FREE Stock in Focus: TEL (16 Aug 2021) by AP Securities

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Summary of Broker’s Recommendation
AP Securities BUY 1720.00 16 Aug 2021


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Our Partner Broker’s Recommendation

We retain our BUY rating on TEL with a 5-year Target Price of P1,720/share. Year-to-date, TEL’s share price is down by 7% following the entry of DITO and the emergence of CNVRG as a leading player in fixed broadband, which were seen as detrimental to both of TEL’s segments.

However, in-line first half 2021 results cemented our outlook for the company and negated a more-drastic-than-expected impact from the arrival of new competitors. We project full-year 2021 estimate earnings to be at P30.8 Billion, meeting management’s target, while for full-year 2022 estimates we expect P33.5 Billion.


Our Partner Broker’s Detailed Analysis

Earnings up 10% year-on-year

Earnings ended within both our (49% of 2021) and consensus (52% of 2021) estimates. The sustained growth quarter-on-quarter (QoQ) was primarily driven by the robust performance of its home broadband segment. Second quarter of 2021 service revenues was flattish QoQ with an incremental growth of 1% as decline across its domestic legacy business (-6% QoQ) and corporate segment (-2% QoQ), coupled with a flattish mobile data revenue (0.1% QoQ), partially offsets its home broadband’s strong growth (7% QoQ).

Still, revenues ended within estimates, accounting for 24.0% of COL estimates. We expect renewed ECQ in NCR and tighter lockdown measures in other areas to accelerate the adoption of fixed broadband as this may induce more WFH arrangements and increase utilization of online platforms for daily activities.


Home Broadband

Home broadband revenues for the quarter grew by 33% year-on-year / 7% QoQ to P10.5 Billion, the only notable growth across TEL’s segments on a QoQ basis, as TEL continued to expand its fixed broadband subscriber base. 2Q 2021 ended with 175k net subscriber adds on a QoQ basis. Although lower than Q1 figure of 186k, we note that last quarter was TEL’s record high and 2Q21 net adds is still within our estimate, accounting for 26% of FY21E while total 1H21 net adds account for 53%.

Going into the second half, we expect net adds to continue within that level, with the remaining quarters seeing a much higher net adds QoQ relative to 2Q 2021 as renewed ECQ measure may accelerate the adoption of fixed broadband. We note that as of 1Q 2021, the fixed broadband market remains underserved at 34% household penetration rate (vs. ASEAN peers average of above 50%) and half of the figure consist of wireless broadband subscriptions that are relatively less reliable and slower — suggesting significant migrations in the coming quarters. Accelerated expansion, as signified by TEL’s largest CAPEX this year at P90Bn, will also be a key driver of subscribers’ growth.


Mobile Segment

Meanwhile, mobile revenues declined incrementally by 1% QoQ to P24.6 Billion, but still higher YoY by 7% and within our estimate with the quarter accounting for 25% of 2021. The relatively tedious performance compared to its Home Broadband segment was attributable to the lack of growth in its mobile subscriber base and continued decline in its legacy business.

As expected, Smart’s subscriber figure continued to retreat gradually to 28.3 Million subscribers from 28.7 Million in the first quarter, as mobility in 2Q 2021, particularly NCR, was fairly better than last year despite the reimposition of lockdown measures, which may have driven some migrations to its rival Globe, which is more preferred by consumers in the urban areas. On a positive note, TNT, as expected also, sustained its growth over the quarter with 230k new subscribers, which can be ascribed to an increasing demand for mobile data in the provinces, wherein TEL has a more superior network presence than GLO. This provided cushion to Smart’s contracting subscriber base.

For 2021, we expect revenues to grow to P110 Billion driven by sustained surge in demand for mobile data and a firm TNT subscriber base. Moreover, with the renewed ECQ, we may see some flattish growth in Smart subscriber base this quarter as some people moves back to the outskirts of urban areas.


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AP Securities (formerly Angping & Associates Securities)
AP Securities (formerly Angping & Associates Securities)

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