Companies that provide telecommunications services are generally viewed as stable and defensive investments. That’s because such companies tend to have consistent earnings and are quite resilient even during bad economic times.
Over the past decade, there have been telcos that have delivered solid returns. Let’s look at two of them in particular: Digi.com Bhd (KLSE: 6947.KL), which is listed on Bursa Malaysia (the stock market of Malaysia), and Singapore’s StarHub Ltd (SGX: CC3).
A brief introduction
Digi.com is one of the three largest telcos in Malaysia. It is a listed associate of the giant Norwegian telco, the Telenor Group.
Over the past 10 years, Digi.com has generated a total return of more than 730% return (in ringgit terms). The company has boosted its revenue from RM3.67 billion in 2006 to RM6.94 billion in 2015. Its net income grew even more aggressively from RM806 million to RM1.72 billion over the same period.
Meanwhile, Starhub is also one of the three largest telcos in Singapore. StarHub’s total return over the past decade stands at 188%. Its revenue has grown from S$1.8 billion in 2006 to S$2.44 billion in 2015. But, its net income has stayed roughly flat over the period, stepping up from S$360 million to just S$372.3 million.
The growth paths of the two companies have been quite different. Digi.com’s growth has predominately been powered by its mobile services. The company has also added broadband services in recent years.
Starhub, on the other hand, has a wider range of services. It offers fixed-line, mobile, broadband, and pay-TV services. But given the larger addressable market for Digi.com in Malaysia, its growth has been far more impressive than StarHub’s.
The future of the telecommunications sector might not be as predictable as before.
Given the rise of the internet, many of a telco’s traditional services can now be substituted by services found on the web or in apps. For instance, StarHub has been losing its Pay TV subscribers in recent quarters; the subscriber declines have more or less coincided with the introduction of Netflix’s online video streaming service in Singapore.
The way telcos address such issues would determine their future. For Digi.com, the company has already started building its way into the digital world, with its own mobile apps and cloud storage services as well as partnerships with other internet-based services such as Spotify and Google Play.
This shows that even a defensive and utility-like industry can still be subjected to disruptive changes. But, as long as companies within the industry are able to adapt and change, threats and risks can easily be turned into opportunities and growth.
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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.