Wobbly start won’t rain down on Converge’s big plans

After a landmark P29.1-billion stock market debut, fiber internet and digital service provi­der Converge ICT Solutions Inc. aims to sustain its fast growth rate and capture 55 percent of all households that can pay for connectivity by 2025.

The plan was to build eight million ports, or slots in the network access points that connect each customer to the network, Converge founder and chief executive Dennis Anthony H. Uy said at a press briefing after his company’s listing on the Philippine Stock Exchange on Monday.

Shares of Converge, however, fell by 9.4 percent on its inaugural trading day to close at P15.22 per share, down from the initial public offering (IPO) price of P16.80 per share. It was the day’s most actively traded company, with P3.65 billion worth of shares changing hands on listing day.

Local stock brokerage Papa Securities said at Converge’s IPO price that expected enterprise value as a ratio of expected cash flow for 2021 was at 9.8 times versus the 6-7 multiple for Globe Telecom and PLDT.

“Note that we continue to be wary of the sizable amount of secondary shares (about two-thirds) to be sold by [private equity firm] Warburg/Coherent Cloud that stand to nearly triple in value with the IPO,” the brokerage said.

Converge was valued by the stock market at P126.4 billion on its listing day, compared to PLDT and Globe Telecom’s respective market capitalization levels of P289 billion and P269 billion.

The company plans to invest around P30 billion in the next 18 months or by the end of 2021 to continue its network expansion.

Considering that the ports takeup was just at 50-60 percent, Uy expects to sustain the strong subscriber growth.

To date, it is already getting 56.6 percent of new residential subscription. It had 731,563 residential subscribers as of end-June.

By 2025, the number of households able to afford fiber broadband is estimated to grow to 22.6 million, 13 times the current market size of 1.7 million fiber broadband subscribers, according to market research provider Media Partners Asia (MPA). The current market size is estimated at $1 billion versus the total potential market of $5.3 billion.

The 22.6 million households that would be able to afford fixed broadband by 2025 represented a potential total addressable market of $7.15 billion in fixed broadband revenue by 2025, based on MPA’s research.

According to Uy, the company may be able to establish a dividend policy once expansion programs are completed by 2023.

“We celebrate our successful IPO today as a significant milestone for the company and as evidence of our strong operational and technological capabilities. We are fully committed to building the largest fiber broadband network in the Philippines and to providing affordable and reliable high-speed internet connectivity to millions of Filipinos nationwide,” Uy said.

The domestic portion of the offering secured over P4.856 billion of domestic demand, making it one of the largest domestic IPO takeups in the country.

On the international front, the offering was well-oversubscribed, drawing high quality investors, including OMERS, Genesis, Thornburg and Macquarie.

Warburg Pincus, a leading global private equity firm, has been the largest and most important investor and partner to Converge. INQ