CRISP Assigns ‘AAA’ on PLDT with Stable Outlook

Manila—(PHStocks)—The Credit Rating and Investors Services Philippines Inc. (CRISP) has assigned an ‘AAA’ issuer rating with a stable outlook on Philippine Long Distance Telephone Co. (PLDT, PSE: TEL), the country’s largest telecommunications operator.

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

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 the 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 represent 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 PhP67 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.

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 PhP80.4 billion in 2012, PhP79.2 billion in 2011 and PhP77.3 billion in 2010. After taking into account its financing and investing activities, PLDT’s cash balance ended with healthy levels at PhP37.1 billion, PhP46 billion, and PhP36.7 billion during the last three years beginning in 2010.

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