Moody’s expects PLDT to sustain stable rating

MANILA, Philippines - New York-based Moody’s Investors Service expects dominant carrier Philippine Long Distance Telephone Co. (PLDT) to sustain the stable earnings booked in the first half of the year.

Yoshio Takahashi, assistant vice president and analyst of Moody’s Investors Service Hong Kong Ltd, said in a statement that financial results released by PLDT for the first half of the year were in line with expectations.

“We expect PLDT to maintain its stable earnings, given its dominant positions in fixed line, broadband, and wireless,” Takahashi stressed.

PLDT’s net income rose by two percent to P19.7 billion in the first six months of the year from a year ago’s P19.3 billion on the back of higher revenues as well as gain from the sale of subsidiaries.

The increase in earnings in the first half was traced to the P1 billion increase in core net income, the P2 billion gain from the sale of its business process outsourcing (BPO) arm SPI Global Holdings Inc. as well as the P1.8 billion gain from higher foreign exchange and derivative net losses.

The company’s core net income grew five percent to P19.4 billion from P18.4 billion and is on its way to meeting the guidance of P38.3 billion for 2013 due to higher EBITDA and lower depreciation.

PLDT’s consolidated service revenues went up by two percent to P75.7 billion in the first half of the year from P74.2 billion in the same period last year as increases in revenues from the growing businesses outpaced declines in legacy revenues.

Takahashi said Moody’s expects PLDT’s EBITDA to continue to improve in the second half of the year and 2014.

“However, the level of improvement will be marginal, as a changing revenue mix – from voice to broadband – will continue to pressure margins, although from a high level,” he added.

The PLDT Group’s free cash flow stood at $20.7 billion in the first half of the year as it spent P4.8 billion of the programmed P29 billion capital expenditures for 2013.

“PLDT’s ability to generate free cash flow will also continue to improve, given the substantial completion of its accelerated capex program to boost network quality and coverage in 2012,” the analyst said.

Despite the improved cash flow, Takahashi said PLDT’s adjusted debt/EBITDA would likely remain in the 1.5 times to two times range in the next 12 to 18 months as Moody’s anticipates that the company would maintain an effective 100-percent dividend payout.