Singapore: Singapore Telecommunications, Southeast Asia’s largest telecommunications firm, posted a lower-than-expected quarterly profit, as acqusition costs by Indian affiliate Bharti weighed, but cheered investors by raising dividends.

SingTel, 55% owned by Singapore state investor Temasek Holdings, said earnings were hit by costs from Bharti Airtel’s acquisition of the African telecom assets of Kuwaiti group Zain in June and investments in multimedia services in Singapore.

Still, SingTel’s shares rose 1.9%, reversing early falls and outpacing a 0.3% gain in Singapore’s main index, as investors focused on an increase in dividends.

The company also it would raise its dividend payout ratio to 55-70% of underlying net profit from 45-60%.

“They missed estimates due to Singapore and Bharti numbers. But the key thing, which is positive, was the change in policy to raise the dividend payout," said DBS Vickers analyst Sachin Mittal.

“This is still better than special dividends, because this is a sustainable hike in dividend going forward, so that’s a key positive from this result," he added.

Analysts said that the use of cash to pay out dvidends did not signal a change of strategy for SingTel, which has expanded rapidly in recent years through overseas acquisitions.

“I think it (the dividend payout) reflects the strong free cash flow pile up and lack of investment opportunities rather than a lack of appetite for acquisitions," said one Singapore-based analyst, who asked not to be indentified.

Bharti costs

SingTel, the biggest company on the Singapore stock exchange with a market value of $41 billion, earned S$892 million ($693 million) in the fiscal second quarter ended September, down from S$956 million a year ago.

The net profit was the lowest since the third quarter of the 2009 financial year and lagged estimates by four analysts who had forecast a quarterly profit of S$960.5 million on average.

Revenue climbed 8.1% to S$4.43 billion.

SingTel CEO Chua Sock Koong said on Thursday that Bharti has said it would need another two quarters to restructure its African operations.

SingTel owns 32% of Bharti, which on Wednesday reported a steeper-than-expected 27% fall in quarterly profit after being squeezed by a price war in India’s mobile market, the world’s fastest growing.

The weak performances in some of SingTel’s overseas associates were partially offset by a strong performance by its Australian unit Optus and a strong Australian dollar. Optus recorded a 9% increase in earnings before interest tax depreciation and amortisation (Ebitda).

“The big issue for me is whether Optus momentum will be taken out because Telstra is becoming more aggressive," CLSA analyst Ashwin Sanketh said.

SingTel controls 100% of Optus, the second-largest telecoms firm in Australia, behind Telstra.

SingTel said operating revenue in its Singapore and Australia divisions would grow in the mid-single digit level over the 2010-11 fiscal year, but Bharti’s acquisition costs and fluctuations in the Australian and Singapore dollar could hit earnings.


With a domestic market of just 5 million people and mobile phone penetration of over 100%, SingTel has bought stakes in mobile operators in high-growth Asian countries such as India and Indonesia to boost its earnings.

Besides Bharti, SingTel has stakes in five other mobile operators including Indonesia’s Telekomunikasi Selular and Thailand’s Advanced Info Service.

At home, analysts say the introduction of a next generation high-speed nationwide internet broadband network could provide more challenges, especially in the corporate market.

Smaller rivals including StarHub and MobileOne are trying to take a bigger share of the corporate market.

Concerns about SingTel’s profit margins have weighed on the company’s shares, which have risen by about 6% since the start of the year, underperforming a 14% rise in the benchmark Singapore index.