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PLDT
- Sector: Media and TelecommunicationsTechnologyTechnology Media and Telecommunications
- Sub Sector: Telecommunications
- Country: Philippines
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Fundamental View
AS OF 10 May 2024PLDT’s FY23 and 1Q24 results were stable as expected; we see a modestly improving FY24 credit outlook aided by resilient EBITDA growth and residual PHP 15 bn of tower sales, which could offset persisting high capex and dividends.
A potential stake sale of the data center business could drive further deleveraging.
While the spillover of a PHP 33 bn capex overrun to FY24-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 10 May 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 10 May 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 Metric
AS OF 10 May 2024| PHP bn | FY21 | FY22 | FY23 | 1Q23 | 1Q24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 68.3% | 71.9% | 73.3% | 72.2% | 74.1% |
| Net Debt to Book Cap | 62.3% | 65.7% | 69.3% | 65.7% | 70.7% |
| Debt/Total Equity | 215.2% | 256.2% | 273.9% | 260.3% | 286.6% |
| Debt/Total Assets | 43.8% | 46.8% | 49.6% | 46.4% | 49.0% |
| Gross Leverage | 2.8x | 2.9x | 2.9x | 2.8x | 2.9x |
| Net Leverage | 2.6x | 2.7x | 2.8x | 2.5x | 2.7x |
| Interest Coverage | 8.1x | 7.4x | 6.5x | 7.4x | 6.4x |
| EBITDA Margin | 50.7% | 48.7% | 49.1% | 48.6% | 52.0% |
CreditSight View Comment
AS OF 18 Jun 2024We have a Market perform recommendation on PLDT. PLDT’s Jan-2031 trades 33 bp tighter than Globe’s Jul-2030, in line with our fair spread differential of 30-35 bp tighter as PLDT’s IG rated status, stronger net leverage, stronger FCFs, and greater exposure to the stabler broadband sector could offset its weaker shareholder backing. We do not like the Jun-2050 that trades just 9 bp wider than the Jul-2030. We are comfortable with PLDT’s sturdy credit profile aided by a resilient broadband business and tower sales (PHP 15 bn to close in FY24), cushioning high capex and dividends. Corporate governance fears have also eased post its capex overrun in end-2022. We are watchful of strong competition in the mobile space due to DITO’s ramp up.
Recommendation Reviewed: June 18, 2024
Recommendation Changed: May 31, 2022
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