The telco sector in Singapore has been through a competitive business landscape over the past few years. The incumbents – Singtel, StarHub and M1, have found their profits threatened by new players such as MyRepublic and Circles.Life, forcing them to slash prices in order to retain their market shares.
Consumers are naturally happy to have more choices on which telco to choose but are investors better off? In this edition of 4 Stocks This Week, we look at 4 main players in the telco industry to find out how they have been performing.
Singapore Telecommunications Limited (SGX: Z74)
It was reported earlier this week that Singtel CEO Chua Sock Koong had her salary nearly halved, taking home ‘only’ $3.5 million for the last financial year, as compared to $6.1 million the year before. This coincide with Singtel reporting a net profit of $3.1 billion for the last financial year, its lowest annual profit in 16 years.
Based on its current net profit and share price, the company is trading at a price-to-earning (P/E) ratio of 18.5, which is at a premium compared to its competitors.
It’s worth noting that having stumbled to a low of $2.88 at the start of the year, Singtel has bounced back and is currently trading at $3.50. This gives investors a year-to-date return of 17.4%.
Also, Singtel recently shared that it is considering the option to “unlock value” from its digital business while also suggesting that it could be exploring the feasibility of looking to apply for a digital banking license. If either of this materialises, it would be worth relooking Singtel once again.
StarHub Ltd (SGX: CC3)
From a market capitalisation standpoint, StarHub is more than 20 times smaller than the juggernaut Singtel. This means that its margin of safety is a lot lesser and it needs to be well prepared for how the telco sector in Singapore develops over the next few years.
An SGX market update writeup earlier this week reported that for the first quarter ended 31 March 2019, StarHub reported a net profit after tax of S$49.3 million, down 23.3% on a year-on-year basis due to lower revenues from its mobile and pay TV operations as well as higher operational expenditure from its cyber security joint venture.
Since the start of the year, total return for the company is -8.9%. It’s currently trading at $1.54, down from $1.73 since the start of the year. Return over the past 3 years is -47.8%. Based on current price, the company is currently trading at a P/E of 14.5.
NetLink NBN Trust (SGX: CJLU)
NetLink is an interesting business as it builds, own and operate the passive fibre network infrastructure for homes and non-residential premises, and non-building address points (NBAP) in Singapore. This is the same fibre network which the other telco providers (i.e. Singtel, StarHub, M1, etc) use to provide broadband access to you. It has approximately 1.3 million residential end-user connections and more than 45,000 non-residential end-user connections.
NetLink generates a large part of its revenue from residential connections. It’s worth pointing out that NetLink is essentially a monopoly in the residential fibre network business. Its revenue source primarily comes from one-off installation and a monthly recurring connection charge.
Since its IPO in July 2017 at $0.81, share price for NetLink has remained relatively stable (to no one’s surprise). It’s dividend yield is currently at 5.5%.
We are going out on a limb here by including M1, which was delisted earlier this year.
The company, which was privatised after a buy-out offer of $2.06 continues to be scrappy after recently announcing its streamline mobile plan into just two products – 1) a contract-free, SIM only plan and 2) a contract plan with device. Both plans come with free-flow weekend data, free caller ID, unlimited free talk calls to 3 M1 numbers and unlimited music streaming on Spotify.
If you did not already realised, both the M1 SIM Only plan and its contract plan with device offer consumers a very compelling deal. You can read more on this in our best SIM-Only plans in Singapore article.
Our point is that while the company have been privatised, this could even allow them the leeway to be more innovative than they were before, without having to worry about shareholders desire for higher profits and dividends. So keep a lookout for what M1 does, even if we are not able to invest in it.
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4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.