PLDT Inc. (NYSE:PHI) Q2 2023 Earnings Call Transcript

PLDT Inc. (NYSE:PHI) Q2 2023 Earnings Call Transcript August 6, 2023

Melissa de Dios: Okay. Good afternoon, and thank you for joining us today to discuss the company’s financial and operating results for the First Half of 2023. A copy of today’s presentation is posted on our website. For those who’ve not been able to do so you may download the presentation from the Investor Relations section of our website at www.pldt.com. Kindly note that this briefing is being recorded. A podcast of this event will be available on our website after the call. QR codes for the presentation, the MD&A, the financial statements, as well as the podcaster on the screen and in the confirmation notice’s e-mailed to you. For today’s presentation, we have with us our Chairman, Mr. Manny Pangilinan; Mr. Al Panlilio, our President and CEO; Mr. Danny Yu, our Chief Financial Officer and Chief Risk Officer; Attorney Marilyn Aquino, our Corporate Secretary and Chief Legal Counsel; Shailesh Baidwan, President of Maya Philippines and Co-Founder of Maya Bank as well as other members of the PLDT management team.

At this point, let me turn the floor over to Mr. Pangilinan to begin the presentation.

Manny Pangilinan: Thank you, Melissa. Good afternoon, Chairman. Good afternoon our friends in – our analyst friends here today here in the hotel and online. Thank you for being here. Happy to report the first semester performance of PLDT Smart. I just want to start by saying that, I guess all the efforts that we’ve been doing as a company, very proud to say on this chat that we will reaffirm our top position for brand value sustainability perception value. This is critical because brand is always critical in the way we run business and trusting – it shows me a big trust in the brand and in the company that we have. So most viable brand at PHP2.6 billion. That’s up 2% actually from last year as done by brand finance and the highest – number one highest sustainability presentation value with all the sustainability initiatives that we have been doing all this time.

So again, I think core to our business, I’m happy to report that we have been awarded as the – basically, we are the undisputed fastest integrated network. Both Smart and PLDT were recognized by Ookla. This happened about 2 weeks ago – 3 weeks ago here. They came over here. They did say that fixed broadband has been a leader for 5 years in this country. So that’s a fit we think that has not been done by any entity for sure in the Philippines, but I think even globally. And then also a fit that we achieved was – Smart was rewarded with the best mobile network with three consecutive semesters, and I think it’s also a fit according to Ookla. So very proud of that. So, as we went through the year, and we were able to reinforce even more our core infrastructure.

Homes Passed now is up by 6%. You have 17.2 million homes that we pass, and we continue to obviously expand our fiber footprint up 4% compared to last year. And next page, please. Because of all this, I think it is still a solid performance for the first half. Obviously, we can do better on revenues, only growing at 1%, but I think we have a healthy bottom line Telco Core PHP17.6 billion, 3% up versus last year and EBITDA of PHP52.1 billion, which is not only SMEs high but also a quarterly high in terms of EBITDA. And we’re able to improve also our margin from 52% to 53% EBITDA margin. So our pillars remain to be focused on strengthening the businesses, the three pillars, but also driving steady growth. Individual trying to signify strength in key segments and services.

I think what is happening is because we are able to reverse the negative trend for individual and has been showing growth quarter-on-quarter, second quarter higher than the first quarter. So the data revenue for the first semester is up by 4%, traffic is up 15%. Home continues to lead in the market despite the challenges, up 3% on fixed revenue, which includes all the legacy revenues. But if you take – just take a look at fiber, it’s still growing at the double-digit clipped at 11%. And for enterprise, elevating companies by transformation and that’s the focus for both enterprise and SMEs. Healthy growth both 28% equal allocation and cloud. And I think we will continue to push this as we speak as this has been the focus in the past few months.

We also obviously embed ESG in our company’s DNA. We have a lot of initiatives across environment, social, governance initiatives. For example, in environment, we have an e-waste program where we are disposing off old cell phones with lithium batteries. Making proper disposal is what we intend to do and to make sure that we’re able to do that responsibly. And also with social, a lot of diversity, inclusive advocacies that we cut across. And of course, our PLDT Smart Foundation continues to be active across pillars of education. Obviously, disaster response always has been key not only for PSF but for the entire MVP group and special projects, in particular, for example, in this case, Philippine Navy. But all the other programs like scoring the bag and the like are actually still going on.

And just recently, next page, please. Again, PLDT and the MVP Group was involved in the response to the victims of Typhoon Egay. We sent relief packs, in fact, today, there’s a medical mission that’s already working – or has already gone to – it’s already in Ilocos Norte, but also [indiscernible] not only Ilocos Norte but also Bulacan and Pampanga, as these are in a lot of victims of the recent rains. So just to say that before I pass on the mic to Danny, just to say that we are pushing to still remain strong at 95%, and we will put out some growth initiatives in the next few months to ensure that we become resilient and also remain resilient until hopefully, we can also – we’re planning out for 100 years in 5 years. So Danny?

Danny Yu: Good afternoon. I’ll be presenting the financial and operating highlights for the first semester of ‘23. Service revenues for the first semester of 2023 rose by 1% to PHP94.5. OpEx including subsidies and locations declined by2% to PHP42.4 billion. EBITDA grew by 3% to PHP52.1 billion and all-time semestral high, EBITDA margin improve to 53% from last year 52%. Telco Core income excluding the impact of assets sales and Voyager rose to PHP17.6 billion, up 3% from last year. On segment basis, Home continued to be the main driver of the growth with a 3% rise in revenue to PHP30.1 billion. Fiber only revenue is grew 11% to PHP25.7. Our enterprise business grew by 2% to PHP23.2 billion, our individual business remains stable year-on-year with revenues of PHP40.2 billion despite the absence of election related benefits in 2022.

Allow me now to go through the segments in greater detail. Home broadband revenues grew by 3%. Fiber revenues which account for 85% of the total Home revenues rose 11%. The Home broadband market remains underpenetrated with unserved demand more at the lower market segments that’s more sensitive to price and inflation. Home ARPU is respectable at 1,488, Fiber net adds for the first 6 months of the year stood at 123,000. PLDT’s competitive advantages remain to be our superior network, strong brand equity, a portfolio of products at different price points using varied fixed and wireless technologies. Next page. Data and ICT remain key drivers of our enterprise business, which was up by 2% to PHP23.2 billion from the same period last year. Corporate data rose 7% from higher fiber, managed IT and I-GATE revenues.

ePLDT/ICT recorded 13% improvement in revenues mainly from data center and cloud services. PLDT Global on the other hand grew 31% from IPLCs, data center, cross-connect and carrier hubbing. Opportunities for growth in enterprise will come from hyperscale data center business and increased focus on digital transformation by corporates, SMEs and government. The capacity utilization of our existing 10 data centers stands at 71% versus practical capacity of 80%. Our 11 data center in Santa Rosa Laguna is expected to go live in the first semester of next year. Next. Revenues for our individual business remained stable year-on-year with the second quarter registering a 3% rise versus the first quarter. This was supported by a 2% increase in prepaid and a 7% increase in postpaid.

Mobile data revenues were higher by 4% at PHP34.5 billion year-on-year with active data users rising by 2%. Compared with the full year 2022, data usage per sub and data traffic continued to register improvements of 14% and 15%, respectively. After the deadline for SIM registration on July 25 and the 5-day extension, 52.5 million Smart and TNT subscribers had registered, representing about 99% of our active subscriber base and representing about 96% of revenues. To make up for the potential revenue shortfall, we will accelerate our efforts to optimize revenues and continue to make available great value promo offers supported by network expansion and superior customer experience. Thus, we expect the positive momentum in the first half to be sustained in the second half of the year.

In the first half of 2023, 83% of consolidated service revenues were from data and broadband. By service type, mobile data grew 2% year-on-year, while home broadband and corporate data rose by 5% and 7%, respectively. ICT revenues were 13% higher, which included an 11% rise in data service revenues. Consolidated EBITDA for the first semester hit an all-time high of PHP52.1 billion, up 3% or PHP1.6 billion compared with the same period last year. This was a result of the PHP900 million increase in revenues and an PHP800 million reduction in OpEx. Telco Core for the first 6 months of the year rose 3% to PHP17.6 billion from last year. Higher EBITDA and lower depreciation fully offset increases in financing costs and income tax provision. On a reported basis, PLDT income rose 10% to PHP18.6 billion, higher by PHP1.1 billion year-on-year.

This was mainly from the gain of power sales, Forex and derivative gains, partly offset by MRP expenses. Last year, the company recorded a PHP7.8 billion gain from prescription of preferred shares redemption liability MRP expenses of PHP4.6 billion. Note that our share in Voyager losses stood at PHP1.2 billion lower than last year’s PHP1.6 billion. Today, the Board of Directors approved the payout of an interim cash dividend of PHP0.49 per share, representing a 60% payout of all of our first half Telco Core income per share of 81. Record days is August ‘17 with a payout date set for September 1. PLDT’s balance sheet remains strong with net debt to EBITDA of 2.48x as of June. We expect this – we expect to reduce with the receipt of tower sales proceeds in the second half of the year.

Gross debt amounted to PHP270.3 billion, of which 15% are dollar-denominated and 5% unhedged. Interest costs for the first semester stood at 4.32%, while the average life of debt is 6.7 years. Total CapEx for the first semester amounted to PHP40.8 billion, consisting of network and IT CapEx of PHP34 billion and business CapEx of PHP4.2 billion. Included in the CapEx spend are investment in capacity to drive revenue growth and support continuing rise in network traffic and as well as the construction of our 11 data center among other projects. In line with our objective of bringing down CapEx and aiming for positive free cash flow, CapEx intensity for the first 6 months of 2023 has moderated to 41% from last year’s 48%. In addition, the CapEx of PHP40.8 billion is PHP11.3 billion lower than EBITDA for the period of PHP52.1 billion.

The next page shows the usual network highlights. On the fixed network, we passed 17.2 million homes and cover 18,000 barangays representing 43% of the total barangays in the Philippines. Total fiber ports stood at PHP6.1 million, excluding VDSL of around PHP1 million. Utilization of these ports remain high as we carefully rationalize the rollout of new ports. PLDT’s total fiber footprint remains unparalleled with a total of over 1.1 million kilometers. The population coverage of our 3G, 4G, 5G wireless network stands at 97%, about 83% of the total handsets on the network are LTE. The last page shows the number of unique 5G devices and 5G traffic increasing from end of 2022. As part of our network optimization to realize operational CapEx and spectrum efficiencies, we reduced the number of our 5G base stations from the end of 2022.

Nevertheless, 5G speeds remain faster than the competition based on Ookla speed tests. I will now turn you over to our Chairman for the guidance.

Manny Pangilinan: Thank you, Danny. Good afternoon, everyone. So we launched Maya Bank about 12 months back and put it at the heart of our payment ecosystem. And we’ve had fantastic response to the launch of the bank, and I’ll share some of the statistics on that, along with, of course, recognition that we have got amongst not just the peers in Philippines, but globally. The launch of Maya Bank and deepening of Financial Services has, of course, helped us in the consumer business, where by virtue of having a single unified app, we are seeing the performance in terms of customers using us for multiple use cases and the app continues to be rated the best finance app. And on the other side of the payments where we power enterprises to accept Visa, MasterCard, Bank Net, QR PH, that business continues to grow in strength day by day.

Today, we process more than 50% of all Visa MasterCard QR PH transactions in the Philippines. On the next slide, as I mentioned, our plan always was to launch an all-in-one digital banking solution, whether you’re a consumer or whether you’re an SME. On the consumer side of the house, we’ve already introduced saving products like the personal goals and Maya Saving our Engagement banking, and we have launched Maya credit, and we will be introducing a buy now pay later, which is already in test mode. And on the SME side, I’ll talk in a minute where on the back of providing enabling them to accept payments from all kinds of digital means. We are now adding on other services to allow them to settle that money into a business deposit and on the back of that provide working capital loans.

And of course, all of this underpinned by our payment network. On the next slide, if I can just give some color on the digital banking progress that we have made at Maya. So the numbers as of first half, we have over 2.3 million depositors who have placed PHP25 billion worth of deposit with us, and we’ve been able to disburse over PHP10 billion worth of loans to our customers. And if you look at the statistics, as published by the BSP as of end of first quarter, as of end March, the charts below the green is Maya’s share as a percentage of the total share amongst the six digital banks. So share 61% of total accounts, 71% of the total depositors and 46% of the balances. Of course, we were the last one to receive the digital bank and the pretty much first one out of the door.

This by is expanding rapidly as the other banks continue to grow and launch new products, but our push, of course, will continue to make sure we keep a leadership position in this space with new innovative products. So as I mentioned on the consumer side of the house, that was our first port of call, where we were off to the races by providing services. Our next area where we are pushing on the next slide, please, is on the SME side of the house. So we’ve launched a bundle for this extremely large and important segment and deeply underserved segment in the Philippines are one to three grow bundle. What that allows you is to accept all forms of payments, so you can digitize your payments, which is number one. On the back of that, you can connect that to your Maya business deposit account where you earn interest rate, you can pay salaries of your employees, you can pay your suppliers through that bank account.

And as we see the transactions at your end, over a course of 90 days we can start lending you working capital on the back of that. This is our next thrust area even as we made good progress on the consumer side and continue to push our next area port of call, is really growing our SME business. And with that, I will hand you over to the Chairman on the guidance.

Danny Yu: I guess this is the outlook, So I’ll just read through this. In terms of services revenue growth, the outlook is low single-digit growth for the full year. EBITDA is quite similar, low single-digit growth for the full year. Telco Core is a range of PHP33.5 billion to PHP34 billion anticipated for the full year, CapEx between PHP80 million to PHP85 billion and that’s a focus on deleveraging, I think you saw the net debt-to-EBITDA ratio as of June 30 being 2.48. We should anticipate that, that should drop to around 2.3 by year-end, in part because of healthier EBITDA for the year and proceeds from the tower sales for balance of the year. Thank you.

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Q&A Session

A – Melissa de Dios: So we’re now ready to take your questions. [Operator Instructions]

Melissa Vergel De Dios: So, we are now ready to take your questions. [Operator Instructions] Allow me to take questions on the floor first before we go to those online. Anyone? Just raise your hand. No questions. So, let’s go to the questions that we received online. There is a question from CLSA, Derek. There are three questions, so we will start with the first one. What pulled down the growth in enterprise revenues when ICT revenues rose 13% year-on-year. There is a question goes out to Mitch.

Mitchie Arcaina: Thank you, Melissa. So, our – we actually grew 13% in the first half, but that was pulled down by the decline of legacy services like our voice services and discontinued services, like, for example, the Department of Education load that we provide to all the teachers nationwide. And due to the face-to-face learning, they stop already the service. But all-in-all, we still grew by PHP600 million in the first half, bringing our revenues to PHP33.2 billion.

Melissa Vergel De Dios: The next question from Derek is, can you give us updates on the Sky Cable acquisition? Marilyn Aquino?

Marilyn Aquino: We are still awaiting the approval of the PCC for the transaction. So, I think there is a scheduled meeting sometime next week so that we can settle any outstanding issues with the PCC. But we have submitted a lot of documents that they requested. So, we will – that’s the only thing basically that’s outstanding, I believe at this point in time.

Melissa Vergel De Dios: The next question and the last question from Derek. For Maya, the loan book has tripled year-to-date. What are the names like now and is there a new timeline for profitability?

Shailesh Baidwan: Sorry, what was the first part Melissa?

Melissa Vergel De Dios: For Maya, the loan book has more than tripled year-to-date. What are the names like now and is there a new timeline for profitability, the names?

Shailesh Baidwan: Yes. So, at this stage, we are very pleased with the way the loan book is performing. As you know, this was – first, we started with our existing customers for whom we had rich data on their transaction history and using our internally developed AI credit scoring models. We have been disbursing them loans, and we are seeing over 80% of them coming back month-on-month for repeat. So, the names, I won’t be able to share the exact numbers, but the extremely low, in fact, our margins are very, very healthy on the loan book. The idea is to keep expanding and adding newer products. Our first product is a short tenure line of credit. We are adding now on top of that installment loans and expanding to other segments like the SME.

As regards to profitability, absolutely the whole plan of introducing products like the loans products, these are high-margin products, they help us to deepen the customer relationship and we see that the usage of the loan customer is not just on the loan side, but then they use us for all the payments and other use cases. So, we make a lot more ARPU per customer once they start taking loans from us. So, the idea is as we expand the loan book to help us create higher-margin products to push towards profitability. Already all our businesses are segment EBITDA positive. Now, our pushes towards group EBITDA profitability, which we are aiming for the second half of 2024.

Melissa Vergel De Dios: Any questions from the floor before we take part from the online participants? If there are none, the next set of questions are from [indiscernible] of Abacus Securities. Were there any reversals in asset impairment in the second quarter? And what is the nature of it?

Danny Yu: There is none.

Melissa Vergel De Dios: The second question, given the slight sequential decline in quarter two service revenues, where do you expect the bottom line growth to come from moving forward? Given the slight sequential decline in second quarter service revenues, where do you expect bottom line growth to come from moving forward?