June 09, 2015

PLDT sees capex to exceed initial target for 2015

The chief executive officer of PLDT (TEL) was quoted by the media as saying the company may be spending more than the P39b it has programmed for capex this year. It is looking to raise the capex budget to more than P40b this year and this may remain elevated next year and will ease only by 2017. PLDT is currently expanding its 3G and 4G network capacity and coverage amid the rapid growth in data demand for both its mobile and fixed broadband services.

Our take: Our estimates for TEL factored in a capex of P39.24b this year and P38.35b next year which translate to a capex/sales ratio of 22%-23%. A capex budget of P40b for this year and next year could bring the capex/sales ratios to around 23%-24%. The ~1% difference can cut our DCF valuation target for PLDT to P2,975/sh from P3,000/sh assuming that the additional spending will be financed through internal cashflows.

We also do not expect this to materially affect our DPS estimate of P150 for 2015E and P155 for 2016E. We will adjust our numbers pending the announcement of the official capex numbers. In the meantime, we are keeping our HOLD rating on TEL. – WealthSec