November 05, 2013

PLDT posts 4% YoY hike in 9M13

PLDT (TEL, Buy) disclosed its 9M13 core net income rose 4% Yoy, accounting for 73% of our full-year estimate and 75% of the P38.3b guidance by the company. While 3Q13 core net income fell 4% QoQ on seasonal downturn, this nonetheless posted a 2% YoY growth. There was an acceleration in 3Q revenues (+3% YoY vs. 2% in 9M13) and EBITDA (+5% YoY vs +4% in 9M13) given the structural change in PLDT’s revenue mix in favor of the growing revenue sources which now comprise a bigger chunk (21%) of revenues vs. the declining legacy revenues (long distance and satellite revenues) which now account for just 19% of total.

Our take: We have three points to highlight from the interim results.

- We view positively PLDT’s push for new sources of revenues as this should help drive growth in the long run as they replace the falling legacy revenues. However, we do not expect any meaningful growth in the interim as this strategy will entail costs (particularly handset subsidies and marketing costs) to enticed subscribers to switch to smartphones in order to beef up the non-
SMS data revenues.

- The company also mentioned possible manpower reduction in the cellular business which would mean additional unspecified costs (although not significant as per company’s assessment) to be booked in 4Q13.

- EBITDA margins seem to be holding very well (49% in 9M13 and 3Q13 vs. 48% in the previous comparable periods) while cash operating expenses are under control (-3% in 9M13). TEL is also not expecting any spike in capex over the next two years (from P29b in 2013).

- The abovementioned three factors should bode well for cash flows and will enable the company
to maintain its dividend payout. – WealthSec