Mid-single digit revenue growth seen for PLDT, Globe

MANILA, Philippines - London-based Fitch Ratings sees telecommunications providers in the country led by rivals Philippine Long Distance Telephone Co. (PLDT) and Ayala-led Globe Telecom Inc. – booking mid-single digit revenue growths next year.

In a report entitled “2014 Outlook:Southeast Asia Telecommunications,” Fitch said strong demand for data from subscribers would help offset higher expenses for subsidies as well as declining revenues from intense competition.

“More data adoption should lead to revenue rising by the mid-single-digits,” Fitch said.

The international rating agency pointed out that earnings before interest, taxes, depreciation, and amortization (EBITDA) margins would continue to decline.

 â€œIn the Philippines, operating EBITDA margins will continue to deteriorate due to unlimited or bucket tariff offerings, larger handset subsidies and substitution of data for voice or text services,” it added.

Likewise, Fitch said lower capital expenditures would ensure free cash flow and stable credit profiles for both PLDT and Globe.

PLDT completed a two-year P67.1 billion network modernization last year, while Globe finished its $700 million network transformation program in the first quarter of the year and is completing a $90 million information technology (IT) transformation project.

PLDT booked a two percent increase in net income to P29 billion as consolidated revenues climbed two percent to P121.6 billion from January to September this year. Its consolidated EBITDA grew four percent to P59.6 billion while its consolidated free cash flow remained robust increasing by P3.2 billion to P32.9 billion.

The company’s cellular subscriber base stood at 72.5 million as of end-September. Wireless subsidiary Smart Communications Inc. had 24.7 million subscribers while value brand Talk ‘N Text ended with 31.9 million. Digital Telecommunications Philippines Inc. had 15.8 million Sun Cellular subscribers.

On the other hand, PLDT’s combined broadband subscriber base stood at 3.3 million in the first nine months of 2013. For the fixed line businesses of both PLDT and Digitel, the subscriber base remained at 2.1 million.

On the other hand, Globe’s net income plunged 48 percent to P3.5 billion amid the 10 percent growth in revenues to P67.26 billion in the first nine months of the year. Its core net income rose nine percent to P9.5 billion while EBITDA stood at P28.3 billion.

Globe’s subscriber base increased 14 percent to 36.5 million as of end-September. Prepaid subscribers of Globe inched up five percent to 16.96 million followed by TM subscribers with 23 percent to 17.57 million, and postpaid subscribers rose 19 percent to 1.98 million.

Fitch further reported that competition and declining use of traditional voice and text services would lead to lower margins for most Southeast Asian telcos next year.

However, data demand growth would generally outpace margin decline, so cash generated and credit metrics would be broadly stable or slightly improve, except in Thailand where large investment would increase leverage.

Fitch expects the top four telcos in Indonesia would continue to dominate the market and that their credit metrics would be stable, and sees growth and largely constant capital expenditures and dividends in Malaysia to offset the 100 to 150 – basis points margin erosion for wireless telcos.

On the other hand, Fitch said profitability of all three telcos in Singapore would remain stable driven by better data pricing to offset the cost pressures of handset subsidies and higher pay-TV content costs.

In Thailand, Fitch said the private operators’ exposure to legal and regulatory risks would decline as they migrate customers to the new 3G licence system.