May 06, 2015

PLDT posts 5% YoY drop in 1Q15 core income

PLDT yesterday announced 1Q15 core net income of P9.3b, down 5% YoY, even as reported net income was flat at P9.4b. This came on a flat overall revenue growth, as non-service revenue improvement helped cushion the 2% decline in service revenues.

Revenues from the wireless business continued its slide (-2% YoY) as legacy revenue sources remained under pressure from tough competition and the proliferation of over-the-top applications. In particular, domestic voice revenues dipped 1% while SMS and value-added service revenues fell 5% with SMS volumes falling by 15%. International voice revenues from this segment also declined 22% YoY. In all, these segments accounted for 72% of total wireless revenues.

On a positive note, broadband revenues (17% of total wireless revenues) sustained a positive momentum increased 10% YoY. What as remarkable was the 19% rise in mobile internet revenues to P2.2b with mobile internet usage soaring 188%. This revenue growth in this segment indicates that the earlier promotion for free mobile internet succeeded in stimulating usage.

While the fixed line segment also suffered from declining legacy revenues amid the sharp fall in international (-22%) and national (-9%) long distance revenues, overall segment service revenues grew 4% amid the continued expansion of the data revenues. The latter grew 10% to P8.1b with the 10% rise in fixed broadband revenues, 7% hike in corporate data and other network services income, and 23% expansion in data center revenues

The lower service revenues and higher provisions negated the impact of lower cash opex and increase in non-service revenues such that overall EBITDA dipped by 2% to P19.28b even as EBITDA margin was steady at 48%

Our take: PLDT's 1Q15 core net income is tracking the company's full-year earnings guidance of P35b. However, we would like to note that the latter already incorporates the net effect of the expected gains from the sale of Meralco shares by Beacon (which is 50% owned by PLDT Communications Equity Ventures, a wholly-owned subsidiary of PLDT's wireless arm) and the expected manpower reduction costs.

Netting out the combined effect of these transactions imply further weakening of earnings towards the latter part of the year largely due to higher depreciation and financing costs even as management expects EBITDA to remain flat. Management also hinted of upside risks to its P39b capex guidance for the year amid initiatives to beef up the company's network capacity. We will be reviewing our numbers to factor these developments. – WealthSec