Eye on Earnings: Demand for connection supports telcos

Philippine telecommunications companies could see their average revenue per user (ARPU) rise amid higher oil and transport costs potentially shifting more people to work from home.

This could add a tailwind for telcos, which already benefit from stable demand for connectivity despite the energy crisis.

This also follows a resurgence in gains from the mobile data segment in the fourth quarter of last year, particularly for Globe Telecom Inc.

Globe and PLDT Inc.’s capital expenditure (CAPEX) is expected to be lower this year, as they position more defensively. Meanwhile, Converge ICT Solutions Inc. will carry over CAPEX from the previous year to fuel growth in their enterprise segment.

Converge

• The company has maintained revenue gains from a stable ARPU and robust enterprise growth.
• Management is also guiding earnings growth from the enterprise segment and ARPU stability.
• While the company’s net subscriber additions softened in the fourth quarter of last year, improvements may be expected once customer retention and lack of manpower concerns are fully addressed.

Globe

• The company’s mobile segment improved on the back of stronger customer retention and network reliability improvements.
• While the contribution of its financial technology arm, Mynt, declined due to an accounting change, Globe expects favorable results for it this year. There is still no confirmation of its e-wallet GCash’s listing on the stock exchange.
• Globe’s resilient mobile earnings and a softer CAPEX should allow it to maintain a positive cash flow this year and keep the company’s defensive story intact.

PLDT

• The company has the highest broadband ARPU despite a dip due to promotions of cheaper entry-level offers.
• It attained positive free cash flow last year, which it seeks to maintain by lowering CAPEX this year. This would provide a healthier balance sheet, adding flexibility in paying debt and potentially raising dividends higher than its already attractive yield.

With the steady demand of people staying connected providing stability, Metrobank Trust Banking Group’s call is to stay overweight across all names.

Investors may want to consider Globe and PLDT for their high dividends and stable earnings from diversified business segments. Meanwhile, investors may look at Converge for a more growth-centric name focused particularly on broadband and enterprise growth.

The Metro High Dividend Yield Unit Paying Fund holds a strategic key positioning in the telcos sector given its elevated dividend yields. On top of this, the fund aims to provide investors with stability and resilience in the face of market headwinds and volatility – a goal that is especially relevant today.

WILLIE KRISTOFFERSON YU is an Equity Research Analyst at Metrobank’s Trust Banking Group. His coverage includes utilities, telcos, mining, and gaming, as well as select offshore markets. He holds a Bachelor’s degree in Management Engineering from Ateneo de Manila University. He is currently pursuing industry certifications to better immerse himself in Financial Markets. Outside of work, he enjoys playing the piano and golf.

CHARLES RANDY LUMHOD is an Equity Research Analyst of Metrobank’s Trust Banking Group. His coverage includes shipping, properties, REITS, and consumers, as well as select offshore markets. He holds a Bachelor’s degree, cum laude, in Business Administration major in Financial Management from the University of Santo Tomas. He is also a Certified Treasury Professional and Certified UITF Salesperson and is currently pursuing other industry certifications. Outside work, he stays active by running and going to the gym.