SingTel Q3 net profit seen flat as Optus slows

SINGAPORE, Feb 6 (Reuters) - Singapore Telecommunications Ltd., Asia's fifth-biggest phone company, is expected to show almost no rise in third-quarter net profit as a margin squeeze at its key Australian Optus unit outweighs mobile growth in Asia.

Optus, Australia's second-largest mobile operator, faces intense price competition, slowing subscriber growth and regulatory changes that threaten to erode profit margins further in the saturated domestic market, where more than eight in 10 people already own a mobile phone, analysts said.

But SingTel, Singapore's largest listed firm with a market value of about US$26 billion, should continue to enjoy robust contributions from its mobile investments in the fast-growing markets of India, Bangladesh, Indonesia, and to a lesser degree Thailand and the Philippines, they said.

"The near-term outlook for Optus continues to be tough, with further pressure on mobile revenues and margins expected from (regulatory changes) -- indeed, risks continue to be on the downside here," said Merrill Lynch analyst Patrick Russel.

"But SingTel's key mobile associates will continue to be the mainstay of its earnings growth." SingTel is expected to report on Wednesday an underlying net profit -- which strips out goodwill and exceptionals -- of S$755.4 million ($462.3 million) for its third quarter ended December, according to the mean forecast of five analysts polled by Reuters, up 1.1 percent from the year-ago quarter. Estimates ranged from S$721 million to S$780 million.

SingTel, 65 percent-owned by state investor Temasek Holdings, warned in November it might not hit its target of double-digit growth in underlying profits in the year to March 2006. It said it hoped to achieve that goal in the medium term.

It also said full-year group operating revenue would rise, but operational EBITDA (earnings before interest, tax, depreciation and amortisation) would fall. Facing a small home market of just 4.4 million people, where over nine out of 10 individuals own a mobile phone, SingTel has spent S$17 billion ($10 billion) in recent years buying operators in high-growth Asian nations with fewer cellphone users, and in the bigger Australian market. It now derives about 75 percent of revenues and two-thirds of pre-tax earnings from operations outside Singapore.

OPTUS SLOWS, ASSOCIATES SHINE

SingTel owns
21.5 percent of Thailand's Advanced Info Service Plc.,
30.8 percent of India's Bharti Group,
44.6 percent of Globe Telecom Inc. in the Philippines,
35 percent of Indonesia's PT Telkomsel,
and 45 percent of Pacific Bangladesh Telecom Ltd.

SingTel's A$14 billion bid for Optus in 2001 was its largest acquisition. Optus Mobile, which has a third of the Australian market, is SingTel's single-biggest revenue and profit generator.

Optus said it expected revenue growth for the full year to moderate and its operational EBITDA margin to decline from the previous year, but remain above 28 percent. Last year, the Australian Competition & Consumer Commission

(ACCC) cut fees that telecoms companies charge each other when their customers make calls to people on rival networks, and when a fixed-line call from one goes to the mobile network of another.

Rivals Telstra Corp, Hutchison Telecommunications (Australia) Ltd and Vodafone Group Plc have also been wooing new users with aggressive price deals, including capped mobile plans, where users can make a pre-defined volume of calls and/or text messaging for a set maximum monthly fee. But SingTel's regional associates will continue to shine, as double-digit growth at Bharti and Telkomsel compensate for lower contributions from AIS and Globe, which are battling escalating competition in their domestic markets, analysts said.

"Bharti and Telkomsel will continue to be strong drivers of SingTel's growth," said Merrill Lynch's Russel. "But AIS should see some modest recovery in earnings in 2006 as the recent price war dissipates, and Globe's position is stabilising."

Last month, SingTel's parent Temasek agreed to pay $1.9 billion for a stake in Thailand's Shin Corp., which in turn owns 43 percent of AIS. SingTel said at the time it wanted to raise its stake in AIS, but Temasek said it had no plans to sell its stake in AIS to SingTel, according to local media.

Citigroup Smith Barney analyst Anand Ramachandran said he expected the associates to contribute 47 percent of SingTel's group earnings before interest and tax by fiscal year 2008, up from 32 percent in fiscal year 2005. SingTel shares rose 6.5 percent in the October-December quarter, compared with a 3.4 percent fall for Telstra and SK Telecom's 10.6 percent decline.
($1=1.634 Singapore Dollar)

Source:
Reuters, By Jennifer Tan
6 February 2006