Singtel reverses Q1 loss as Airtel performance improves

By Lee Kah Whye
Singapore, August 16 : Last week, Singapore's dominant telecom operator, Singtel reported an all-round improvement in its first quarter performance compared with a year ago. Net profit for Q1 2021 came in at SGD 445 million (USD 328 million) compared with a loss of SGD 20 million for the quarter which ended June 30 last year.
Revenue grew 7.5 per cent to SGD 3.8 billion, underlying net profit before exceptional items rose 31 per cent to SGD 451 million, and EBITDA (earnings before interest, tax, depreciation and amortisation) increased 11 per cent to SGD 997 million.
Post-tax contributions from regional associates soared 37 per cent mainly due to a better showing from Philippines' Globe Telecom and Airtel's profit turnaround. Singtel commented that Airtel's "operating momentum" in both India and Africa was "convincing".
In the quarter under review, Airtel saw revenues climbing 21.2 per cent to USD 3.62 billion with EBITDA rising from USD 1.36 billion to USD 1.78 billion. Airtel recovered from a net loss before exceptional items of USD 58 million last year to record a net gain of USD 36 million.
In Q1 of 2020, it had to make an additional provision of INR 107,444 million (USD 1.45 billion) related to the matter of the Supreme Court ruling with regards to the Adjusted Gross Revenue (AGR) on license fees and spectrum usage charges.
Singtel has an effective stake of 31.7 per cent in Airtel which is partly contributed by its 49.4 per cent shareholding of Bharti Telecom. It recorded a negative SGD 911 million one-off exceptional item in the quarter that ended June 2020 due to the AGR matter.
Besides regional associates and Airtel, Singtel said its bottom line was buoyed by improved operating and business environment overall including better profitability at wholly owned Australian subsidiary Optus and a stronger Australian dollar. Operating revenue improved 7.7 per cent to SGD 1.7 billion from SGD 1.6 billion a year ago. On constant currency terms, revenue would have fallen 2.6 per cent. Mobile service revenue was up 11 per cent, despite lower roaming and prepaid mobile revenues from the lower number of travellers.
Singapore consumer operating revenue increased 1.3 per cent year-on-year despite price competition amid entry of more MVNOs (mobile virtual network operators). Singtel saw higher mobile service, fixed broadband and equipment sales but lower voice revenue. Mobile service revenue grew 1.8 per cent out performing its competition as postpaid mobile revenue rose on increased adoption of higher ARPU 5G plans, offsetting declines in prepaid sales and usage. Roaming and prepaid mobile revenues continued to below as a result of COVID-19 travel restrictions and reduced number of overseas visitors and foreign workers.
Operating revenue from corporate customers as reported under the Group Enterprise division grew 2.2 per cent due to higher demand for data centre and cyber security services. The growth was partially offset by lower legacy carriage business as well as decline in voice usage from technology-related substitution as well as drop in business travel.
Digital advertising subsidiary Amobee registered a strong 56 per cent growth in operating revenue in the quarter due to increased advertising spend and TV demand in contrast to the first quarter last year when customers cut back significantly on advertising spend as a result of the pandemic.EBITDA improved from a negative SGD 12 million to positive SGD 5 million.
ICT (information and communications technology) revenue under subsidiary NCS expanded 8.5 per cent, driven by broad-based growth across all lines of business as customers resumed deferred projects and stepped up their digital transformation efforts. Revenue from its growth engines (digital, cloud, platforms and cybersecurity) grew 31 per cent year-on-year, contributing 45 per cent of total operating revenue, compared with a 36 per cent contribution in the corresponding quarter last year.
"The easing of COVID-19 restrictions has improved the overall operating and business environment and we are seeing the return of growth across the board in the first quarter. Some of the bright spots included Optus' improved performance, continued broad-based growth in NCS' ICT business and Airtel's profit turnaround," said Singtel Group CEO, Mr Yuen Kuan Moon in a statement accompanying the results.
"The strategic reset that we have set in motion, positions us to capitalise on this rising trend of digitalisation to support post-pandemic economic recovery and we continue to be disciplined in capital deployment and focused on delivering shareholder value."
Following the Q1 results, most analysts have expressed optimism that Singtel's share price is on the verge of a turnaround with most revising their target price upwards. They predict that Singtel will see a boost to its average revenue per user (APRU) on the back of 5G take-up and the gradual lifting of travel restrictions. OCBC Bank analysts have a buy call at SGD2.89 on Singtel shared and securities house Maybank Kim Engrevised up their forecast for Singtel from SGD2.81 to SGD2.83. UOB Kay Hian is the only broker with a contrarian view cutting their one-year prediction from SGD2.84 to SGD2.75.
In the one month leading to the latest quarterly results, Singtel share price rose about five percent closing at SGD2.39 on August 13, a day after the announcement.