Singtel Charts a New Course: 5 Facts Investors Should Know About Its Full-Year Earnings

Blue-chip telecommunication company (telco) Singtel (SGX: Z74) is going through a trial by fire.

The group recently reported its fiscal 2021 full-year earnings (FY2021) and is facing one of its toughest periods in decades.

Revenue dipped by 5% year on year to S$15.6 billion while underlying profit plunged by 30% year on year to S$1.7 billion.

If non-cash impairments are included, Singtel’s net profit would have fallen to S$554 million, down 49% year on year from S$1.1 billion.

At S$554 million, it will be the group’s lowest net profit since 1998, marking a 23-year low for the beleaguered telco.

At the same time, Singtel also announced a new strategic direction to engineer a future turnaround for the business.

Here are five highlights from the telco’s earnings that investors should take note of.

1. Singapore and Australian consumer segments under pressure

The Singapore consumer segment continues to face pressure, with operating revenue down 14% year on year to S$1.8 billion.

Operating profit declined by 29% year on year to S$353 million.

The situation was just as tough for Australia.

Operating revenue for the Australian consumer division fell by 8.6% year on year to A$7.1 billion.

Operating profit plunged by close to 70% year on year to A$296 million.

However, at the group level, Singtel continued to grow its mobile customer base from 705 million in the previous fiscal year to 744 million.

Mobile market share for Singapore also inched up from 50.4% to 51% over the same period.

2. Continued decline for Singapore’s ARPU

Telcos disclose their average revenue per user (ARPU), a metric that tells investors if they manage to earn more over time from each customer.

For Singtel, its Singapore mobile blended ARPU continued to trend down, falling by 22% year on year to S$23 per month.

However, blended ARPU for Australia inched up by 1.9% year on year to A$30 per month.

Both territories saw increased data usage.

Singapore’s data usage jumped 17% year on year to six gigabytes (GB) per month, while Australia’s data usage crept up 2.8% year on year to 11 GB per month.

With data usage increasing, Singtel needs to find a more effective way to boost its overall ARPU, especially for its Singapore consumer base.

3. Write-down of troubled entities

Earlier this month, Singtel announced a strategic review of its investments in US-based Amobee and Trustwave.

Amobee is a digital advertising business while Trustwave deals with cybersecurity.

Both entities are facing headwinds and Singtel had to take a S$1.2 billion impairment on both of them for FY2021.

Trustwave reported flat operating revenue while its operating loss widened by 28.2% year on year to US$110 million.

Meanwhile, for Amobee, operating revenue declined by 17.6% year on year to US$664 million.

Its operating loss doubled year on year to US$54 million.

4. A few bright spots

It wasn’t all bad for the telco.

There were a couple of bright spots that deserve highlighting.

Under its Group Enterprise division, information and communications technology (ICT) saw a 6.8% year on year increase in revenue to S$3.3 billion.

Digital revenue as a proportion of ICT revenue also crept up to 44% from 42% a year ago.

As for the NCS group, also parked in the same enterprise division, operating revenue inched up 6.2% year on year to S$2.3 billion.

Operating profit increased by 18.8% year on year to S$249 million.

5. A lower annual dividend

Singtel’s dividend policy is to pay out between 60% to 80% of its underlying profit.

With its underlying profit declining for the year, the group has proposed a final dividend of S$0.024 for a total dividend of S$0.075 for FY2021.

The full-year dividend is 38.8% lower than the S$0.1225 declared for the fiscal year 2020.

At a share price of S$2.42, Singtel’s trailing dividend yield stands at 3.1%.

The group’s free cash flow remains strong at S$3.4 billion, though it was 10% lower than the prior year’s S$3.8 billion.

Get Smart: Setting a new direction

The telco is determined to chart a new course for itself.

CEO Yuen Kuan Moon unveiled a three-pronged plan to steer Singtel in a new direction.

First, the telco will realign its core business to focus on gaining market share in 5G in both Singapore and Australia.

The second initiative will be to develop new growth engines, one of which will be NCS.

NCS has experienced seven consecutive years of revenue growth and will set up two strategic business units to focus on the government and telecommunication sectors.

Finally, Singtel will work on recycling its capital by exploring options to unlock the value of its infrastructure assets.

These three initiatives will take time to bear fruit.

Investors need to be patient as the telco may continue to experience headwinds in the near term.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

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