A Cross-Border Investing Battle: Singapore and Malaysia’s Giant Telecommunication Companies

Singapore and Malaysia are two of the most developed countries in Southeast Asia. Given this, it is not surprising to see huge telecommunication companies reside in both countries. Let’s take a look at StarHub Ltd (SGX: CC3) and Maxis Berhad (KLSE: 6012.KL). They are key players in the telco market in Singapore and Malaysia, respectively.

There are some outward similarities here. Both companies operate mainly in their home countries and have been decent investments over the past five years. To the latter point, StarHub and Maxis’s shares have gained 81% (in Singapore dollar terms) and 55% (in ringgit terms), respectively, in that period after accounting for reinvested dividends.

But, which of the two telcos would shine if we are to compare their business fundamentals? Let’s see.

Comparing size

In term of size, Maxis is the winner here. The company has a market capitalization of RM46.4 billion (S$15.5 billion) while Starhub is “just” a S$6.1 billion company.

The Malaysia-based mobile services provider also generated revenue of RM8.6 billion (S$2.6 billion) and net profit of RM1.75 billion (S$0.58 billion) in 2015. StarHub, meanwhile, has revenue of S$2.44 billion and net profit of S$372 million in 2015.

It’s worth noting a difference in their businesses. In 2015,  StarHub’s mobile services made up half of its total revenue with the rest coming from other business segments ( such as pay TV and broadband internet, among others). On the other hand, Maxis generates the overwhelming majority of its revenue from providing mobile services.

Comparing profitability

In terms of profitability, there’s no clear winner. Although Maxis had a much stronger gross profit margin of 54% in 2015 as compared to StarHub’s 42%, Maxis had achieved a return on asset of just 10% while StarHub’s selfsame figure was 14%.

Both companies also have extremely leveraged balance sheets; Maxis and StarHub ended 2015 with a total debt to equity ratio of 235% and 366.5%, respectively. When it comes to their ability to service their debt, Maxis seems to be the weaker player here with its interest coverage ratio (EBIT/interest expense) of six as compared to StarHub’s 25.

Comparing valuations

Maxis is the more highly-valued telco of the two. At its current price of RM6.19, Maxis is trading at 27 times its last-12-month’s earnings. StarHub, on the other hand, has a price-to-earnings ratio of 16 at its present share price of S$3.42.

But, given that Maxis has a wider product range to expand into (the company’s revenue in other segments beyond mobile services are still tiny, as alluded to earlier) and a bigger domestic market to capture, perhaps the higher valuation is justifiable.

Foolish Summary

All told, there’s a tie here. While Maxis is the bigger telco of the two, StarHub has the cheaper valuation. Meanwhile, both companies are on somewhat equal footing on the profitability front. While what I’ve shared can be a useful starting point for deeper research, they should not be taken as the final word on the investing merits of both companies.

Which of the two do you think might be a better telco stock for investors? Share your thoughts with us in the comments section below!

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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 writer Stanley Lim does not own shares in any companies mentioned above.