Published October 13, 2008

Aussie dollar slide hits Singaporean companies

SingTel, CapitaLand, ComfortDelGro, Tat Hong in the list

By NISHA RAMCHANDANI
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(SINGAPORE) The slide of the Australian dollar will hit Singapore companies with Aussie exposure, including Singapore Telecommunications Ltd, the biggest company on the Singapore Exchange.

Other companies with Australian dollar exposure include transport operator ComfortDelGro, Singapore Power, property company CapitaLand, crane operator Tat Hong and systems integrator CSE Global. One unit of the Australian currency traded at 98 Singapore cents by Asian close on Friday, compared with $1.35 on July 11 last year.

According to analyst Sachin Mittal of DBS Vickers, the magnitude of the impact for SingTel will depend on how prolonged the volatility will be. 'It could be short term turmoil or long term,' he pointed out.

Nonetheless, some impact will be felt. 'With every 10 per cent decline in the Australian dollar, SingTel earnings are impacted by 2 per cent,' he reckoned, highlighting that a fifth of SingTel's earnings stem from SingTel Optus.

Similarly, a 10 per cent slide in the Australian dollar could see a 10 per cent drop in earnings for SP AusNet - of which Singapore Power owns a 51 per cent stake - and a 6 per cent fall for CitySpring Infrastructure Trust, according to a research note by DBS Vickers.



Tat Hong, which earns 36 per cent of net profit from Australia, will see earnings dip by 3.5 per cent as a result of a 10 per cent decline in the Australian dollar, while Allco Reits will be impacted negatively by 4.3 per cent.

'As a high proportion of the group's earnings are from outside of Singapore, the financial performance is sensitive to currency movements in the countries the group operates in,' acknowledged a spokesperson from SingTel. About 31 per cent of the group's earnings was derived from SingTel Optus in Q109.

Already, currency movements have hurt. SingTel Optus posted a 3 per cent growth in revenue to A$1.956 billion (S$1.897 billion) for Q109 ended June 30, while total operating revenue for SingTel rose 5.9 per cent to $3.78 billion. However, net profit for the SingTel group fell 5.3 per cent to $878 million, as a result of the stronger Singapore dollar against other regional currencies since SingTel - apart from Optus - also has associates in emerging regional markets such as India, Indonesia, the Philippines and Thailand.

However, SingTel has benefited in the past from the strengthening of the Australian dollar. For Q408 ended March 31, the stronger Australian dollar lifted net profit by $12 million and operating revenue by $139 million. SingTel chalked up a net profit of $1.09 billion, 10.5 per cent higher than Q407, while group revenue rose 11 per cent to $3.76 billion.

Another major Singapore group that could be affected by its Australian exposure is transport operator ComfortDelGro.

'In the case of ComfortDelGro and SingTel, it could be significant, but it really depends on the mix of other currencies they have,' said Kim Eng analyst Gregory Yap.

ComfortDelGro's Australian subsidiary ComfortDelGro Cabcharge was set up in 2005 as a joint venture between ComfortDelGro and financial services provider Cabcharge Australia. Australia contributes 7.2 per cent of total group revenue (as at end June 2008).

'We do expect some translation losses on the net profits,' said spokesperson Tammy Tan but added that the losses are not realised as profits are not remitted back to Singapore.

For Q2 ended 30 June, the transport operator had reported that net profit dipped 2.9 per cent to $56.8 million after taking into account an exceptional gain of $26.5 million, while revenue grew 5.8 per cent to $790.1 million on the back of strong performance from its operations in Australia and China.

Meanwhile, property company CapitaLand expects any impact to be slight. A spokesperson for CapitaLand said: 'The recent exchange rate fluctuations are not expected to have any material impact on the profitability of the group' as 'operations in Australia and New Zealand comprised 6 per cent ($78m) of the group's total EBIT for H108.' EBIT refers to earnings before interest and tax.

And there are still those that remain bullish on their prospects in Australia, despite any losses they might see.

'There will definitely be some impact but there's still opportunity for us to grow in Australia,' said Tan Mok Koon, CSE Global's group managing director. Australia accounted for about $40 million - slightly less than 10 per cent - of the $405 million in revenue earned by the group last year.

Nonetheless, he remains optimistic that the mining industry in Australia offers plenty of potential for growth and hopes to beef up CSE Global's presence in Western Australia and Queensland. Its operations are currently located in Sydney and Melbourne.