CRISP affirms ‘AAA’ on PLDT Co. with Stable Outlook

Manila, PHILIPPINES,  June  27, 2015 – – The Credit Rating and Investors Services Philippines, Inc. (CRISP) affirms its ‘AAA’ issuer rating with a stable outlook on the Philippine Long Distance Telephone Company (PLDT), the country’s largest telecommunications operator.

PLDT’s 2015 first quarter financial performance reflects consolidated data and broadband revenues increasing by 11% to $248 million but consolidated service revenues showed lower by 2% compared to the same period in 2014.  Its EBITDA margin remained steady at 48%

CRISP positively notes PLDT’s 27% increase in its total broadband subscriber base at over 4.5 million and its 18% increase in postpaid cellular subscriber base to 2.9 million.  PLDT’s total subscriber base now stands at 76.4 million.

CRISP believes that through a continuing massive investment in state of the art technology by PLDT, the company would be able to continue its firm hold of its market share in the highly competitive Philippine telecommunications industry.

PLDT has announced early this month that it is increasing its capital expenditure this year to exceed P40 billion, or approximately $887 million at today’s peso/dollar exchange rate.  This would be funded from PLDT’s fresh borrowings which include a $400 million loan package from 2 Japanese banks. PLDT and its wholly-owned subsidiary, Smart Communications Inc. had each signed separate $200 million loan agreements with the Bank of Tokyo-Mitsubishi UFJ, Ltd. and Mizuho Bank, Ltd. respectively, intended to partially finance this year’s capital expenditures.

CRISP also believes that PLDT’s continued access to a broad capital market which includes overseas capital market institutions would allow it to sustain the infrastructure investments needed to remain competitive in the telecommunications industry.

Outlook: Stable

CRISP assigns a stable credit outlook for PLDT’s issuer rating as CRISP believes that PLDT’s market leadership and strong financial returns will be sustained.

January 17, 2014 – – PLDT’s liquidity profile remains strong.  As of end September 2013, the company had a cash balance of P30.0B.  Approximately P14.2B of the P109.5B in total reported debt outstanding was due within one year, while over 70% had maturities 2016 and beyond.

Notwithstanding its current ratio below 1:1 at the end of September 2013, CRISP believes that PLDT’s liquidity position is strong and, based on financial projections, will remain robust, thus, providing comfort about its ability to meet its current liabilities.

A review of PLDT’s forecast supports CRISP’s expectations that PLDT’s dominant market position will continue to enable the company to generate strong free cash flow with over P30B in cash balance at the end of 2013 after its investing and financing activities.  If needed, PLDT can easily tap bank credit facilities to settle obligations, as necessary.

A stress test on PLDT’s operating performance suggests that even with a 10% decline in its cash flows from operating activities, PLDT can still continue to implement its capital investing and financing activities, and maintain adequate cash balance, but at a much lower level.

January 6, 2014 – – The Credit Rating and Investors Services Philippines, Inc (CRISP) assigns a ‘AAA’ issuer rating with a stable outlook on the Philippine Long Distance Telephone Company (PLDT), the country’s largest telecommunications operator.

CRISP’s rating assignment is based on the following rating factors:

  1. Dominant market leadership. PLDT holds a commanding market share in terms of subscribers with over 60% in the wireless, fixed line and broadband segments of a highly competitive Philippine telecommunications industry. Based on available information, PLDT enjoys :
  • 67% share in the Wireless Market Segment. PLDT has 72 million of the country’s approximately 109 million wireless subscribers, or 67% which represents the combined market share by Smart Communications and Sun Cellular in the wireless telecommunications market.
  • 69% share of subscribers in the Fixed Line Market Segment. Out of approximately 3 million fixed line subscribers in the country, approximately 2 million are PLDT subscribers, which represents the lion’s share of the fixed line market segment;
  • 64% share of subscribers in the Broadband Market Segment. The combined market share of PLDT, Smart Communications and Sun Cellular amounting to about 3.3 million subscribers represents about 64% of the 5.2 million total broadband subscribers in the Philippines today.

CRISP cites PLDT’s well-timed implementation of its capital investment program as a major factor in its dominant share in the telecommunications market.  In 2011 and 2012, PLDT undertook a P67 billion network transformation program that upgraded its access network and made it more efficient and capable of more advanced generations of the Long Term Evolution (LTE) technology.  The investment also expanded the company’s digital fiber optic transmission network, now spanning 75,000-kilometers, the country’s most extensive and resilient.

  1. Strong historical financial performance. Despite competitive pressures and a changing revenue mix, PLDT’s consolidated financial performance remained healthy over the last five years, with EBITDA and income margins averaging 55% and 24% respectively, while ROEs during the same period averaged about 32%.

During the first 9 months of the current year, PLDT’s unaudited operating results indicated both its EBITDA from continuing operations and overall core income growing by 4% year-on-year.  Profit margin for the same period in 2013 and 2012 is holding steady at 23% while EBITDA margin grew slightly to 49% from 48% the year before. For the next 5 years, EBITDA is expected to continue to grow at low- to mid- single digits and would remain strong, with EBITDA margins averaging at about 48% for the next 5 years.

Strong cashflow.  Historically, PLDT has generated strong cashflow from operations.   During the last three years, PLDT’s net cash flow from operations netted P80.4 billion in 2012, P79.2 billion in 2011 and P77.3 billion in 2010.  After taking into account its financing and investing activities, PLDT’s cash balance ended with healthy levels at P37.1 B, P46 B, and P36.7 B during the last three years beginning in 2010.

  1. Excellent Management and Governance. PLDT management’s well thought-out strategy and timely execution of its investment and network transformation program ensure its current leadership position in the country’s telecommunications industry, at least for the next 5 years. The combined effect of new technologies and the improving economic status of customers has caused a shift in the predominantly wireless/fixed line market to a more sustainable and growth-driven broadband market.  The current thrust of PLDT management is expected to lead the pace of innovation and development of value added services in the industry.

CRISP views the PLDT Board’s creation of its Group Enterprise Risk Management Department as a reflection of its proactive approach in addressing existing and emerging risks to its business and organization which is crucial in maintaining an organization’s competitive position.

Outlook: Stable

CRISP assigns a stable credit outlook for PLDT’s issuer rating as CRISP believes that PLDT’s market leadership and strong financial returns will be sustained.