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Is Singapore Telecommunications Limited, StarHub Ltd, And M1 Ltd Worth A Look By Investors Now?

The telco industry has enjoyed good stock market returns since 2010.

A recent article from bourse operator Singapore Exchange Limited (SGX: S68) gives us more details. Shares of Singapore Telecommunications Limited (SGX: Z74)StarHub Ltd (SGX: CC3), and M1 Ltd (SGX: B2F) have delivered double-digit total returns on average for each of the five calendar years from 2010 to 2014.

Lower stock prices

But in a break from the trend, the current year has not been a good one so far for the three telco stocks.

Collectively, the trio have averaged a decline of 9.2% from the end of 2014 to last Friday. The weakest stock among the three has been M1, which chipped in a negative return of 19.1%. On the other end, Singtel’s total return for the aforementioned period had been 0.5%. StarHub’s total return for the same period was around 9%.

All that being said, the three telcos have still achieved a total return of over 100% on average from the start of 2010 to last Friday (4 December 2015). Given their strong gains over the past few years, which of them might be worth a further look by investors?

Eeny meeny miny moe

The aforementioned article from Singapore Exchange had highlighted the valuation metrics that the telco trio carry:

“From end-2014 to the present [4 December 2015], the price-to-earnings (P/E) ratio has declined from 18.5 to 15.7 for Singtel, fallen from 19.3 to 15.9 for StarHub, and dropped from 19.1 to 14.4 for M1.”

There may be more points to consider.

As of last Friday, M1 is the smallest of the trio, with a market cap of around $2.6 billion. Singtel, on the other hand, weighs in at a hefty $60.9 billion. Its gigantic size dwarfs both M1 and StarHub, which had a market cap of $6.2 billion.

Singtel has its eyes set on the regional telecommunications industry, while StarHub and M1 are mainly focused within the shores of the Lion city. Each present a different risk and reward profile.

Singtel may find itself caught in the mega-cap multiplier obstacle, which is the idea that larger companies may find it harder to gain value. Said differently, Singtel could possibly find it increasingly harder to grow its top-line as its revenue expands.

Closer to home, the trio may also be finding themselves fighting with each other to eat from the same stagnant-in-size bowl as the mobile phone market and penetration rate in Singapore becomes saturated.

With all the above, investors can have a good starting point in thinking about the investing merits (or lack thereof) of the trio.

Meanwhile, the average dividend yield for the trio is hovering at around 5.7%. That’s an attractive yield and so, the telcos may merit some consideration by income investors too.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.