4.8 per cent to S$440 million, on lower infocomm technology sales.

Meanwhile, losses widened from S$14 million to S$34 million in the fledgling digital life business. The group has lowered its operating revenue guidance for digital marketing unit Amobee to high single-digit growth, down from the mid-teens.

Samba Natarajan, CEO of group digital life, said at the briefing: "The managed media business - which was growing three or four years back - is now beginning to decline in the market as customers transition from managed media to programmatic, and a couple of our large programmatic customers . . . deferred their spend."

This has led the growth forecast to be adjusted downwards, but Amobee will remain Ebitda-positive, he said.

He added that digital life was in the red on investments across the business, especially in video service Hooq: "That will still keep the overall digital life in investment mode."

Earnings per share fell to 4.09 Singapore cents from 17.49 Singapore cents previously, missing analysts' consensus estimate of 5.1 Singapore cents.

Net asset value per share slipped to S$1.77 compared with S$1.82 as at March 31.

Nomura held to its "neutral" call, citing earnings challenges.

But DBS analyst Sachin Mittal, who cut the target price from S$3.64 to S$3.59, stuck to a "buy" rating "on the back of a rebound in associate contributions in FY2020F . . . attractive valuations and about 5.6 per cent dividend yield".

The board approved an interim dividend of 6.8 Singapore cents a share for the half-year, unchanged from a year ago. But there was no special dividend, compared with last year's three-cent a share payout on gains from the NetLink Trust divestment.

Net profit for the six months came in 60 per cent lower, at S$1.5 billion, on a stable revenue of S$8.4 billion.

With additional reporting by Lee Meixian