PLDT turnaround seen gathering momentum; earnings growth expected

Manuel V. Pangilinan

Telecommunications giant PLDT Inc. is expecting core earnings to grow in 2017 after posting declining profits over the last three years as its business “stabilizes.”

This was according to an outlook given on Tuesday to shareholders of First Pacific Co. Ltd., the Hong Kong-based investment company that holds stakes in PLDT, Metro Pacific Investments Corp. and Philex Mining Corp.

According to First Pacific, contributions from operations fell last year by 6 percent to $400 million (P20 billion), mainly on account of PLDT, which saw core net income fall 21 percent to P27.9 billion in 2016. Competition and an accelerating shift to internet services, hurting PLDT’s legacy revenue streams, contributed to the decline.

First Pacific said margins at PLDT had been “compressed” and it was unlikely to reach the levels of 60 percent “in the foreseeable future.”

Nevertheless, the company noted that 2017 would “see stabilization at PLDT as it enters a new phase in its transformation into a digital telecommunications and internet/media company.”

“We believe that PLDT’s turnaround is gathering momentum and heading towards core earnings growth starting 2017,” First Pacific said in its report.

Manuel V. Pangilinan, First Pacific CEO and PLDT chair and CEO, earlier said that for 2017, PLDT was hoping to at least match core earnings seen last year after the company sold its remaining minority stake in Manila Electric Co., the country’s biggest electricity distributor.

PLDT’s “recurring core income,” a seldom used measure until now, came in at P20.2 billion last year and PLDT expects this figure to grow to P21.5 billion in 2017.

PLDT has set aside P46 billion for capital spending this year, a big slice of which would go toward improving mobile internet services and fixed-line broadband, a fast-growing market.

“PLDT has greatly increased capital expenditure to keep up with the fast-increasing demands for high-quality data services and will continue spending heavily this year and next as it expands the reach of its LTE mobile telecommunications standard to a target of 70 percent of the country’s population by year-end and 97 percent by end-2018,” First Pacific said.

Pangilinan noted in the report that First Pacific remained undervalued, and that management was looking to trim assets.

“We are currently reviewing our investment portfolio with an eye towards disposal of certain assets that no longer meet our return criteria,” Pangilinan said.