FREE Stock in Focus: GLO (4 Mar 2019) by RCBC Securities

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Summary of Broker’s Recommendation
RCBC Securities HOLD 1975.00 4 Mar 2019


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Stock Rankings: All Stocks

Our Partner Broker’s Recommendation

We currently have a Target Price for GLO of PHP 1,975.00 per share. The potential share price upside is around 5.8%. Adding the forecasted dividend yield of 4.9%, the total expected return is 10.7%.

In comparison, we forecast the PSEi to hit 8,820 in the next 12 months, 11.1% higher from the current level. Hence, we expect GLO to underperform relative to the PSEi and recommend a HOLD.


Our Partner Broker’s Analysis

Results were in line

Globe’s full year core net income and EBITDA were close to our forecasts of PHP 18.99 billion and PHP 65.55 billion, respectively. For now, pending Globe’s release of its detailed financial reports, we are keeping our 2019 forecasts of core net income of PHP 20.46 billion, 9% higher yoy, and EBITDA of PHP 71.47 billion, 10% higher yoy.


Entry of new major player is making progress

While GLO’s earnings results were hard-to-fault, the prospects of incumbents, including rival PLDT, Inc., are dimmed by progress being made by the government to introduce a third telco player. The selection process has been completed, with the consortium comprising Mindanao Islamic Telephone Company (Mislatel), Udenna Corporation, Chelsea Logistics Holdings Corp., and China Telecommunications Corp., collectively called the Mislatel consortium, being declared the winner.

Congress has also approved the transfer of the telecommunications franchise of Mislatel to the consortium “in principle”, although the Department of Information and Communications Technology (DICT) said that Congress will need to reconcile the differing versions of the lower house and the Senate through a bicameral conference committee to allow for an official transfer of the franchise. This may not happen until after the mid-term elections in May. We believe that the potential rollout by the consortium, regardless of its chances of success (or lack of it) in the long-term, has prolonged the uncertainty that has clouded the prospects of the incumbents since President Duterte threatened to introduce a third telco player almost as soon as he took office, as it threatens to result in renewed industry price competition, higher marketing costs, and a shakeout in players’ market shares. This in turn would prevent any sustained increase in the incumbents’ share prices.

In preparation for the looming competition, not to mention in order to accommodate users’ huge appetite for data capacity, Globe has earmarked a capex budget of PHP 63 billion for 2019, 45% higher than last year’s PHP 43.3 billion.


Common telco tower policy will benefit Mislatel

In addition to the potential competition, the government has opened the market to third party common telco tower builders and operators as a solution to the slow pace of telco tower rollout by the incumbents. (Under the old setup, the incumbents built their own telco towers.). The industry currently has approximately 16,000 telco towers between PLDT and Globe and the DICT is targeting 50,000 additional towers within 7 years. To put these numbers in perspective, Vietnam currently has roughly 70,000 towers.

The government’s move to open the construction of common telco towers to third parties will facilitate Mislatel’s rollout both in terms of time and frontload costs. The incumbents cite that it takes 6-8 months to secure the 25 or so government permits needed to build a telco tower. On the other hand, the DICT estimates that it will cost $4 billion to build 50,000 telco towers, which translates to $80,000 per tower. Globe actually estimates the cost to be higher at $100,000-150,000, primarily due to the need to typhoon-proof the structures. Hence, with the new common telco tower policy, Mislatel will be relieved with at least the capex it would have needed to build its own telco towers.


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RCBC Securities
RCBC Securities

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