SINGAPORE (Sept 16): The transport, storage and communications sector has seen quite a shake-up in the last year. Among the telcos, M1 delisted, even as new providers entered the market. Meanwhile, in the transport segment, taxi operators are still fighting off competition from ride-hailing services, Grab and Go-Jek.
Amid these disruptions, blue chip Singapore Telecommunications has been rated the overall winner of the combined transport, storage and communications category in this year’s Billion Dollar Club (BDC) awards. Singtel also received the highest rating in the ESR category — a nod to its efforts in this area that have
already been underway for years.
Singtel came in second in the sector in terms of growth in profit after tax. For FY2015, the company reported earnings of $3.78 billion. In FY2018, earnings had grown to $5.45 billion. Singtel generated a return on equity (ROE) of 16.88% for the three-year evaluation period for this year’s BDC. This was the second-best performance among its sector peers.
The local telco industry has been under pressure operationally, and Singtel has not been immune to it. The company is facing the effects of heightened competition and slowing earnings growth. In FY2019 ended March 31, 2019, its revenue remained flat, rising just 0.6% y-o-y to $17.1 billion. However, earnings fell 43.5% to $3 billion, as there was a one-off gain from the sale of its stake in NetLink Trust that was booked in FY2018.
For its 1Q ended June 30, 2019, after the BDC evaluation period, Singtel reported revenue of $4.1 billion, down 0.5% y-o-y. Earnings fell 35% y-o-y to $541 million, as its associate company in India continues to suffer losses as a result of brutal price competition.
Singtel’s flattish revenue growth underscores the tough environment telcos are facing. On the one hand, it is struggling to raise average revenue per user in Singapore; on the other hand, its overseas associates, which had been major growth drivers previously, are now facing intense competition from local rivals as their respective markets mature.
In particular, Bharti Airtel in India and Telkomsel in Indonesia continue to be a drag on Singtel’s bottom line. Besides the drop in associates’ contributions, the depreciation of the Australian dollar and Indonesian rupiah has also had a negative impact on Singtel’s results.
Group CEO Chua Sock Koong remains upbeat about the company’s prospects. “The Airtel impact aside, business is stable as we continued to execute to strategy in the first quarter,” she says, referring to the loss-making associate in India.
Anticipating an even tougher operating environment, Singtel has launched initiatives to attract customers and partnerships to leverage its customer base. In March, it launched GOMO, a digital mobile product for consumers. This was followed by its unmanned pop-up store, UNBOXED, a shipping container-sized store where customers can carry out a host of tasks via video-assisted self-service kiosks, as well as purchase phones and accessories.
“We are focused on the digitalisation of our core communications business, where innovations in digital products and services are proving to be key differentiators, leveraging our network superiority. We are also driving productivity gains and cost savings through digitalisation,” says Chua.
Singtel has also announced programme tie-ups with insurance provider AIA that reward Singtel customers for hitting activity targets. It has also inked an agreement with Go-Jek that looks at opportunities to cross-sell their offerings to each other’s customers and driver-partners.
StarHub generates best ROE, SIA’s net profit growth highest
StarHub, another Singapore telco, generated the best ROE in the three-year BDC evaluation period. In FY2016 and FY2017, it delivered an impressive ROE of 110% and 52.8% respectively. For FY2018, ROE dropped further to 35.71%. For these three years, StarHub’s weighted ROE was 55.74%.
StarHub has seen quite a shake-up in recent times, with turnaround specialist Peter Kaliaropoulos taking over as CEO from July 2018. As part of a strategic transformation plan, Kaliaropoulos brought in new managers and streamlined the telco’s businesses.
For its 2Q ended June 30, 2019, StarHub reported earnings of $39 million, down 36% y-o-y. Revenue in the same period fell 7% y-o-y to $553 million. Still, StarHub has maintained that it plans to pay a total FY2019 dividend of at least nine cents. It expects to spend $282 million in capital expenditure this year to beef up capabilities in cybersecurity and other new growth areas. “We continue to transform our operations and ensure cost optimisation initiatives fund the growth of new digital services,” says Kaliaropoulos.
In terms of net profit growth, Singapore Airlines topped the sector. In FY2015, Singapore’s flag carrier reported earnings of $367.9 million. In FY2018, earnings increased to $892.9 million.
For 1Q ended June 30, 2019, it reported higher revenue of $4.1 billion, up 6.7% y-o-y. However, earnings fell 20.7% y-o-y to $111 million. The company attributes the lower earnings to the higher share of losses it had to book for its stake in other associate companies.
Against a backdrop of tough competition, SIA has been actively improving its operations. It is undergoing a three-year digital transformation journey. As part of this strategy, the company started several initiatives, including making an internal call for innovative ideas among staff. This was followed by the launch of a digital innovation lab named KrisLab, where staff can work with in-house experts and external partners on their ideas.
In April, SIA entered into a partnership with SATS to renew its aviation services for the next five years. This renewal has been called a “foundational development” in SIA’s transformation plan. The agreement calls for data analytics on key touchpoints during the customer journey to find opportunities to improve service and personalisation in areas such as F&B offerings.
SBS Transit gives best share price return
SBS Transit, which operates both buses and trains in Singapore, gave shareholders the best compound annual growth rate share price return of 23.1% for the three-year period. The company has in recent years benefited from the change in its operating model. Amid widespread unhappiness over overcrowding in trains and buses run by companies, the government has taken over the responsibility of providing the capital expenditure for owning and expanding the public transport systems. Operators such as SBS Transit are now able to focus on their operating costs while recording fare revenue.
For its 2Q ended June 30, 2019, SBS Transit reported earnings of $24.2 million, up 24.5% y-o-y. Revenue in the same period increased 3.9% y-o-y to $358.5 million, thanks to higher ridership and also higher fares allowed by the Public Transport Council. The company has declared an interim dividend of 7.15 cents per share, compared with 5.8 cents in the year-earlier period. Going forward, SBS Transit expects bus and train revenues to rise, but warns that it will continue to bear higher operating and maintenance costs.
*For the full list, go to bdc.theedgesingapore.com
