SingTel's earnings outlook feared to weaken as Optus loses subscribers in Australia

Will Optus break its losing streak?

According to Phillip Securities Research, SingTel continues to deliver moderate earnings growth despite adverse FX movements and lower Optus revenue, due to improved margins on effective costmanagement.

However, it has concerns over business outlook for Optus which operates in a challenging environment that is dominated by Telstra in Australia. Optus mobile subscriber base fell to 9.4 million as of Dec-13, losing 135K
subscribers in a year. In the last quarter to Dec-13, it lost 57K postpaid customers.

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On the other hand, Telstra added 1.4M to its mobile customer base over the year, gaining market share from Optus and Vodafone Australia (which had lost over a 1M customers). Optus had focused on cost reduction over new customer acquisition, yielding margin improvement and higher net profits.

However, we think that Optus revenue (in AUD) declining over the last 8 quarters is a cause for concern. Mobile services accounts for over 50% of Optus revenue.

Based on estimates, net profit from Optus contributes about 30% of total SingTel Group's net profit in SGD for the year 2013.

Management had indicated it would refocus on regaining market share in Australia during the last results briefing for 3Q14.

However, with the resignation of CEO for Consumer Australia, Mr. Kevin Russell, recently announced on 27 Feb-14, we think this adds to the uncertainty over the outlook on Optus. Mr. Kevin Russell will leave Optus by end March-14. I

In the interim, Mr. Paul O'Sullivan, CEO for SingTel Group Consumer, will serve as acting CEO for Consumer Australia.