Telco titans dial up profits in Q2 2024

In a striking display of resilience and growth, the telecommunications sector has outperformed the broader Philippine Stock Exchange index (PSEi) in the second quarter of 2024.

Telcos have registered an impressive aggregate core income growth of 11% for Q2 and 13% for the first half of 2024, surpassing the PSEi by 500 and 660 basis points respectively.

Leading the pack is Globe Telecom (GLO), which significantly exceeded expectations with core income expanding by 20% in Q2 and 21% in the first half of 2024. The company’s strong performance was driven by robust mobile data revenues, as Globe further widened its lead against its competitor Smart Communications in terms of mobile data traffic.

Globe and Mynt’s success

However, the true star of Globe’s show was its fintech arm, Mynt. The digital financial services provider more than doubled its earnings contribution to Globe, surging 120% year-on-year to PHP 2.1 billion. This impressive figure now represents 12% of Globe’s pre-tax income, highlighting the growing importance of fintech ventures in the telco landscape.

Converge ICT Solutions (CNVRG) also surprised analysts by beating estimates. The company’s net additions reached 67,000 in Q2, almost tripling year-on-year and capturing more than half of the total industry net additions for the quarter. While Converge’s profit grew by 30% in Q2 and 24% in the first half of 2024, it is worth noting that its operating income growth was more modest at 3.4% for Q2 and 2.3% for the first half.

PLDT Inc. (TEL) lagged behind its peers, with core profits remaining flat in Q2 and growing by only 6% for the first half of 2024, in line with expectations. The company continues to trail Globe in mobile data traffic and falls behind Converge in terms of net additions. However, PLDT maintains its appeal to income-focused investors with a sector-leading dividend yield of nearly 6%.

Need for reliable internet and mobile services

The telco sector’s strong performance is particularly noteworthy given the challenging economic environment. As more Filipinos embrace digital technologies for work, education, and entertainment, telcos are well-positioned to capitalize on the growing demand for reliable internet and mobile services.

The rise of fintech services, as exemplified by Mynt’s contribution to Globe’s bottom line, signals a new frontier for telecommunications companies. By diversifying into digital financial services, telcos are not only expanding their revenue streams but also deepening their integration into customers’ daily lives.

For investors, the telco sector presents an intriguing opportunity. With Globe leading in core earnings growth, Converge expanding its market share, and PLDT offering attractive dividends, each company provides a unique value proposition. As the digital economy continues to evolve, telecommunications companies are proving their ability to adapt and thrive, making them an essential component of a well-rounded investment portfolio.

As the sector moves forward, all eyes will be on how these telco titans navigate the rapidly changing technological landscape and capitalize on emerging opportunities.

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GERMAN DE LA PAZ III, CFA serves as an Equity Research Lead in the Investment Services Division of Metrobank Trust Banking Group. His coverage includes gaming, telcos, conglomerates, and utilities, as well as select offshore markets. Prior to joining the bank, he spent 9 years at Abacus Securities, starting as a Junior Investment Analyst and working his way up to Senior Investment Analyst. German holds a Bachelor’s degree in Humanities and a master’s degree in Industrial Economics from the University of Asia and the Pacific. Recently, he obtained his CFA charter and is currently pursuing additional industry certifications. In his free time, German enjoys playing sports, particularly basketball, and has a penchant for reading fiction books, watching suspenseful movies, and listening to music.

ARIZ MARCELINO is an Equity Research Analyst in the Investment Services Division of Metrobank Trust Banking Group. His local market coverage includes banks, consumer, and properties. Additionally, he monitors various sectors and investment themes in the offshore space. Previously, he was with the Markets Research Department, focusing on macroeconomic research and sector analysis. Ariz graduated from New Era University with a degree in Banking and Finance and has cleared the CFA Level 1 exam. He is a certified Financial Modelling and Valuation Analyst and a UITF Sales Person. Outside of work, he unwinds by watching popular sitcoms and anime series while enjoying a cup of hot matcha latte.