Several blue-chip stocks have performed well this year even as macroeconomic headwinds cause investors to worry about corporate earnings.
One of them is Singtel (SGX: Z74).
Singapore’s largest telco saw its share price hit its 52-week high of S$3.11 recently but has since retreated to S$2.93.
At this level, the group’s shares are still up nearly 20% year-to-date, making it one of the star performers within the Straits Times Index (SGX: ^STI).
Singtel recently released its business update for the first quarter of fiscal 2025 (1Q FY2025) ending 30 June 2024.
Investors may be curious to know if the telco can reclaim its 52-week high, so let’s dig deeper into its earnings report to find out.
Higher underlying net profit
Singtel saw its operating revenue dip by 2.1% year on year to S$3.4 billion, led by declines in Optus and Singtel Singapore but offset by year-on-year increases for NCS and Digital infraCo.
Despite the decline, operating profit jumped 27.4% year on year to S$382 million.
Excluding Trustwave, which was divested in early January this year, underlying operating profit climbed 16.1% year on year.
Singtel’s net profit surged by nearly 43% year on year to S$690 million but its core underlying net profit improved by 5.4% year on year to S$603 million.
Currency weakness played a role in denting the group’s net profit performance.
At constant currency, Singtel would have seen an 8.7% year-on-year rise in underlying net profit.
An encouraging Australian performance
With Singtel’s Australian division (Optus) making up half of the group’s revenue, it makes sense to review its performance.
Optus delivered a commendable performance this quarter with revenue, customer numbers, and average revenue per user (ARPU) posting year-on-year increases.
The Australian unit’s mobile revenue rose 3.9% year on year to A$1.3 billion with mobile service revenue increasing by 4.7% year on year to A$1 billion.
The higher mobile service revenue came from postpaid repricing and higher prepaid subscriptions which offset weaker ICT and project-based satellite revenue.
The number of prepaid and postpaid mobile customers inched up 2.2% and 0.3%, respectively, to 3.5 million and 5.9 million.
Overall blended ARPU increased by 3.7% year on year to A$32, and Australians used 19 GB of data per month, logging a nearly 13% year-on-year increase.
Optus’s operating profit soared 58% year on year to A$98 million because of cost-cutting initiatives and lower depreciation and amortisation expenses.
A resilient Singapore performance
Singapore contributed slightly more than a quarter of Singtel’s group revenue for 1Q FY2025.
Mobile service revenue improved by 6.8% year on year to S$339 million as the number of mobile customers increased by 6.2% year on year to 4.6 million.
The blended ARPU, however, dipped by 3.2% year on year to S$24 as data usage fell from 10 GB in 1Q FY2024 to 9 GB in 1Q FY2025.
Fixed broadband revenue and Pay TV revenue saw slight declines of 1.3% and 0.6% year on year, respectively.
Operating profit for the division remained stable at S$230 million with higher depreciation from IT and network investments offsetting cost savings.
Mixed results from corporate and associates
Moving on to Singtel’s corporate segment, Digital InfraCo saw revenue rise 6% year on year to S$109 million, buoyed by Nxera’s customer reservation fee and utility pass-through.
As Nxera undergoes an expansionary phase, operating profit for the division plunged 32% year on year accompanied by lower project-based satellite fees.
NCS, however, reported a better performance with revenue up 4% year on year to S$707 million and operating profit jumping 28% year on year to S$65 million.
Singtel’s regional associates faced headwinds from weaker regional currencies, resulting in net profit falling by 5% year on year to S$405 million.
On track to fulfil targets
Singtel put up a decent performance for 1Q FY2025 and guided that it is on track to meet its FY2025 goals.
The operating profit growth rate is targeted at high single-digit to low-double-digit and has already increased by 27% in the current quarter.
Cost savings are also on track to be achieved for both Singtel Singapore and Optus/
Singtel’s value realisation dividend, a new component of its dividend policy, of between S$0.03 to S$0.06 is also on track.
Recall that the telco paid out a VRD of S$0.038 when it released its FY2024 earnings.
Get Smart: Growing its core business while scaling up
Singtel delivered a commendable performance for 1Q FY2025.
Management intends to continue building its enterprise services for Singtel Singapore while realising the benefits of higher-priced postpaid plans at Optus.
Over at Nxera, the telco will focus on delivering new data centres in Tuas and the region and secure customer contracts for these properties.
Investors should stay the course with Singtel as it demonstrates good execution of its strategy thus far.
As the business grows, it’s likely that its share price can eventually revisit its 52-week high and beyond.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
