IHS Global Insight Perspective | |
Significance | SingTel reported a drop of 10.1% in its third-quarter underlying net profit. |
Implications | The global economic slowdown has started to affect the group's operations, while its regional mobile associates face increased competition in their local markets. |
Outlook | The group is seeking new growth engines, including further acquisitions and participation in next-generation broadband network projects in Singapore and Australia. |
For the quarter ending 31 December 2008, SingTel reported overall operating revenues of S$3.70 billion (US$2.5 billion), down 3.2% year-on-year (y/y). Underlying net profit fell by 10.1% to S$838 million, negatively impacted by the weaker Australian dollar and major regional currencies against the Singapore dollar, and lower operational performance of regional associates Telkomsel in Indonesia, Globe in the Philippines, and Warid in Pakistan. In constant currency terms, underlying net profit would have been stable, said the group. Net profit declined 16% y/y to S$799 million in the quarter.
Pre-tax contribution from associates, a key growth driver for SingTel in recent years, fell by 24% y/y to S$486 million in the third quarter, affected by the depreciation in the major regional currencies. Pre-tax profit contributions would have declined 13% in constant currency terms, said the company. The lower contributions were also a result of the weaker performance of Telkomsel, Globe, Warid and fair value losses recorded by Telkomsel and Bharti on their foreign-currency liabilities.
The group reported that its aggregate mobile customer base in eight markets—Australia, Bangladesh, India, Indonesia, Pakistan, the Philippines, Singapore and Thailand—was up 35% y/y or 61 million to 232 million at end-December. On a quarterly basis, the increase was 7.3%, or 16 million. The proportionate mobile customer base rose by 34% y/y or 6.8% q/q. Bharti Airtel in India posted the biggest jump in customer numbers among the associates. Its mobile base reached 85.7 million customers at end-2008, an increase of 55% y/y or 11% quarter-on-quarter (q/q). It also achieved its highest ever quarterly net additions of 8.2 million mobile customers in the quarter.
Outlook and Implications
- Impact of Economic Downturn: "The global economic slowdown has started to impact the group," said SingTel chief executive Chua Sock Koong in a statement. Chua said at a press briefing that the company would make further cost cuts through measures like pay reduction if conditions worsen, but reiterated that job cuts would be a last resort. The group's management is under pressure to seek new growth engines as the effect of the global economic downturn starts to bite, while its existing mobile associates face intensified competition in their respective markets. SingTel is not the only telco which faces such challenges. Norway's Telenor, for example, has also faced slower growth at its emerging market operations, having acquired assets in countries such as Bangladesh, Pakistan, and Thailand. In order to drive its long-term growth, the Norwegian group late last year stuck a deal to acquire a 60% stake in an Indian telecoms start-up Unitech Wireless for US$1.07 billion (see India-Norway: 29 October 2008: Telenor to Acquire 60% of Indian Start-Up Unitech Wireless).
- Seeking Further Acquisitions: SingTel executives reiterated during the press briefing that the company remains on the lookout for acquisitions. "If there are good opportunities, we will be prepared to look at them, but clearly we are not in a big rush to make acquisitions given the global uncertainties," Chua said after noting that SingTel's strong balance sheet puts it in a good position for buying opportunities. SingTel has been reported to be in discussions about acquiring a stake in Vietnam's MobiFone, as Vietnam prepares to partially privatise its state-owned mobile operators this year. Company executives also said SingTel would consider assisting its associates in acquiring competitors and increasing its stake in current associates.
- NGN Projects: SingTel has been a pioneer in the areas of next-generation broadband network deployment. A consortium led by its Singapore unit has been selected to build and operate the passive infrastructure for the Next-Generation National Broadband Network in Singapore (see Singapore: 29 September 2008: SingTel to Lead Next-Generation Broadband Roll-Out in Singapore). Its Australian unit Optus also entered a bid in November last year to build a high-speed national broadband network in the country. With the exclusion of Telstra, Australia's largest telco, from the bid, Optus now stands a high chance of winning the bid. Optus chief executive Paul O'Sullivan has said the likelihood of the Australian government proceeding with its national broadband network has been enhanced by the global economic crisis as it steps up infrastructure spending to stimulate the economy.