I have gone through some of the REITs with the Highest Dividends as well as some of the more resilient stock picks from the Oil/Gas & Shipping Industry now lets take a look at the more defensive telecommunication stocks available on the Singapore Stock Exchange.

For the quarter ended 31 March 2016, Singapore’s largest telco Singtel (SGX:Z74) registered flat year-on-year growth in net profit, while second-ranked StarHub (SGX:CC3) Ltd saw a 26% year-on-year jump. M1 (SGX:B2F), the smallest operator in the city-state, posted a 6.9% YoY decline in earnings.

For the current financial year, Singtel expects low single-digit growth in the Group’s consolidated revenue and EBITDA, excluding acquisitions, while StarHub has forecast a low single-digit increase in its service revenue. M1 estimates it will turn in a stable performance for the current year.

Singapore’s three telcos have a combined market capitalisation of about S$70 billion, with Singtel and StarHub both constituent stocks in the Straits Times Index. These three stocks averaged a YTD and five-year total return of -2.8% and +51.2% respectively. They also maintain an average dividend yield of 5.6%.

Name Code Total Return YTD % P/E P/B Dvd Ind Yld %
Singtel Z74 5.4 15.8 2.5 4.6
StarHub CC3 -3.6 15.2 21.2 5.8
M1 B2F -10.3 12.6 5 6.5
Average -2.8 5.6

Source: SGX (Data as at 23 May 2016)

Based on the first quarter results of the three telcos, it seems that Starhub and M1 are experiencing tepid growth with its core business, specifically its mobile service segment, which relies heavily on the Singapore market. Singtel on the other hand has contributions from its businesses in Australia, India, Indonesia and Thailand.

 Starhub experienced lower revenues for their paid tv and mobile services whilst seeing improvements in revenue for their enterprise and broadband services. (Source: Starhub 2016 Q1 Results)

 Similarly for M1, it sees growth in its fixed services (fibre broadband) and lower revenues on Mobile services (Roaming/Int. Calls), despite a 1% increase in its market share. (Source: M1 2016 Q1 Results)

 Singtel reported flat net profit despite a slight dip in revenues Y-O-Y. (Source: Singtel 2016 Results)

Summary

My take away from this is that the mobile service market is heavily saturated and growth will largely have plateaued (single digit growths). In the worse case scenario; the entrance of a 4th Telco and another price war, both M1 and Starhub would likely be most affected. Singtel, on the other hand, would likely be the least affected due to its diverse overseas customer base. 

Considering the above points, with an average 5.6% yield, the local telcos still provide an attractive and stable investment option for investors looking to put their money into a more familiar stock choice with a relatively inelastic business - afterall, in this day and age, how many of us can live without our 4G and smart phones ? 

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