Online communication is increasingly becoming indispensable in sectors such as education, healthcare, and IT. The rising demand for high-speed connectivity, essential for facilitating data transfer and a myriad of public and personal tasks, is driving the surge in the telecommunications market.
So, quality telecom stock Internet Initiative Japan Inc. (IIJIY) could be a solid buy. However, while investors could opt to await a more favorable entry point for Chunghwa Telecom Co., Ltd (CHT), it could be prudent to steer clear of TELUS Corporation (TU) at this time.
The telecommunications sector is pivotal in establishing and maintaining the infrastructure that facilitates our interconnected world and sustains seamless communication. It not only connects urban and rural areas digitally but also promotes transparency in governance via e-governance initiatives.
Moreover, the sector's expansion is propelled by increased allocations towards 5G infrastructure, a widening pool of mobile users, escalating demand for high-speed data access, and a firm shift towards advanced technologies.
This growth underscores the continuous evolution of communication networks, highlighting the ongoing technological strides made in recent decades.
The global telecom services sector is expected to grow at a CAGR of 6.2% until 2030.
On top of it, as per the Global Telecom Outlook by PwC, telecommunications companies are anticipated to allocate $342 billion for network investments by 2027. During this period, global data usage across telecom networks is expected to surge almost threefold, soaring from 3.4 million petabytes (PB) in 2022 to 9.7 million PB in 2027.
Considering these conducive trends, let's take a look at the fundamentals of the Telecom - Foreign stocks.
Stock to Buy:
Internet Initiative Japan Inc. (IIJIY)
Headquartered in Tokyo, Japan, IIJIY provides Internet connectivity, WAN, outsourcing, systems integration, and network-related equipment sales services in Japan. It operates through two segments, Network Services and Systems Integration Business; and ATM Operation Business.
IIJIY’s trailing-12-month net income margin of 7.06% is 88.7% higher than the 3.74% industry average. Its trailing-12-month ROTA of 7.22% is 381.4% higher than the industry average of 1.50%.
The company distributes an annual dividend of $0.48, which yields 1.22% on the current market price, higher than the four-year average dividend yield of 1%.
IIJIY’s total revenues for the fiscal first quarter that ended December 31, 2023, increased 8.5% year-over-year to ¥201.10 billion ($1.34 billion). Its total gross profit rose 10.3% year-over-year to ¥45.95 billion ($305.51 million). Its net profit attributable to owners of the parent came in at ¥12.98 billion ($86.30 million).
Analysts expect IIJIY’s revenues to rise 20.3% year-over-year to $1.86 billion in the fiscal year ending March 2024.
Over the past six months, the stock has soared 14.9% to close the last trading session at $38.86.
IIJIY’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Stability and a B for Quality. Within the A-rated Telecom – Foreign industry, it is ranked #10 out of 44 stocks.
In addition to the POWR Ratings stated above, one can access JJIY’s Growth, Value, Momentum, Sentiment and Quality ratings by clicking here.
Stock to Hold:
Chunghwa Telecom Co., Ltd (CHT)
Headquartered in Taipei City, Taiwan, CHT is a telecommunication services provider that operates through five segments: Domestic Fixed Communications Business; Mobile Communications Business; Internet Business; International Fixed Communications Business; and Other.
CHT’s trailing-12-month gross profit margin of 21.05% is 57.5% lower than the industry average of 49.53%. However, its trailing-12-month net income margin of 16.54% is 341.8% higher than the industry average of 3.74%.
In its fiscal fourth quarter, ended December 31, 2023, CHT’s total revenue increased 4% year-over-year to NT$61.86 billion ($2.15 billion). However, its total operating costs and expenses increased 4.4% from the year-ago quarter to NT$50.77 billion ($398.33 million). Its EBITDA decreased 2.2% year-over-year to NT$20.38 billion ($748.57 million).
CHT’s revenue is expected to rise 1.7% year-over-year to $7.29 billion in the fiscal year 2024, while its EPS is expected to stand at $1.59.
While the stock has soared 5.6% over the past six months, it has declined 4.8% over the past nine months, closing the last trading session at $38.65.
CHT’s POWR Ratings reflect this promising outlook. The company has an overall rating of C, which translates to Neutral in our proprietary rating system.
CHT has a C grade Momentum. Within the same industry, it is ranked #22.
To see CHT’s additional Growth, Value, Stability, Sentiment, and Quality ratings, click here.
Stock to Sell:
TELUS Corporation (TU)
Headquartered in Vancouver, Canada, TU provides a range of telecommunications and information technology products and services in Canada, together with its subsidiaries. It operates through Technology Solutions and Digitally-Led Customer Experiences segments.
TU’s trailing-12-month asset turnover ratio of 0.36x is 26.1% lower than the industry average of 0.49x. Its trailing-12-month gross profit margin of 35.14% is 29.1% lower than the 49.53% industry average.
During the fiscal fourth quarter that ended December 31, 2023, TU generated operating revenues of CAD5.16 billion ($3.83 billion). Its total operating expenses rose 3.3% year-over-year to CAD4.53 billion ($3.36 billion). Its adjusted EPS remained flat at CAD0.24, and its adjusted net income amounted to CAD341 million ($252.95 million).
Street expects TU’s EPS and revenue to amount to $0.78 and $15.40 billion in the fiscal year ending December 2024.
The stock has declined 10.8% over the past nine months, closing the last trading session at $18.05.
TU’s POWR Ratings reflects its bleak outlook. The stock has an overall D rating, translating to a Sell in our proprietary rating system.
It has a D for Value, Sentiment, and Quality. It ranks #44 in the same industry.
Click here to access TU’s Growth, Momentum, and Stability ratings.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
CHT shares were trading at $38.54 per share on Friday afternoon, down $0.11 (-0.28%). Year-to-date, CHT has declined -1.36%, versus a 6.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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