Moody’s sees PLDT earnings rising after Rocket investment

International credit ratings agency Moody’s Investors Service sees the earnings of Philippine Long Distance Telephone Company (PLDT) improving further in 2015 following its overseas investment of nearly P20 billion (US$445 million) in German firm Rocket Internet AG, known locally for its online commerce sites Lazada and Zalora, as well as for the EasyTaxi taxi booking service.

Yoshio Takahashi, vice president and analyst at Moody’s, said PLDT’s earnings would improve slightly next year amid lower costs, along with higher revenues from its broadband and mobile Internet businesses following its acquisition of a 10% stake in Rocket Internet.

Takahashi noted, "PLDT’s earnings should slightly improve in 2015, given that it will no longer have to deal with the aftermath of Typhoon Yolanda (Haiyan), and considering the company’s plan to reduce costs, as well as the continued growth in revenue from its broadband, corporate data, and mobile Internet businesses."

PLDT’s 10% stake in Rocket Internet follows a global strategic partnership where PLDT’s investment would allow the two to develop online and mobile payments solutions for emerging markets.

First-half performance

PLDT booked a 2% growth in core income to P19.83 billion in the first half of the year compared to P19.39 billion from the same period last year. Revenues climbed 2% to P82.5 billion from P81 billion. The PLDT group is aiming for a core income of P39.5 billion this year, 2% higher than last year.

Takahashi pointed out that PLDT’s consolidated earnings before income tax, depreciation, and amortization (EBITDA) went down 4% in the first half of the year due to an increase in handset subsidies, cash expenses related to the operation of its expanded network, and residual post-Typhoon Yolanda restoration costs.

“Given PLDT's first half results, Moody’s expects the company’s reported consolidated EBITDA to fall moderately in 2014,” he added. The firm also expects PLDT’s adjusted debt/EBITDA to increase to 1.9 to two times by end-2014 from approximately 1.8 times for the 12 months to June 2014.

Moody's believes PLDT will continue seeking new investment opportunities in the Internet and multimedia sectors to strengthen its ability to deliver multimedia content through its broadband and mobile networks, in addition to growing its e-commerce business. The credit ratings service added that PLDT’s investment in Rocket Internet could be accommodated within its Baa2 ratings and stable outlook.

It also estimates that PLDT will be able to finance the majority of the investment from its excess cash as its cash on hand stood at P43 billion as of end-June.

“While the partnership with Rocket should help PLDT strengthen its mobile and online payment services, generating stable returns from investments in the fast-changing and competitive internet industry is challenging,” Moody’s explained.

“However, Moody’s views that a new major investment is unlikely at least for the next 6 to 12 months, given PLDT’s increased leverage.”

PLDT seeks global partners for Internet-based growth as legacy revenues dwindle

Philippine Long Distance Telephone Company is pursuing partners, particularly two global Internet companies, to take advantage of the growth opportunities in cyberspace in enhancing its broadband and data businesses as legacy revenues continue to shrink.

PLDT currently is looking at web-based investment opportunities, chairman Manuel Pangilinan said during a briefing on the telco's first half results in Makati City on Tuesday.

"There are a few internet possibilities we're looking at by way of investments and strategic partnerships," he said.

"In many respects, PLDT is also in the Internet space in Philippines, so it would be a good working relationship," he added.

Pangilinan said the largest Philippine telco is now in the advanced stages of discussions with two companies, with one more imminent than the other. He did not name the companies.

"The first one is a European company with a global footprint," he said, declining to give out further details.

The investment in the internet space is in line with the shift towards two growing business segments – broadband and data services.

"It is clear our future lies in the broadband/data and Internet space, evidenced in our numbers this year, and in recent past years," Pangilinan said.

In the first half, PLDT's broadband and data revenues drove net income growth by 2 percent to P20 billion from P19.7 billion a year earlier.

Meanwhile, core net income increased by 2 percent to P19.8 billion from P19.4 billion.