Higher capex, lower profit for PLDT, Globe in 2015 – Fitch
MANILA, Philippines – The Philippine Long Distance and Telephone Company (PLDT) and Ayala-led Globe Telecom Inc are both seen to be incurring higher capital expenditure (capex) but achieving lower profits.
In a special report, London-based Fitch Ratings said the capex of major players in the Philippine telecommunications industry is expected to hit around P60 billion ($1.33 billion*) in 2015 from P58 billion ($1.29 billion) this year.
The international credit rater said both PLDT and Globe would invest heavily to expand their fiber networks and cope with fast growing demand for data services.
Fitch said the higher capex of 24% to 25% of revenues next year would translate to negative free cash flows for both PLDT and Globe.
Fitch also took note of the higher dividend payment due to larger profitability that currently stands at 100% for PLDT and 85% for Globe.
Thus, the profitability of PLDT and Globe are likely to decline next year, Fitch said.
“Profitability will also deteriorate as a lower-margin data service replaces higher-margin legacy services, including voice, text, and international traffic,” Fitch said in the report.
Fitch added that revenues of both PLDT and Globe would rise by a mid-single digit rate on the back of the fast-growing data services, offsetting the stagnating voice and declining text and international businesses.
Also, the operating earnings before interest, taxes, depreciation, amortization, and rent or restructuring (EBITDAR) margins of PLDT would narrow to 47% for PLDT and 44% for Globe, Fitch added.
Unlimited tariff offerings, cheaper data plans, and higher handset subsidies would contribute to the narrow EBITDAR.
To date, PLDT slashed its profit guidance by 4% to P37 billion ($822.86 million) instead of P39.5 billion ($878.46 million) this year after PLDT chairman Manuel V. Pangilinan cited that intense competition would “remain keen in the 4th quarter of the year, and possibly beyond 2014 as well.”
Globe, meanwhile, reported a 22% jump in core net income of P11.58 billion ($257.61 million) after booking record-breaking revenues in the first 9 months of 2014.
Fitch said the ratings of PLDT that is currently at BBB/Stable and Globe at BBB-/Stable would not be affected given the available headroom. – Rappler.com
*$1 = P44.95
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