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Sub-sector: Telecommunications
Globe Telecom
- Sector: TechnologyTechnology Media and Telecommunications
- Sub Sector: Telecommunications
- Country: Philippines
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Fundamental View
AS OF 09 May 2023Globe’s 1Q23 revenues and EBITDA grew modestly YoY as strong mobile and enterprise data revenues outweighed poorer broadband revenues. Credit metrics worsened slightly to 4.0x/3.8x.
We see a challenging FY23 for Globe in view of high domestic inflation and strong competition, mitigated by Globe’s leading mobile market position and new entrant DITO’s tight liquidity. We expect low-to-mid single digit % YoY revenue growth in FY23.
We anticipate a mild improvement in Globe’s FY23 credit metrics in view of: 1) Residual PHP 52 bn of tower sales that should conclude by end-FY23 and enlarge Globe’s capex funding and deleveraging buffer; 2) Reduced FY23E capex that is ~22% YoY lower than FY22 actual capex spending.
Business Description
AS OF 09 May 2023- 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 09 May 2023We see a challenging FY23 for Globe in view of high domestic inflation and strong competition, mitigated by Globe’s leading mobile market position and new entrant DITO’s tight liquidity. We expect low-to-mid single digit % YoY revenue growth in FY23.
Aggressive expansion by new entrant DITO over the next 2-4 years could chew away at Globe’s market share and restrain recoveries in average revenues per user (ARPU).
Globe incurs significant capex that has pressurized its leverage metrics and free cash flows. That said, management believes capex has peaked and guided towards lower FY23E capex (~22% YoY lower than FY22 actual capex spending).
Consistent dividend payouts could worsen Globe’s already negative free cash flows.
Key Metrics
AS OF 09 May 2023| PHP bn | FY20 | FY21 | FY22 | 1Q22 | 1Q23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 67.2% | 69.4% | 67.5% | 68.5% | 67.6% |
| Net Debt to Book Cap | 59.4% | 63.0% | 63.7% | 64.8% | 64.3% |
| Debt/Total Equity | 204.5% | 227.2% | 208.1% | 217.7% | 208.9% |
| Debt/Total Assets | 49.8% | 56.7% | 57.1% | 56.2% | 56.3% |
| Gross Leverage | 2.2x | 3.3x | 3.9x | 3.4x | 4.0x |
| Net Leverage | 1.9x | 3.0x | 3.7x | 3.2x | 3.8x |
| Interest Coverage | 9.3x | 7.6x | 5.9x | 7.2x | 5.5x |
| EBITDA Margin | 48.7% | 46.7% | 46.7% | 47.5% | 48.2% |
CreditSights View
AS OF 09 May 2023We have a Market perform recommendation on Globe Telecom. Globe’s Jul-2030 bond trades 49 bp tighter than PLDT’s Jan-2031 bond. We think Globe should trade 25-30 bp wider as its unrated credit status and poorer net leverage outweigh its lower FY23E capex and lower corporate governance uncertainties. 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. Further ~PHP 56 bn of tower sales closures and lower capex could support Globe’s credit profile. We anticipate Globe’s credit metrics to improve mildly in the next 3 quarters.
Recommendation Reviewed: May 09, 2023
Recommendation Changed: December 19, 2022
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
How may we help you?
Search topics about wealth insights and investments.PLDT
- Sector: Media and TelecommunicationsTechnologyTechnology Media and Telecommunications
- Sub Sector: Telecommunications
- Country: Philippines
This article is exclusive to Metrobank preferred clients.
Log in your Wealth Manager account to get access to investment insights, bank views, and webinar videos.
Fundamental View
AS OF 09 May 2023PLDT’s 1Q23 results were solid. Earnings growth was buoyed by sustained broadband and enterprise data demand that outweighed strong mobile competition and higher fuel/typhoon-related expenses. Credit metrics improved slightly to 2.8x/2.5x.
We anticipate its FY23 earnings to grow modestly YoY as strong broadband and enterprise data revenue growth outweigh strong mobile competition and hot domestic inflation. We take comfort in PLDT’s leading market position in the higher-margin broadband space.
While its capex overrun should keep FY23 capex elevated, we draw mild comfort that it was likely not due to fraud but rather a management misstep. The impact is also mitigated by PLDT’s robust operating cash flows and a further PHP 33 bn of tower sales closures by end-2023.
Business Description
AS OF 09 May 2023- 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 09 May 2023Aggressive 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. Such uncertainties have eased since.
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 09 May 2023| PHP bn | FY20 | FY21 | FY22 | 1Q22 | 1Q23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 67.0% | 68.3% | 71.9% | 68.6% | 72.2% |
| Net Debt to Book Cap | 55.9% | 62.3% | 65.7% | 62.2% | 65.7% |
| Debt/Total Equity | 202.9% | 215.2% | 256.2% | 218.7% | 260.3% |
| Debt/Total Assets | 42.2% | 43.8% | 46.8% | 43.9% | 46.4% |
| Gross Leverage | 2.7x | 2.8x | 2.9x | 2.9x | 2.8x |
| Net Leverage | 2.2x | 2.6x | 2.7x | 2.6x | 2.5x |
| Interest Coverage | 7.8x | 8.2x | 7.3x | 7.8x | 7.4x |
| EBITDA Margin | 50.4% | 50.7% | 48.4% | 43.7% | 48.6% |
CreditSights View
AS OF 09 May 2023We have a Market perform recommendation on PLDT. PLDT’s Jan-2031 bond trades 38 bp tighter than Globe’s Jul-2030 bond. We think PLDT should trade 25-30 bp tighter than Globe as PLDT’s IG rated status and stronger net leverage could outweigh its mild corporate governance flaws and higher capex. The concluded capex overrun audit helps to ease corporate governance fears and aid free cash flow recovery. Further clarity on US SCA lawsuits and management replacements are welcome too. Residual PHP 33 bn of tower sales would provide greater financial flexibility for capex funding and some mild deleveraging. 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: May 09, 2023
Recommendation Changed: May 31, 2022
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India