"If you want a mature company, sure, you buy profits, but you may not have the growth," Lee Hsien Yang, SingTel's chief executive, said in an interview. "If you want to have the growth, then you don't have the short-term earnings and there are trade offs to be made."
Pretax earnings from investments such as Thailand's Advanced Info Service Pcl are expected to fall by S$100 million (US$55 million) because of new investments in India and Taiwan. These made up 11 percent of pretax profit, SingTel said in fiscal 2001 earnings released last week.
SingTel can't afford not to expand. The former Singapore phone monopoly faces more competition as the island's market is opened to new operators. SingTel decided a few years back to focus on regional acquisitions for future growth.
"What they're trying to do is to be a regional telco rather than a domestic telco," said Lim Fang Suan, who helps manage US$2 billion in Asia, excluding Japan, at SGY Asset Management Ltd. "In the meantime, they would have to suffer some of the consequences because of these start-up costs."
In the region, SingTel holds stakes in Advanced Info, Thailand's biggest cell phone company, Globe Telecom Inc, the second-largest mobile phone player in the Philippines, minority stakes in Bharti Group in India and a new Taiwan phone company.
Seven weeks back, SingTel won the bid for Cable & Wireless Optus Ltd. The transaction is valued at A$13 billion based on SingTel's recent stock price of S$1.69. The company hasn't won investors over--the stock fell 30 percent since it announced the bid for Australia's second-biggest phone company.
Overseas profit
There's an urgency for SingTel to boost overseas profit with about 300 new operators entering its home market, analysts said. In the year ended March, SingTel's foreign investments added S$349 million or 11 percent of pretax profit. Only Belgacom and Advanced Info contributed, while others such as Globe Telecom Inc in the Philippines and Bharti lost money.
More spending is required among new investments. Last week, SingTel poured US$200 million more into Bharti, bringing its investments in India's biggest private traditional phone company to US$650 million. The money is to be used to expand Bharti's cellular-phone network in the country.
"If they're going into these new start-up situations, they're going to expect some of these early losses," said Michael Millar, an analyst at SG Securities Singapore Pte. "It may hold them back but obviously the whole profile is going to change with Optus."
With the Optus acquisition, SingTel's sales would double based on adding up both companies' revenue. However, profit margins may dilute in the short term. Optus had A$369 million in profit on A$4.9 billion in sales in fiscal 2001, giving it a 9 percent margin. SingTel's margin for the year was nearly half on similar sales figures.
Some analysts say they would judge the company on its track record. Belgacom, which added S$250 million, or 72 percent of SingTel's overseas pretax income in fiscal 2001, had previously lost money. SingTel's one-eighth stake in Belgium's biggest company led to S$88 million in overseas losses five years ago.
Lower overseas income "is not necessarily good in the near term for their bottom line," said Tjandra Kartika, an analyst at GK Goh Research Pte in Singapore. "But if you look at what they've achieved in the past, they've managed their investments quite properly," he said.
SingTel shares have fallen about 24 percent in the past year, dragged down by its bid for Optus. The stock is still the third- best performer among Asia's 15 biggest phone companies, behind Australia's Telstra Corp and Optus.
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