SingTel profits at risk from weak Optus earnings in 1Q15

Growth is expected to be flat this quarter.

Optus remains a laggard among SingTel’s many associates. Ahead of SingTel’s 1QFY15 results report tomorrow, analysts warn that the Australian subsidiary may drag SingTel’s profits for the quarter.

According to a report by CIMB, SingTel’s core net profit is expected to be flat year on year at S$895m, dragged by 3% decline in Optus earnings (in A$ terms) and 5.4% depreciation in the A$ vs S$.

On a quarter-on-quarter basis, earnings are expected to be down 2-3%, still largely due to seasonally weaker earnings at Optus. However, this will be partially offset by higher earnings from Singapore as cost of sales is traditionally lower during 1Q.

“We think the weak performance from Optus will persist through FY15, due to the recent re-pricing of its most popular packages and higher marketing cost to address market competition. A weaker IDR yoy will also weigh on Telkomsel’s contribution to associate earnings this year, while Singapore earnings are likely to be flat,” stated the report.

Here’s more from CIMB:

All major associates should also do better qoq, with the exception of AIS. Forex should also have a slightly positive impact qoq as INR/IDR/A$ rose 2.0%/0.6%/2.7% vs.

However, earnings growth should pick up in FY16-17 as a) Optus’s marketing initiatives starts paying off and its 4G-700MHz network goes ‘live’ in early-2015 (90% coverage by Mar 15), b) associate earnings continue to improve (without negative forex effects) and c) Singapore earnings are boosted by data tariff adjustments.