Published August 13, 2008

Plunging regional currencies hit SingTel

Q1 profit down 5.3% as falling exchange rates hit associates' contributions

By WINSTON CHAI
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(SINGAPORE) Singapore Telecommunications' sizzling bottom-line growth is starting to show signs of a slowdown, with regional currency depreciation dragging down its first-quarter profit to the lowest level in recent years.

SingTel shares recovered to close 1.7 per cent lower at $3.52 yesterday, after dropping to $3.45 earlier in the day as investor confidence was shaken after the curtains were raised on its first set of results for the year.

Net income for the three months ended June 30 fell 5.3 per cent to a two-year low of $878 million, compared with $927 million a year earlier. SingTel's Q1 net profit of $878 million missed the $902 million average forecast of nine analysts polled by Bloomberg.

'As we report in Singapore dollars, the financial results of our regional associates are exposed to fluctuations in foreign exchange rates. In this quarter, the impact was negative,' said SingTel Group CEO Chua Sock Koong.

'If not for the depreciation in regional currencies, our net profit would have grown by 6 per cent,' she told reporters at a briefing yesterday.

SingTel derives 42 per cent of its Ebitda (earnings before interest, tax, depreciation and amortisation) from associates in six emerging regional markets: India, Bangladesh, Indonesia, Pakistan, the Philippines and Thailand.



The group said profit took a hit as the Sing dollar strengthened against all these regional currencies. In particular, the Indonesian rupiah fell 13 per cent in the last year, shrinking earnings from SingTel's Indonesian associate Telkomsel. The Sing dollar also climbed more than 10 per cent against the Indian rupee and Thai baht in the last 12 months, denting contributions from Bharti in India and Thailand's AIS.

Singapore Technologies Engineering, the world's largest aircraft repair firm, also cited the rising Sing dollar as a key reason for the profit decline in its recently-ended second quarter.

Foreseeing continued currency fluctuations, SingTel has lowered its earnings forecast for its regional affiliates from 'double-digits' to a 'low double-digit' range for this financial year. 'Growth (from regional associates) will be slower than previous years,' Ms Chua warned.

'Even then, the (SingTel) management guidance of double-digit growth in pre-tax contribution from associates appears too bullish to us,' DBS analyst Sachin Mittal said in his research note. 'Current weakness in the Australian dollar is also something to worry about in Q2 FY09.'

To bolster its longer- term outlook, SingTel said it would still be on the lookout for acquisition targets. 'Our investment focus will primarily be in Asia,' Ms Chua said, adding that other regions such as the Middle East and Africa are also on the radar.

South-east Asia's largest telco said its operating revenue for the first quarter increased 5.9 per cent to $3.78 billion from last year, thanks to continued strength in its Singapore and Australia operations.

Revenue from SingTel's local subsidiary grew 8.1 per cent to $1.25 billion in Q1. The firm's mobile business posted a revenue gain of 9.7 per cent to $347 million, but margins were eroded by increased selling expenses. This is because marketing costs were upped in the lead-up to the introduction of true mobile number portability on June 13. SingTel registered the largest increase in mobile subscribers among the three local telcos in the quarter with 182,000 new customers.

SingTel said its subscriber base for mio TV - a service which allows customers to watch television programmes streamed through the Internet - has increased by 2,000 to 45,000. Content acquisition costs, however, have gone up.

Revenue from SingTel's IT and engineering unit NCS were up 20 per cent in the first quarter to $181 million.

At Optus, operational Ebitda was up 2.7 per cent year-on-year in Q1 to A$13 million (S$16.2 million), while pre-tax profit from SingTel's regional associates plunged 11 per cent to $582 million.