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Fundamental View
AS OF 16 Nov 2022Globe’s 9M22 revenues and EBITDA grew modestly YoY as sustained subscriber demand offset stiff price competition. We anticipate full-year FY22 earnings to trend in line with management’s guidance of single-digit YoY growth.
Mobile ARPU remains dampened from stiff price competition, exacerbated by aggressively priced offerings from new entrant DITO. We believe material ARPU recovery is unlikely over the next 4 quarters.
While its leverage metrics remain stretched due to sizable capex, we anticipate improvements ahead in view of: 1) a recently concluded PHP 17 bn equity rights issue and the impending conclusion of a PHP 91 bn tower sale and leaseback by end-1Q23 that would enlarge Globe’s capex funding and deleveraging buffer; 2) Management believes capex should have peaked in FY22.
Business Description
AS OF 16 Nov 2022- Globe is a leading telecom operator in the Philippines, competing alongside its main rival PLDT in a duopoly setting.
- Globe provides 2G/3G/4G mobile, fixed-line, broadband, enterprise data, and other digital services to retail and corporate customers.
- Globe operates through 2 main business segments – “Mobile Services” and “Fixed Line and Home Broadband Services”.
- Its “Mobile Services” segment offers mobile voice, mobile SMS and mobile data services to retail customers in the Philippines. These services are marketed under the “Globe Postpaid”, “Globe Prepaid” and “TM” brands.
- Its “Fixed Line and Home Broadband Services” segment provides fixed line voice, corporate data and home broadband services to retail and corporate customers in the Philippines.
- Globe commercially launched 5G services on a small-scale basis in Jun-2019. It currently maintains 5G coverage of 96% of the National Capital Region, with over 2,000 5G sites nationwide.
- Globe maintains dominant market shares in the mobile data, voice and SMS space (FY21 revenue market share [RMS] of 52% vs PLDT 47%) and home broadband space (FY21 RMS of 31% vs PLDT 45%). It loses out heavily to PLDT in the fixed line voice space (FY21 RMS of 10% vs PLDT 90%).
- Globe is largely owned by two established corporate groups – Ayala Corporation (~47 stake) and Singtel (~43% stake).
Risk & Catalysts
AS OF 16 Nov 2022Mobile ARPU remains dampened from stiff price competition, exacerbated by aggressively priced offerings from new entrant DITO. We believe material ARPU recovery is unlikely over the next 4 quarters.
Aggressive expansion by new entrant DITO over the next 2-4 years could chew away at Globe’s market share.
Globe incurs significant capex that has pressurized its leverage metrics and free cash flows, though we believe the impact is cushioned by its recently concluded PHP 17 bn equity rights issue and the impending conclusion of its PHP 91 bn tower sale and leaseback by end-1Q23.
Consistent dividend payouts could worsen Globe’s already negative free cash flows.
Key Metrics
AS OF 16 Nov 2022| PHP bn | LTM 9M22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| Debt to Book Cap | 71.0% | 69.4% | 67.2% | 63.2% | 67.0% |
| Net Debt to Book Cap | 67.7% | 63.0% | 59.4% | 59.4% | 56.6% |
| Debt/Total Equity | 244.7% | 227.2% | 204.5% | 171.7% | 203.4% |
| Debt/Total Assets | 59.5% | 56.7% | 49.8% | 45.9% | 49.7% |
| Gross Leverage | 3.8x | 3.3x | 2.2x | 1.8x | 2.2x |
| Net Leverage | 3.7x | 3.0x | 1.9x | 1.6x | 1.8x |
| Interest Coverage | 6.4x | 7.6x | 9.3x | 9.9x | 9.8x |
| EBITDA Margin | 47.5% | 46.9% | 48.7% | 47.8% | 45.7% |
CreditSights View
AS OF 16 Nov 2022We have an Market perform recommendation on Globe Telecom. Globe’s Jul-30 trades 15 bp tighter than PLDT’s Jan-31, which we think is fair given Globe’s stronger improving credit story (just-concluded PHP 19 bn equity rights issue and impending closure of PHP 91 bn tower sale by end-1H23) and PLDT’s capex overrun uncertainties that outweigh Globe’s currently poorer net leverage and unrated credit status. While we acknowledge the risks of rising inflation and mounting competitive pressures from new entrant DITO, we think this is mitigated by Globe’s leading mobile market position and DITO’s debt woes that could impede its rapid expansion.
Recommendation Reviewed: February 14, 2023
Recommendation Changed: December 19, 2022
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