SingTel – BT

Will SingTel pull off another coup?

FOR its legion of shareholders, Singapore Telecommunications continues to keep faith – going by its latest quarterly results. The buoyant economy here and in the region has helped the telco deliver three straight quarters of double-digit sales growth as the momentum enjoyed by the juggernaut shows no sign of slowing down.

Bantering with some members of the media last week after posting the company’s third-quarter ended Dec 31, 2007, results, chief executive Chua Sock Koong said that with so many ’11 per cent’, it was hard to keep tab.

She was referring to the fact that group revenues grew strongly by 11 per cent to $3.83 billion, driven by an 11 per cent growth in the Singapore business to $1.25 billion and an 11.5 per cent rise to $2.58 billion in sales at Australian unit Optus.

Less than kind observers will say that well-managed large companies, particularly when they have the incumbent advantage, tend to do well when all is abuzz. Singapore grew a sterling 7.5 per cent in 2007 and created a record 237,000 jobs which drew in foreign workers likes bees to honey. SingTel, in particular, bagged the lucrative foreign worker mobile phone business.

At end-2007, SingTel Singapore’s 2.33 million mobile phone customers gave it a 41.46 market share.

The 600-pound gorilla should have little trouble meeting the supposedly momentous introduction of true number portability which will come in June. It is likely to be little more than an irritant for the telco which racks up billion-plus-dollar sales in a mere three months. Smaller rivals StarHub and MobileOne are likely to steer clear of overly aggressive tactics.

What, then, will exercise SingTel’s top managers in the months ahead?

Since Ms Chua took over the helm in April last year she has constantly given the same answer when asked where SingTel’s next acquisition is. Basically she said that SingTel’s focus remains in the region where it has significant know-how and it is also learning about new markets in Central Asia, the Middle East and Africa.

The best (relatively riskless) bet for SingTel would be to increase its stakes in several of the group’s associates which have contributed strongly to the bottom line and its burgeoning cash pile.

Associates made up 53 per cent of SingTel’s underlying net profit in the quarter under review. Cash dividends from them for the nine months to end-2007 was $1.02 billion, up 74 per cent from a year ago.

‘We have a strong balance sheet with significant flexibility for further investment,’ Ms Chua said last week.

At end-2007, total free cash flow was $2.65 billion, up 41 per cent.

The global financial market turmoil should lead to better priced opportunities. But telcos are unlikely to come cheap as it is one industry which is pretty recession-proof, said M1 chief executive Neil Montefiore last month.

SingTel’s three best performing associates – Indonesia’s Telkomsel, India’s Bharti and Thailand’s AIS, all No 1 operators in their respective countries – were acquired in the aftermath of the Asian financial crisis. As was Australian unit Optus.

Now if only SingTel could pull off a similar coup this time round as the world stands on the cusp of a slowdown. Still, its million shareholders who have grown used to the group’s stream of healthy payouts should sleep easy, bear markets notwithstanding.

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