Owning Telstra Group Ltd (ASX: TLS) shares means gaining exposure to a leading telco with strong unit economics. Tuas Ltd (ASX: TUA) shares could also be an appealing option, given the company's high growth potential.
Tuas is a business focused on providing telecommunications products to customers in Singapore. It also has a small but growing presence in the Singapore broadband market.
While Tuas is a much smaller business than Telstra, it's in the rapid growth phase and may be able to deliver good shareholder returns for several different reasons, which I'll discuss below.
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Revenue
Tuas is rapidly growing its subscribers, making it a sizeable player in the Singapore market. It's attracting customers with its low-cost plans and the pace of its growth suggests there could be more pleasing progress in the foreseeable future.
The company's latest update from the business was for the first quarter of FY25. It reported its subscribers grew by 26.6% to 1.1 million. This is driving revenue at a significant pace. The first quarter showed year over year revenue growth of 33%.
I think that revenue growth is and will be a key driver of the company's future value. If it can keep growing revenue, then there's plenty of potential for future returns. I expect owners of Tuas shares will see significantly more revenue growth than owners of Telstra shares in the next few years.
It aims for continued mobile growth supported by "product uplifts and ongoing network quality upgrades" while also "targeting new mobile segments". As of the AGM update, it had more than 10,000 active fibre broadband subscribers, and it's looking to build on its broadband customer base.
Profit margin growth
One of the most appealing factors about the business is that it's growing profit margins. This suggests that profit could rise even faster than revenue. Investors normally value stocks, such as Telstra shares, based on how much profit they're making and what they can generate in the future.
For example, in the first quarter of FY25, the business generated operating profit (EBITDA) of $16.1 million, which was 46% higher than the first quarter of FY24.
Tuas grew its EBITDA margin from 41.1% in the first quarter of FY24 to 45% in the first quarter of FY25.
If the company keeps adding more subscribers, I think there's a lot of potential for its EBITDA margin and net profit after tax (NPAT) margin to climb materially higher from today.
Potential to emulate Telstra shares?
I'm not expecting Tuas to become the leading player in Singapore, though its market share could keep climbing.
What I'm most excited about is the potential for the business to expand into other nearby Asian countries that have much larger populations compared to Singapore. Markets like Malaysia and Indonesia could mean Tuas unlocks a significantly larger total addressable market.
If Tuas does expand to more countries than just Singapore, it could have the potential to eventually get close to the number of subscribers that Telstra has.
Due to capital growth, Tuas shares have already outperformed Telstra shares. In the last 12 months, Tuas shares have gone up more than 100%. I think the company has the potential to keep rising over the long term, though I'm not expecting the next 12 months to be as strong.
