PLDT income seen up on Smart growth

Philippine Long Distance Telephone Co. (PLDT) was likely to have posted higher third-quarter net income than a year ago but with earnings overshadowed by a slowdown in new subscribers and an ownership row, analysts said.

They did not give specific estimates for the third-quarter results of the country’s largest phone company due to be announced next Tuesday.

But they saw net income improved by continued revenue growth from PLDT’s key cellular unit Smart Communications, which contributes more than 40 percent of total recurring income.

While analysts saw no immediate affect on earnings from a row between two of Asia’s prominent business families and PLDT management over a key stake sale, they warned there could be a negative impact if the tension persisted.

They also cautioned that future earnings gains would be tempered by a further decline in net subscriber additions.

"Smart subscriber net additions for the second quarter at 243,000 was the lowest compared to the past six quarters," said BPI Securities telecom analyst Roberto Cano in a research report.

He said a first-half uptick in disconnections and flat average revenue per unit growth for prepaid Smart users – the vast majority – pointed to a possible slowing of revenues next year.

The firm’s bread-and-butter fixed line revenue was unlikely to have shown any significant improvement in the quarter, said Martin Enrile, telecoms analyst for ATR Kim Eng securities.

"It’s been on a declining trend and that should continue in the third and fourth quarters," Enrile said.

Declines in fixed line income could be offset by a further increase in revenues from data services and the Talk N Text brand operated by another cellular unit, Pilipino Telephone Corp., analysts said.

Ongoing cost reduction efforts, including capital expenditure, and the completion of refinancing for debt obligations stretching through to 2004 would also help the company’s net income going forward.

No corporate battles scars

In early June, First Pacific Co. Ltd., the Hong Kong conglomerate controlled by Indonesia’s Salim family, said it was seeking to sell its controlling 24.4 percent stake in PLDT to the Manila-based Gokongwei family, which owns a rival telecom firm.

The deal fell through at the end of September after management officials blocked it, arguing it was not in the best interest of all shareholders.

"The ownership row has not had any impact on earnings but it has hurt the stock price. However, at some point it will hurt the operational performance. If it drags for a year or so it might impact the future refinancing of debt," Philippine Equity Partners research head Jojo Gonzales said.

The stock price in the quarter plunged 25.3 percent to 11-year lows as the verbal and legal sparring by the two sides hit investor confidence in the company.

PLDT posted consolidated first-half net income before preferred dividends of P2.75 billion ($51.8 million) after recording 1.3 billion in the first quarter.

In the nine months to September 2001, it posted net income of P2.4 billion. No third-quarter breakdown was provided by PLDT but analysts have estimated it at about P1 billion.

The consensus forecast in the Multex Global Estimates Directory is for 2002 net income of 4.23 billion with earnings per share of P25.06.

In 2001, the company posted net income of P3.41 billion.