The Motley Fool

The Foolish Face-Off: Singapore Telecommunications Limited Versus StarHub Ltd

With more than 700 companies to choose from in Singapore’s stock market, it might be challenging to make the right choices.

In this article, I will compare two companies operating in the telecommunications industry, Singapore Telecommunications Limited (SGX: Z74) and StarHub Ltd (SGX: CC3), to determine which might give you more bang for your buck.

Introducing the Contenders

Singapore Telecommunications Limited, or Singtel for short, is the largest telco in Singapore with a 49% mobile market share. On top of its operations in Singapore, it has businesses in countries such as Australia, India, Indonesia, the Philippines, and Thailand. In all, Singtel boasts over 650 million mobile customers in 21 countries.

StarHub, on the other hand, operates only in Singapore and is our country’s second largest telecommunications company.

The table below shows the market capitalisation and revenue of the two firms. Market capitalisation is as of the closing share prices on 7 February 2019. Do note that all figures quoted in the tables that follow are for the fiscal year ended 31 March 2018 for Singtel and for the financial year ended 31 December 2017 for StarHub.

Round 1: Profitability

In the first round, we will analyse the profitability of the companies in terms of net margin and return on equity (ROE). The ROE figure reveals how efficient the management is in turning every dollar of shareholders’ capital into profits.Singtel has a higher net margin than StarHub but it losses to its peer in terms of ROE. StarHub’s ROE is extraordinarily high as it uses more leverage than Singtel does.

Conclusion: It’s a tie for this round.

Round 2: Growth

In the second round, we will compare the compounded annual growth rate of revenue, net profit and dividend of the two firms for the past five financial years. Companies that can grow their sales and profits steadily over time should also see their share price rise.Singtel has a superior revenue, net profit and ordinary dividend growth compared to StarHub.

Conclusion: Singtel is the clear winner here.

Round 3: Valuation

As Foolish investors, it is essential to focus on the value of the business and not on the daily changes in the stock price. We will now compare the price-to-earnings (PE) ratio, price-to-sales (PS) ratio and dividend yield of the two companies. The values below are as of the closing prices on 7 February 2019.StarHub has a better PS ratio and dividend yield. However, before you are won over by StarHub’s high dividend yield, you should determine if the dividend is sustainable. You can check out StarHub’s dividend guide here for its dividend sustainability. For a comparison of Singtel’s and StarHub’s dividends, you can head here.

Conclusion: StarHub edges out Singtel in this round.

The Foolish Bottom Line

Final Score: 1-1. There is no clear winner overall.

Those interested to invest in either Singtel or StarHub should investigate other important aspects of the telcos such as their balance sheet strength, free cash flow situation, future growth prospects, and so on. This simple exercise covers the basics and would help to take some heavy-lifting off your back though.

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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 Sudhan P doesn’t own shares in any companies mentioned.