Singtel More Than Doubles Its Net Profit to Nearly S$1 Billion: 5 Things You Need to Know

Singtel (SGX: Z74) hasn’t had an easy time as border closures and a dearth of tourists crimped demand for its mobile and roaming services.

However, the telecommunication (telco) giant recently announced a sparkling set of numbers for its fiscal 2022 first half (1H2022) ended 30 September 2021.

The conglomerate’s net profit more than doubled year on year from S$466.1 million to S$954 million.

Free cash flow for 1H2022 was also 7% higher year on year at S$1.77 billion compared to S$1.71 billion a year ago.

However, Singtel lowered its interim dividend from S$0.051 last year to S$0.045, while indicating that it will pay out dividends at the upper end of the 60% to 80% of net profit range for its dividend for FY2022.

For investors, there are questions around whether the telco has turned the corner? Could it raise its final dividend if business conditions improve?

Here are five other things that investors should know about its latest results.

1. Healthier financial numbers

Singtel saw its operating revenue inch up by 0.4% year on year to S$7.6 billion, mainly contributed by its Australian consumer business.

Despite the lackluster increase, operating profit increased by 9.3% year on year to S$1.6 billion due to higher pre-tax profits from its associates (see below for details).

The presence of exceptional items had depressed the group’s net profit in 1H2021, setting the telco up for better results in 1H2022.

Excluding these items, the underlying net profit was 17.4% higher year on year at S$983 million.

2. Launch of 5G roaming

The telco’s Singapore Consumer division continued to experience weakness due to ongoing COVID-19 restrictions and equipment supply disruptions.

Operating revenue declined by 1.3% year on year to S$867 million while underlying operating profit (excluding the government’s jobs support scheme) fell by just 2.3% year on year.

The average revenue per user (ARPU) stayed flat at S$24 per customer per month, but the telco saw its mobile customer market share fall from 51.6% a year ago to 49.7%.

Singtel was the first telco to launch 5G roaming in July and has expanded this to 17 countries including Australia, China, Finland, and Taiwan, to name a few.

By August, Singtel expanded the rollout of 5G across the island and established new uses for fast-speed internet access in a variety of sectors spanning entertainment to mobility.

The telco’s network now covers more than two-thirds of Singapore.

3. Business partnerships

Turning to Singtel’s group enterprise division, operating revenue remained largely flat year on year while underlying operating profit inched up 2.9% year on year to S$329 million.

Singtel saw higher demand for data centre and cybersecurity services, leading to its information and communications sub-division reporting a healthy 9.6% year on year increase in revenue

However, fixed voice revenue declined by 16.1% year on year as customers switched to lower-cost internet protocol (IP) solutions.

The division kept busy with a string of business partnerships.

Singtel collaborated with Government Technology Agency and Sentosa Development Corporation to launch a 5G@Sentosa testbed.

Meanwhile, the telco also sealed a partnership with Ericsson (STO: ERIC-B) to accelerate 5G adoption among enterprises by linking up with nine other global partners from different industries.

Finally, Singtel also became the first operator to offer the Unified Communications Direct Connect service for Microsoft (NASDAQ: MSFT) Teams, enabling more businesses to use the software as a means of communication.

4. NCS’ rebranding and acquisitions

Singtel’s NCS unit, which provides a range of technology services to its clients with its digital and cloud capabilities, also reported a healthy set of numbers.

Revenue originated by NCS rose 9.3% year on year to S$1.1 billion while the division’s underlying operating profit improved by 12.7% year on year.

NCS launched a new purpose and brand identity in the current fiscal year and is attempting to become a champion for business-to-business (B2B) service offerings.

Some of its initiatives include the launch of a Cloud Centre of Excellence in Melbourne, integrating with DataSpark, a telco-centric data science leader, and forming a strategic partnership with an artificial intelligence software provider, C3.ai (NYSE: AI).

The division also carried out acquisitions to boost its data analytics and cloud capabilities in Singapore, Hong Kong and Australia.

5. A better performance for Singtel’s associates

Singtel’s share of its associates’ pre-tax profit also jumped by 18.2% year on year to S$1 billion, reflecting improved conditions in many of the regions where the telco operates.

In particular, its Indian associate, Bharti Airtel, contributed S$147 million in pre-tax profit, a sharp reversal from the S$30 million loss incurred in the prior year.

The better performance was due to strong mobile growth in India resulting from an increase in customers and 4G upgrades. Bharti Airtel’s African business also enjoyed a significant uplift.

Elsewhere, Telkomsel in Indonesia saw increased demand for its data and digital service while Singtel’s Thai and Philippine associates saw better demand for broadband services.

Get Smart: Transformation still in progress

Despite the brighter outlook, Singtel cautions that the pandemic continues to weigh on the business.

The increase in vaccination rates and the slow reopening of borders with the introduction of vaccinated travel lanes will no doubt aid the telco in its recovery.

Meanwhile, Singtel is continuing with its transformation journey.

Recently, it unlocked value from the sale of towers in Australia to raise A$1.9 billion.

The telco’s mid to long-term target is to recycle S$2 billion of capital and to look for opportunities in emerging markets to provide digital and B2B services.

It may take a while more, but it looks as though Singtel is slowly picking itself up.

Investors may not have to wait much longer to see a further uplift in the telco’s fortunes.

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

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