SingTel – BT

SingTel may suffer fallout from A$ jitters

Its Australian unit, Optus, accounts for over 60 per cent of group revenue

While risks of a political stalemate in Australia are putting the Aussie dollar under pressure, the currency weakness is seen as a short-term blip with muted impact on Singapore-listed companies with exposure Down Under.

Analysts are circumspect about how long the currency weakness would persist and if it would affect corporate earnings just yet.

Among companies here with exposure to Australia, Singapore Telecommunications seems most vulnerable as its Australian unit Optus accounts for over 60 per cent of group revenue.

‘A significant portion of our business is outside of Singapore, which subjects our financial results to foreign exchange volatility as we report in Singapore dollars,’ a SingTel spokeswoman told BT yesterday. ‘This includes our business in Australia, through Optus.’

While currency weakness has no direct impact on Optus’ operations as its earnings and costs are predominantly in Australian dollars, there would be a translational impact when Optus’s earnings are converted to Sing dollars.

But the SingTel spokeswoman noted that this was unlikely to have a major impact on the year-on-year comparison as the fiscal second quarter ended Sept 30 last year also coincided with a weak Australian currency.

For fiscal Q2 reporting last year, SingTel used the exchange rate of A$1 to S$1.1998, compared to yesterday’s rate of A$1 to S$1.20 during Asian trading hours.

‘It all depends on how much the Aussie dollar moves. It’s still too early to tell. What we are seeing now is, it could be a knee-jerk reaction,’ said OCBC Investment Research analyst Carey Wong, who maintains a ‘buy’ call on SingTel with a $3.34 price target. But given Optus’s share of group revenue, any major movement in the Australian dollar would translate to a major impact on SingTel’s revenue, he added.

Another analyst, who declined to be named, noted that a bigger bugbear for SingTel is the expected rising cost pressures at Optus, fuelled by increased competition with Telstra as the once-dominant telco player in Australia seeks to regain market share.

Yesterday, the Australian dollar recovered from an initial fall triggered by an inconclusive election over the weekend that left behind the prospects of a hung Parliament for the first time in 70 years. While vote counting continues, political pundits believe that Australia’s leaders could take months to form a government.

After touching the day’s low of US$0.8833, the Aussie dollar clawed back to US$0.8912 yesterday, reflecting investors’ belief that the long-standing political stability is still going to hold.

Barclays said in a note that ‘the core fundamentals for these markets of stable government, sound fiscal policy and Australia being a premium location for foreign investment, especially in the mining sector, will remain intact’.

In Australia, stocks of mining companies including Melbourne-based BHP Billiton Ltd and London-based Rio Tinto Group rose on optimism that the election outcome would result in a proposed mining tax being either scrapped or diluted.

OCBC vice-president of treasury research & strategy Emmanuel Ng said that he saw more downside risks emanating from a further spike in risk aversion rather than from the political landscape.

‘With uncertainty blanketing global growth prospects and localised political uncertainty domestically, we (see) a bearish A$-US$, targeting 0.815 and placing a stop (price) at 0.9086,’ he said in a note yesterday.

Other Singapore-listed companies with interest in Australia include Ezion, SP AusNet, AusGroup and Australand – a 59 per cent subsidiary of CapitaLand.

AusGroup, Australand and SP AusNet report their earnings in Australian dollars and are hence not expected to suffer translational impact as a result of an Aussie dollar weakness.

Ezion, which operates in Australia through a joint venture, had Australian operations accounting for close to 8 per cent of net profit for the second quarter ended June 30. Its Australian operations received a further boost this month with a letter of intent for marine logistics work from a multinational with an estimated value at A$70 million (S$85 million).

Jason Saw, analyst at DMG & Partners Securities, said that he did not expect Aussie dollar movement to have a major impact on Ezion yet as work for their Australian contracts has not reached peak productivity and the revenue has not fully stream in yet.

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