PLDT’s first quarter income seen doubling to P1.3 billion

Leading telecommunications provider Philippine Long Distance Telephone Co. (PLDT) is expected to double its first quarter earnings, mainly due to a cut in the net loss contribution by wireless subsidiary Pilipino Telephone Inc. (Piltel).

Analysts project that PLDT will increase its consolidated net income from P629 million during the first quarter of 2001 to P1.3 billion in the same period this year. PLDT will release the results of its January-March 2002 performance on May 16.

And while the company’s share prices have dipped significantly over the past few weeks, it is expected that PLDT will soon seek its real value. "After being sold down, PLDT is now trading at below book and at a huge discount to fair market value, which just recently upgraded to P760 per share. As a result, we are reiterating our outperform recommendation in the company," DBS Vickers Securities emphasized.

In an analysis of the company’s performance, DBS Vickers said it expects PLDT’s earnings to double for the first quarter of 2002 on a year-on-year basis, as its ownership in losing subsidiary Piltel has gone down from 68 percent to less than 50 percent.

Since the third quarter of 2001, PLDT has set provisions amounting to P300 million for the writeoff of its investments in Piltel and is likely to continue with the practice until the cellular affiliate will post a reversal in net losses.

Prior to that, PLDT was booking equitized losses from Piltel to the extent of its share ownership in the cellular company of around 68 percent. In the first quarter of 2001, PLDT’s equitized net loss from Piltel reached P790 million, 263 percent more than the provisions for the first quarter of this year of P300 million.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for 2002 is projected to increase to P44.9 billion in 2002 and P55.2 billion in 2003, as against P39 billion last year.

PLDT in 2001 reported a consolidated net income of P3.4 billion as against P1.1 billion in 2000. Earnings could have easily reached P6.4 billion if not for the losses of Piltel.

DBS Vickers likewise projects PLDT parent to slightly increase its net income in the first quarter of 2002 to P530 million from P511 million in the same period last year.

In the case of cash cow subsidiary Smart Telecommunications, first quarter 2002 earnings are expected to hit P1 billion, as against P837 million last year or around 20 percent more. Analysts say that the main driver for Smart’s profitability is the continued strong take up in new subscribers and stable ARPU (average revenue per user), as well as its enjoyment of a tax holiday until 2004.

Meanwhile, DBS Vickers noted that the sharp decline in PLDT share prices in the past three weeks is due to the 50-percent reduction in its weighting in the MSCI (Morgan Stanley Capital) index, as well as higher yields placed on its bonds vis-a-vis rival Globe Telecom.

PLDT’s share price has dipped by 17 percent from P545 per share last April 12 when the new MSCI weightings were announced, and closed at P450 per share as of last Wednesday. Analysts note that while the yields were a concern, the primary reasons for the selldown on PLDT is still the reduction in the MSCI weightings. "With the realignment of funds almost complete, PLDT should soon seek its real value," they said.

The company’s $350-million bond offering was oversubscribed and drew strong interest from foreign investors, and spreads continue to tighten. Of the total bond offering, $100 million will mature in five years and the balance in 10 years.

PLDT’s $350-million bond issue, plus the refinancing loans of $149 million from KfW of Germany and $80 million from the Japan Bank of International Cooperation (JBIC), is expected to address around 90 percent of PLDT’s refinancing requirements for 2002-2004 and DBS Vickers is optimistic that the remaining balance of $70 million can easily be sourced from other creditors.

"We believe investors would prefer PLDT to keep 100 percent of its stake in Smart intact until such time it will be floated in the market in 2004. By doing that, it can keep 100 percent of the dividends from Smart for the next two to three years," DBS Vickers telecom analyst Gina Roa-Dipaling noted.

The telecom firm has $1.3 billion in loans that are maturing in 2002-2004, of which around $650 million will be paid using internally generated funds (cash flow including dividends from Smart), and the balance, from loans and the bond issue.