{"id":324493,"date":"2023-08-17T00:48:24","date_gmt":"2023-08-16T16:48:24","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=324493"},"modified":"2023-08-17T00:48:31","modified_gmt":"2023-08-16T16:48:31","slug":"stock-in-focus-converge-ict-cnvrg-17-aug-2023-by-ap-securities","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/stock-in-focus-converge-ict-cnvrg-17-aug-2023-by-ap-securities\/","title":{"rendered":"Stock in Focus: Converge ICT (CNVRG) – 17 Aug 2023 by AP 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>AP Securities<\/td><\/tr>
Opinion Issued on<\/strong><\/td>17 Aug 2023<\/td><\/tr>
Recommendation<\/strong><\/td>Hold<\/td><\/tr>
1-Year Target Price<\/strong><\/td>PHP 16.50<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
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Lacking signs of stabilization in churn rate and average revenue per user (ARPU), and considering the overall absence of growth catalysts in the sector, we maintain our HOLD rating on CNVRG despite the significant upside to consensus Target Price of P16.50.<\/p>\n\n\n\n

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

Earnings miss as ARPU continues to decline<\/strong><\/p>\n\n\n\n

Converge ICT Solutions (CNVRG) reported a net income of P2.11-Billion for 2Q 2023, missing estimates by 4.3%. Average revenues per user (ARPU) for the residential segment continued to decline to P1,208.00 as CNVRG expands into Class D1 and D2 markets with lower-priced offerings and prepaid fiber. This has translated to an 8% boost to customer count, but only a 3% uptick in revenues. The enterprise segment underpinned the slowdown in residential, growing by 26% YoY. The company managed to offset weaker revenues with a 10% drop in cost as CNVRG shifts to a low cost support service model, as well as implementing a change in accounting recognition that allows the company to recognize last-mile installation costs as capital and to amortize it throughout the lifetime of the subscriber contract. As a result, EBITDA jumped by 57.9% to P10.1-Bn in the first half.<\/p>\n\n\n\n

Net adds improve but churn rate worsens<\/strong><\/p>\n\n\n\n

Net additions to the company\u2019s subscriber base reached 49,302 this quarter, from 43,000 in Q1. The newly-launched Surf2Sawa prepaid fiber internet contributed 25,166 to this quarter\u2019s net adds, and CNVRG expressed confidence that they will reach their target 120,000 prepaid subscribers by year-end. On the other hand, churn rate for the residential segment rose for the third consecutive quarter and reached 2.04% from 1.89% last quarter, while churn rate for the enterprise segment eased to 1.27% from 1.58% last quarter.<\/p>\n\n\n\n

Positive free cashflows, but still a hold<\/strong><\/p>\n\n\n\n

CNVRG reported that free cashflow to the firm as of 1H23 remained positive at P2.9-Billion, and forecasts that this will be the first year that CNVRG will have positive FCFF as operating cash flows improve against lower capex requirements.<\/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>