Fitch keeps credit scores, outlooks for PLDT, Globe

Fitch Ratings has affirmed the credit ratings of the country's two largest telecommunication companies amid benign competition and regulatory risks.

In a statement, the London-based debt watcher said it affirmed Philippine Long Distance Telephone Co's (PLDT) long-term foreign currency issuer default rating (IDR) and senior unsecured rating at 'BBB'.

The long-term local-currency IDR and national long-term rating were affirmed at 'A-' and 'AAA(phl)', respectively.

The outlook is stable on all the issuer ratings.

"PLDT's ratings benefit from its position as the largest telecom operator in the Philippines with 57 percent revenue market share in mobile and broadband, and a 70 percent subscriber market share in fixed-line," Fitch said.

Fitch expects PLDT's leverage to rise due to continued capital expenditures, and its $445 million investment in Rocket Internet AG, which is unlikely to contribute to the Philippine telco's earnings over the next three years.

Fitch also kept Globe Telecom Inc's long-term foreign- and local-currency IDRs at 'BBB-'.

The senior unsecured and national long-term ratings were also affirmed at 'BBB-' and 'AAA(phl)' respectively. The outlook is stable on all the issuer ratings.

Fitch said Globe's revenue is likely to rise by the mid-single digits in 2015, greater than PLDT's growth given the Ayala-led telco's higher proportion of smartphone users. Globe "is investing much more aggressively than PLDT even though its revenue is only 60 percent of the latter's, with capex of P29 billion in 2013 compared with PLDT's P28.7 billion," Fitch said.

- Interaksyon

Ayala net income up 22 pct, as one-time gain offsets BPI weakness

The Philippines' oldest conglomerate registered higher earnings in the first quarter of the year driven by its core businesses and extraordinary gains, offsetting the weakness of its banking unit.

In a disclosure to the Philippine Stock Exchange, Ayala Corp (AC) said its net income climbed 22 percent to P5.5 billion in the January to March period from P4.5 billion in the same three months of 2013.

AC attributed the growth to the favorable performance of its real estate, telecommunication, water and international businesses as well as a P1.8-billion capital gain from the sale of Stream Global Services Inc, one of its investee companies, under the conglomerate's business process outsourcing (BPO) unit.

The Ayala group's profit would have increased by 24 percent year-on-year without the capital gains during the period, the impact of Bank of the Philippine Island's exceptional trading gains of P5.7 billion and Globe Telecom’s accelerated depreciation last year.

“We are glad to see the strong momentum continue across our core businesses as well as the improving profitability of our international businesses,” said AC president and chief operating officer Fernando Zobel de Ayala.

“We are confident this momentum will continue for the rest of the year as the fundamental drivers of domestic economy remain firmly in place. This will continue to underpin demand for our real estate products, banking, telecom and water services," he said.

Most of Ayala’s core businesses posted a double-digit expansion in earnings year-on-year in the first quarter. Their contribution to the conglomerate’s equity earnings jumped by a fifth year-on-year to P6.9 billion at end-March.

 

- Interaksyon

Telecom Sector Outlook: Earnings grow in line with expectations

Broadband pushes earnings higher. The telecommunication industry’s aggregate 2013 earnings reached Php50.3Bil, up by 6.7% from the previous year and in line with both COL and consensus estimates. Growth was primarily driven by the improving competitive environment and strong broadband revenues. For the full year, aggregate service revenues reached Php254.5Bil, up by 5% from the previous year. The broadband segment continued to be a strong performer with aggregate revenues increasing by 16.6% to Php41.7Bil. In addition, broadband revenues now account for 16.4% of service revenues, an improvement from 14.8% in the previous year. We believe that broadband, especially mobile internet revenues, will continue to be a source of growth for the telco industry as smartphone penetration remains slim at less than 20%.

Subsidy expenses put pressure on margins. Globe and PLDT’s push for increasing postpaid subscriber base led to higher postpaid revenues. In 2013, aggregate postpaid subscribers reached 4.4Mil, up by 9% from the previous year. However, this came at a cost of paying higher subsidy expenses. Subsidy expenses rose by 36% to Php12.8Bil. As a result, combined EBITDA margin of GLO and PLDT declined to 44.8% from 45.5%. PLDT believes that the size of creditworthy postpaid market is just around 6Mil subscribers. On the other hand, GLO continues to be bullish on postpaid and expects to double its subscriber base in the next four to five years.

Globe gains market share as PLDT cleans up subscriber base. Total wireless subscribers of GLO and PLDT grew by 5% to 109Mil. The improvement was driven mostly by the increase in GLO’s subscriber base as PLDT redefined its subscriber base to exclude some units without real purchased load. As a result, GLO has now 35% of market share, a stark improvement from just 32% last year.

Reiterate BUY rating on TEL, and maintain HOLD on GLO. We reiterate our BUY rating on TEL with a fair value of Php3,260/sh. We continue to like PLDT for the defensive nature of its business and cost savings to be generated from the Digitel integration and modernization program. In addition, we believe that broadband will spur revenue growth for the industry. Valuations also remain attractive, with capital appreciation potential still substantial at 15%, and dividend yield at 6.6%

- COL Financial