PLDT Inc. could raise its capital expenditures (capex) in 2023 from P85 billion this year to fund the rollout of its network expansion in the face of inflationary and recessionary risks.<\/p>\n\n\n\n
Much of the potential ramp up in CAPEX is attributable to weaker peso as 45% of it is allocated for dollar-denominated expenses. We note that for this year, management already expects that they may exceed CAPEX target by P3 Billion (3.5% increase) with Peso averaging at P54.00:$1 YTD, 10.2% higher than 2021 average.<\/p>\n\n\n\n
Going towards 2023, the overshoot could be much more significant with Peso likely to consolidate within P58 to P60 level over the first half and if the exchange rate level persists beyond this period, this could further lead to upside risks to CAPEX until 2024 and may warrant a potential downgrade to our valuation on lower free cash flows. Beside this, weaker peso may also translate to higher financing costs on the back of TEL\u2019s hefty dollar-denominated debt and high net gearing ratio.<\/p>\n\n\n\n
This currency-driven headwinds, which applies to GLO (Target Price: P3,040.00) as well, underpin our muted outlook on the telco\u2019s incumbent players. However, we remain partial to CNVRG (Target Price: P35.00) given its deeply discounted valuation and resilience to weaker peso (zero dollar denominated debt and well-managed CAPEX program). <\/p>\n\n\n\n
We currently have a Target Price of P2,165\/share on TEL.<\/p>\n\n\n\n