After a series of frantic vertical pump and push, it turns out that the 4G (TEL-GLO) monopoly was required to cloak on what turned out to be another collapse in PLDT’s 2Q and 1H earnings.
From PLDT’s disclosure today
Consolidated Core Income for the period amounted to Php17.7 billion, 6% lower year on year, as a Php4.8 billion decline in EBITDA was moderated by the Php7.4 billion net gain from the sale of the Company’s 25% stake in Beacon Electric Assets Holdings, Inc. Reported Net Income reached Php12.5 billion, 33% lower than the previous year, on account of a further provision against our investment in Rocket Internet.
Losses would have even been larger had it not been due to the “sale of the Company’s 25% stake in Beacon Electric Assets Holdings”. The Beacon sale was reported at the other income segment. From PLDT’s 2nd quarter report: “(i) higher other income – net by Php 4,338 million due to higher gain on sale of Beacon shares by PCEV in 2016 as against the gain on sale of Meralco shares by Beacon in 2015”
With the Beacon sale included in the pretax income, income growth suffered a reduction of 29.13% in 1H and 31.44% in 2Q. However excluding Beacon, growth rate losses would swelled to an astounding 47.1% and 67.84% respectively!
While the recognized impairments of PLDT’s Rocket internet investments of Php 5.381 billion contributed to the dismal performance, the bigger issue has been problems at the “core” or PLDT’s business model.
Poor topline performance has signified a toxic mix with surging financing costs.
PLDT’s topline has been in stagnation for the more than 3 years. Worst, during the past 2 years, the decay in gross revenues have become pronounced. This can be seen above where PLDT’s NGDP have flatlined or has drifted at zero or even produced negative numbers.
And this comes as financing costs has ballooned 23.26% in the 1H and 29.53% in 2Q in 2016.
So Beacon had to be sold to partly offset the Rocket impairment, thereby cushion the core issue of a profit squeeze from declining topline that had been compounded by higher debt servicing costs (aside from expenses)
PLDT reported that net debt was $2.7 billion in the 2Q 2016, compared to $2.3 billion in 2015 and $1.8 billion in 2014, for a growth rate of 17.4% in 2016 and 28% in 2015.
This shows that the firms's debt has been growing faster than the topline or even earnings.
The US dollar segment of 2016 loans was 37% as against 48% and 44% in 2015 and in 2014. This exposes on PLDT’s dollar short position or sensitivity to currency risks, although the largest telco firm says that “only US$300 million or 9% of the total debt is unhedged”.
At the end of day, this shows why PLDT and GLO have banded together with GLO to forge a 4G monopoly. Yet as I pointed out, 4G will be no elixir, especially if textbook problems of monopolistic operations come to the fore.
Moreover, 4G better come out soon because the sustained decrement of income might eventually exacerbate on PLDT’s increasingly fragile financial conditions
PLDT was dumped by 8.15% today.
Nonetheless index managers ensured that PLDT’s crash was to be contained. The Phisix was down by only .4%, helped by another marking the close pump.
Mostly bank issues were responsible for offsetting declines by PLDT and of the other majors.
By tomorrow, TEL’s losses would have been forgotten. And because losses are not to be allowed, violent pumping will be the mechanical response.
PS I will deal with SMPH in the coming days.
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