{"id":323691,"date":"2023-06-15T00:22:56","date_gmt":"2023-06-14T16:22:56","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=323691"},"modified":"2023-07-13T00:37:09","modified_gmt":"2023-07-12T16:37:09","slug":"stock-in-focus-converge-ict-cnvrg-15-jan-2023-by-rcbc-securities","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/stock-in-focus-converge-ict-cnvrg-15-jan-2023-by-rcbc-securities\/","title":{"rendered":"Stock in Focus: Converge ICT (CNVRG) – 15 June 2023 by RCBC Securities"},"content":{"rendered":"\n

Summary of Broker’s Recommendation<\/h2>\n\n\n\n
Stock Code<\/strong><\/td>CNVRG<\/td><\/tr>
Company Name<\/strong><\/td>Converge ICT Solutions Inc.<\/td><\/tr>
Broker<\/strong><\/td>RCBC Securities<\/td><\/tr>
Opinion Issued on<\/strong><\/td>15 June 2023<\/td><\/tr>
Recommendation<\/strong><\/td>Buy<\/td><\/tr>
1-Year Target Price<\/strong><\/td>PHP 12.40<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
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We have a BUY rating on CNVRG and Target Price of Php12.40<\/strong>, which offers a share price upside of 14.4%. Our Target Price implies a 5.3x 2023 EV\/EBITDA, which is still a 16% discount from its regional peers.<\/p>\n\n\n\n

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Analysis and Opinion<\/h2>\n\n\n\n

Growth expectations should normalize, but still above telco peers<\/strong><\/p>\n\n\n\n

CNVRG delivered a 2018-2022 core net income CAGR of 56%, driven by accelerated net subscriber additions in the residential segment, as the company benefitted from the demand for home broadband during the pandemic. With a higher base (in terms of revenues, subscriber count, and net income), we think that earnings growth expectations should normalize, but still perform better than its local telco peers. We project 2023-2024 core net income CAGR of 13%, underpinned by revenue CAGR of 5% and EBITDA margin expansion to 60.6% driven by improvements in port utilization.<\/p>\n\n\n\n

Competitive pricing and market expansion is key<\/strong><\/p>\n\n\n\n

We attribute the company\u2019s market share gains from its competitive pricing, given that its entry-level fiber plan is priced at Php7.50\/mo per Mbps, the lowest among the telco incumbents. The company also launched its more affordable prepaid fiber plan (branded as Surf2Sawa) to cater to the underserved lower income target market (representing ~41% of total Filipino households based on Philippine Statistics Authority). The company priced Surf2Sawa at Php50-Php750 and targets to have 120k subscribers by end-2023.<\/p>\n\n\n\n

Valuation<\/strong><\/p>\n\n\n\n

The stock currently trades at a 5.1x EV\/EBITDA, a 26% discount from its telco regional peer average of 6.3x, which is unwarranted, in our view, due to better-than-average earnings growth expectations (CNVRG\u2019s EPS CAGR of 13% vs. peer telco average EPS CAGR of 3%), alongside superior return on invested capital (ROIC of 8.8%\/8.4% vs. telco average ROIC of 4.2%\/4.1%).<\/p>\n\n\n\n

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Check how many brokers recommend this stock<\/h2>\n\n\n\n
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All Stock Rankings<\/a><\/blockquote>