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SingTel Q4 rises, sets S$4 bn payout

SingTel, Southeast Asia's largest phone firm, reported a surprise 14 per cent rise in quarterly profit on strong Asian mobile growth.

india Updated: May 04, 2006 15:18 IST

SingTel, Southeast Asia's largest phone firm, reported a surprise 14 per cent rise in quarterly profit on strong Asian mobile growth, and said it would hand S$4 billion ($2.6 billion) to investors.

Singapore Telecommunications, Singapore's largest listed firm, made an underlying profit before goodwill and exceptionals of S$1 billion for its fiscal fourth quarter ended March, up from S$881 million a year ago and beating even the most optimistic forecasts.

SingTel's shares rose 1.5 per cent to trade at S$2.77 by 0220 GMT.

The group, which derives about 75 per cent of revenues and two-thirds of pretax earnings from operations outside Singapore, said it planned a S$2.3 billion capital reduction and would pay S$1.7 billion in dividends to its shareholders.

"A capital reduction will help us achieve an optimal capital structure while maintaining financial flexibility," SingTel Chief Executive Lee Hsien Yang said in a statement.

As part of the deal, SingTel will cancel one share for every 20 owned and pay S$2.74 in cash for every cancelled share.

"The net overall effect is a payout of S$4.0 billion or a generous S$0.24 per share. This translates to a yield of 8.8% to shareholders," said OCBC Research analyst Winston Liew in a note to investors.

Liew, who calls the stock a "buy", noted that SingTel has about S$2.8 billion in cash and generates about S$909 million a quarter -- about S$3.6 billion per year -- in free cash flow.

But the company forecast flat profit for 2006/07 and said it needed to raise its stakes in existing mobile phone investments in Asia as well as make new acquisitions -- particularly in Pakistan and South Asia -- to drive growth. SingTel now claims 85 million mobile customers across Asia Pacific.

"The group expects consolidated operating revenue and EBITDA (earnings before interest, tax, depreciation and amortisation) to be stable," it said.

EBITDA totaled S$4.47 billion in the year ended March and is expected to reach S$4.53 billion next year, according to 19 analysts polled by Reuters Estimates.

A small home market

Facing a small home market of just 4.4 million people, where more than nine out of 10 individuals own a handset, SingTel has spent S$17 billion in recent years buying operators in high-growth Asian nations with fewer cellphone users, and in the bigger Australian market. SingTel owns 21.5 per cent of Thailand's Advanced Info Service Plc., 30.8 per cent of India's Bharti Group, 44.6 per cent of Globe Telecom Inc. in the Philippines, 35 percent of Indonesia's PT Telkomsel, and 45 per cent of Pacific Bangladesh Telecom Ltd.

Pretax profits from emerging markets affiliates zoomed up 48 percent to S$469 million in the quarter.

SingTel, 56.3 per cent-owned by state firm Temasek Holdings, warned in November it might not hit its target of double-digit growth in underlying profit in the March 2006 fiscal year. It said it hoped to achieve that goal in the medium term. Its Australian unit Optus, the country's second-largest mobile operator, faces intense price competition, slowing subscriber growth and regulatory changes in a saturated domestic market, where more than eight in 10 people own a mobile phone.

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.

SingTel said in February Optus was exploring ways to cut operating costs, such as staff cuts, outsourcing selected customer services, and automating processes.

SingTel shares gained 1.5 per cent in the January-March quarter, compared with a 4.8 per cent decline for Telstra.