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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 08 Aug 2024Globe’s FY23 earnings and 1H24 earnings grew modestly, but leverage metrics have not yet improved due to a weak broadband business, sticky dividends, and still-historically high capex (even if lower YoY).
We believe credit metrics may improve only slightly in FY24 as modest EBITDA growth, lower YoY capex, and PHP 11 bn of residual tower sales closures through 2H24 are negated by potentially higher dividend payouts.
While we acknowledge the competitive pressures by new entrant DITO, we think the impact is mitigated by Globe’s still-dominant mobile market position and DITO’s slowing expansion (given its weak financials and the costly capex involved).
Weakness in the broadband business could decelerate and improve from 3Q24 onwards.
Business Description
AS OF 08 Aug 2024- 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 (FY22 revenue market share [RMS] of 52% vs PLDT 40%), but loses out to PLDT in the home broadband space (FY22 RMS of 28%-30% vs PLDT 48%-50%).
- Globe is largely owned by two established corporate groups – Ayala Corporation (~47 stake) and Singtel (~43% stake).
Risk & Catalysts
AS OF 08 Aug 2024Globe faces mounting competitive pressures from new mobile entrant DITO and incumbent broadband competitor PLDT.
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, capex should meaningfully decline ahead in line with management guidance (FY24E capex ~22% YoY lower than FY23A capex).
Consistent dividend payouts could worsen Globe’s already negative free cash flows; Globe recently raised the upper end of its dividend policy from 75% to 90% of net income, suggesting an increased skew to shareholder-friendly actions.
Key Metric
AS OF 08 Aug 2024| PHP bn | FY21 | FY22 | FY23 | 1H23 | 1H24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 69.4% | 67.5% | 69.7% | 69.1% | 69.5% |
| Net Debt to Book Cap | 63.0% | 63.7% | 66.6% | 64.2% | 66.1% |
| Debt/Total Equity | 227.2% | 208.1% | 230.5% | 224.0% | 227.6% |
| Debt/Total Assets | 56.7% | 57.1% | 60.3% | 58.2% | 60.3% |
| Gross Leverage | 3.3x | 3.9x | 4.3x | 4.4x | 4.3x |
| Net Leverage | 3.0x | 3.7x | 4.1x | 4.0x | 4.1x |
| Interest Coverage | 7.6x | 5.9x | 4.6x | 5.0x | 4.4x |
| EBITDA Margin | 46.7% | 46.7% | 47.7% | 47.7% | 49.9% |
CreditSight View Comment
AS OF 08 Aug 2024We upgrade Globe to Market perform from Underperform. Globe Jul-2030 trades 28 bp wider than PLDT Jan-2031; we see fair value at 30-35 bp wider given Globe’s poorer net leverage, unrated status, and poorer free cash flows that outweigh its arguably stronger shareholder backing from Singtel and Ayala Corporation. We think Globe’s c.2026 perp trades fairly. We do not prefer its Jul-2035 that trades just 10 bp wider than its Jul-2030. We expect Globe to improve its net leverage by only slightly in FY24 as lower capex and residual ~PHP 11 bn of tower sales closures are offset by a continued weak broadband business and sticky dividends. Globe also recently revised its dividend policy to 60%-90% of PAT from 60%-75% previously, suggesting an increased skew towards shareholder-friendly actions.
Recommendation Reviewed: August 08, 2024
Recommendation Changed: June 18, 2024
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Search topics about wealth insights and investments.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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Search topics about wealth insights and investments.T-Mobile US
- Sector: Technology Media and Telecommunications
- Sub Sector: Telecommunications
- Region: US
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Fundamental View
AS OF 15 Feb 2024We expect T-Mobile will maintain its position as the industry leader in postpaid phone net additions, service revenue, EBITDA and FCF growth in 2024. We think the company has significant subscriber runway remaining in the suburban/rural and enterprise markets.
Adjusted net leverage (2.6x at 4Q23) is nearly half a turn lower than AT&T and Verizon. Relatively strong EBITDA growth and a modest dividend commitment results in greater financial flexibility than peers.
T-Mobile benefits from the strongest spectrum position in the industry, including an average of 181 MHz in the 2.5 GHz band, which results in better 5G network coverage than AT&T and Verizon.
Business Description
AS OF 15 Feb 2024- TMUS is the one of the top 3 U.S. wireless carriers and is owned ~50% by Deutsche Telekom (DT). On April 1, 2020, TMUS and S completed an all-stock merger, valuing S at an EV of approximately $59.7 bn.
- TMUS ended 4Q23 with ~120 mn customers, including 98 mn postpaid and 22 mn prepaid.
- TMUS reaches 330+mn POPs with its Extended Range 5G network (using the 600 MHz spectrum) and reaches 300mn customers with its Ultra Capacity 5G.
Risk & Catalysts
AS OF 15 Feb 2024Converged wireless/broadband offers from cable operators and an upstart competitor in the form of DISH raises the risk of pricing pressure in the mature consumer wireless market.
With T-Mobile’s credit rating now comfortably in the mid-BBB area and leverage in the vicinity of the group’s mid-2x target area, we expect the company’s capital allocation to shift toward share buybacks.
The company has expressed an interest in fiber assets. At present, T-Mobile is focused on an “asset-lite” fiber strategy, but there is some concern the group could eventually deploy more capital to this area (potentially via M&A).
Key Metric
AS OF 15 Feb 2024| Baa2/BBB/BBB+ | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Revenue | 45,151 | 68,397 | 80,118 | 79,571 | 78,558 |
| Organic Revenue Growth | 4.3% | 5.8% | 7.3% | (0.7%) | (1.3%) |
| EBITDA | 13,536 | 24,557 | 26,924 | 27,821 | 29,428 |
| Adj. EBITDA Growth | 9.8% | 4.3% | (64.0%) | 33.9% | 5.8% |
| Adj. EBITDA Margin | 30.0% | 35.9% | 33.6% | 35.0% | 37.5% |
| CapEx % of Sales | 13.1% | 16.1% | 15.4% | 17.6% | 12.5% |
| Total Debt | 29,508 | 76,660 | 79,574 | 78,425 | 78,425 |
| Net Debt | 27,980 | 66,275 | 72,943 | 73,918 | 73,290 |
| Gross Leverage | 2.2x | 3.5x | 3.4x | 3.0x | 2.7x |
| Net Leverage | 2.1x | 3.0x | 3.1x | 2.8x | 2.5x |
| Interest Coverage | 11.9x | 9.0x | 7.2x | 8.0x | 8.3x |
| FCF as % of Debt | 22.0% | 14.1% | 13.7% | 13.2% | 19.2% |
CreditSight View Comment
AS OF 28 May 2024We expect TMUS will once again lead the Big 3 in major KPIs in 2024, including high-single digit EBITDA growth and low-double digit FCF growth. We view earnings/growth visibility as higher than peers, with the outlook supported by its leading 5G mid-band coverage (over 300 million PoPs with ~200 MHz) and historical under-penetration in rural and enterprise markets. Credit metrics are best in class, with the group already at its ~2.5x net leverage target while AT&T (2.9x) and Verizon (3.0x) are still in deleveraging mode. While the industry is very focused on net leverage, TMUS stands out in terms of FCF generation and the lack of a substantial dividend obligation. To put it simply, TMUS has a cleaner growth story as a challenger and a great track record on execution.
Recommendation Reviewed: May 28, 2024
Recommendation Changed: March 18, 2021
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