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Fundamental View
AS OF 01 Apr 2024PLDT’s FY23 results were stable as expected, buoyed by sustained broadband and enterprise data demand; Credit metrics were stable at 2.9x/2.8x. We expect PLDT’s FY24 credit metrics to improve slightly.
Residual tower sales closures of ~PHP 15.3 bn through FY24 could aid liquidity.
While the spillover of a PHP 33 bn capex overrun to FY23-FY25 could weigh on free cash flows, we draw mild comfort that it was likely not due to fraud but rather a management misstep.
Business Description
AS OF 01 Apr 2024- PLDT is a leading telecom operator in the Philippines, competing alongside its main rival Globe Telecom in a predominant duopoly.
- PLDT provides 2G/3G/4G mobile, fixed-line, broadband, enterprise data, and other digital services to retail and corporate customers.
- PLDT operates through 2 main business segments – “Wireless Services” and “Fixed Line Services”.
- Its “Wireless” segment offers mobile voice, mobile SMS, mobile data and mobile broadband services to retail customers in the Philippines. These services are marketed under the “Smart Postpaid”, “Smart Prepaid”, "Sun Postpaid" and “TNT Prepaid” brands.
- Its “Fixed Line Services” segment provides fixed line voice, corporate data and home broadband services to retail and corporate customers in the Philippines.
- PLDT commercially launched 5G services on a small-scale basis in Jul-2020. It currently has over 3,000 5G sites nationwide.
- PLDT maintains dominant market shares in the mobile data, voice and SMS space (FY21 revenue market share [RMS] of 47% vs Globe 52%), the fixed line voice space (FY21 RMS of 90% vs Globe 10%), and the home broadband space (FY21 RMS of 45% vs Globe 31%).
- PLDT is backed by three established corporate groups, namely First Pacific (~15% stake), NTT Corporation (~12% stake) and JG Summit Holdings (~7% stake).
Risk & Catalysts
AS OF 01 Apr 2024Aggressive expansion by new entrant DITO over the next 2-4 years could chew away at PLDT’s market share and restrain recoveries in average revenues per user (ARPU).
PLDT incurs significant capex that has restrained improvements in its leverage metrics and free cash flows. This is worsened by a recent capex overrun that has induced mild corporate governance uncertainties (though these have eased in recent months).
Consistently high dividend payouts could worsen PLDT’s already negative free cash flows.
PLDT is exposed to $/PHP depreciation risks ($300 mn 2050 bond is fully unhedged).
Key Metrics
AS OF 01 Apr 2024PHP bn | FY19 | FY20 | FY21 | FY22 | FY23 |
---|---|---|---|---|---|
Debt to Book Cap | 64.2% | 67.0% | 68.3% | 71.9% | 73.3% |
Net Debt to Book Cap | 56.7% | 55.9% | 62.3% | 65.7% | 69.3% |
Debt/Total Equity | 179.6% | 202.9% | 215.2% | 256.2% | 273.9% |
Debt/Total Assets | 39.8% | 42.2% | 43.8% | 46.8% | 49.6% |
Gross Leverage | 2.5x | 2.7x | 2.8x | 2.9x | 2.9x |
Net Leverage | 2.2x | 2.2x | 2.6x | 2.7x | 2.8x |
Interest Coverage | 8.4x | 7.8x | 8.1x | 7.3x | 6.5x |
EBITDA Margin | 49.6% | 50.4% | 50.7% | 48.6% | 49.1% |
CreditSights View
AS OF 01 Apr 2024We have a Market perform recommendation on PLDT. PLDT’s Jan-2031 bond trades 19 bp tighter than Globe’s Jul-2030 bond. We think PLDT should trade 45-50 bp tighter than Globe as PLDT’s IG rated status, stronger net leverage, and stronger free cash flows could outweigh its arguably weaker shareholder backing. We remain comfortable with PLDT’s sturdy credit profile aided by a resilient broadband business and PHP 98.3 bn of tower sales (PHP 15.3 bn to close in FY24). The concluded capex overrun audit and swift management replacements also help to meaningfully ease corporate governance fears. While we acknowledge the risks of hot domestic inflation and strong competition, we think the impact is negated by its leading broadband market position and DITO’s debt woes.
Recommendation Reviewed: April 01, 2024
Recommendation Changed: May 31, 2022