The ASX mid-cap stock Tuas Ltd (ASX: TUA) looks excellent value to me at its current share price of just over $5, despite a hefty 150% rise over the past 12 months.
Tuas has been one of the strongest-performing S&P/ASX 300 Index (ASX: XKO) shares in the past year. Despite the huge gain, I believe that it's undervalued and can climb further in the next year.
The company operates as a Singaporean telecommunications business that is challenging the incumbents with a low-cost offering. According to its FY24 result release, the company's average revenue per user (ARPU) was just $9.68 (3.3% higher than FY23).
For a few reasons, I still think the ASX mid-cap stock is a buy.
Strong revenue growth
When considering businesses that have beaten the market over the long term, I think of companies that have delivered solid revenue growth for a long period of time.
We don't know how long Tuas will continue growing revenue at its current strong pace, but the telco is showing no sign of stopping.
In FY24, the company's active mobile services increased 28.6% to 1.05 million. Combined with the ARPU growth, Tuas' total revenue rose by 36% to $117.1 million.
The telco said part of its growth was being driven by an expanded plan mix that caters to a wide range of customers' needs.
The ASX mid-cap stock also investing in capital expenditure to support subscriber growth and expand its 5G coverage.
Tuas is now accepting 10Gbps broadband orders island-wide, serving up to 1.6 million residential homes. At the end of FY24, it had more than 4,000 broadband subscribers, with "strong consumer interest."
Rising profit margins
When looking for market-beating opportunities, I want to see that profit margins will likely increase. Profit growth, rather than revenue growth, typically influences the share price the most. And rising margins can accelerate profit growth.
FY24 saw operating profit (EBITDA) grow by 60%, compared to 36% growth of revenue. The EBITDA margin rose to 42% during FY24, up from 36% in FY23.
Telcos are scalable because growth means more subscribers spread the costs across more users.
In FY25, the business is targeting full-year positive net profit after tax (NPAT).
In the coming years, I believe the EBITDA and NPAT margins can significantly increase.
Expansion to new markets
Singapore is a great country to do business in, but there are only so many people in the Asian city-state. It recently reportedly passed the 6 million population mark. A growing population increases the number of potential customers for Tuas.
However, if it successfully expands internationally, the company could become much bigger in the coming years.
I'm already a Tuas shareholder due to its Singapore success, but I'm thinking about buying more of the ASX mid-cap stock because of its potential to grow in other markets.
The Wilson Asset Management investment team recently highlighted some of the countries that Tuas could enter:
Tuas is a significant disrupter to the telecommunications market, and we view that recent launch of broadband and enterprise services as increasing Tuas' total addressable market, and in time see its potential entry into Malaysia or Indonesia.
If it does enter Indonesia, with its population of more than 280 million, it could grow its subscriber base for many years to come.
