Fitch Ratings said leverage for the telecom sector in the Philippines is likely to be steady at around 2.8x in 2018 (2017F: 2.7x) due to high Capex and ongoing dividend commitments.
The telecom sector in Philippines will return to profitable growth in 2017, and EBITDAR will expand at a gradual pace in the medium term, as higher fixed-line services and cost reductions offset flagging legacy voice and SMS revenues.
Fitch Ratings forecasts an 80bp-100bp narrowing in median EBITDAR margins to around 45 percent in 2018 is due mainly to the structural shift in revenue mix to lower-margin data services.
There will be a stable median CFFO of close to PHP50 billion in 2018 and 2019, near the levels seen in 2013-2015. However, high Capex is likely to lead to continued negative FCF, albeit at a declining rate. FCF could turn positive should EBITDA expansion be stronger than expected, with better data monetisation and higher adoption of fibre broadband services.
Globe Telecom will grow faster than PLDT, at a mid-single-digit rate, due to larger postpaid base and market share gains in mobile.
Fitch Ratings has revised sector outlook to stable from negative due to stabilising competition, which should ease margin pressure. Growth catalysts include the shift in PLDT’s strategy to focus more on profitability than market share, and a growing fixed-line business.
PLDT’s fast-growing home broadband and enterprise revenues are likely to drive EBITDA growth, but this may be offset by falls in SMS, international and mobile voice revenue.
Aggressive expansion in LTE network and fibre infrastructure may keep Capex/revenue high at around 27 percent-28 percent in 2018 against 27 percent in 2017.
PLDT and Globe plan to expand LTE services to cover 95 percent of cities and municipalities by end-2018. Capex may trend higher than our forecast should telecom operators decide to accelerate fibre expansion to capture greater demand for home broadband services. There will be long-term opportunities for fibre backhaul and faster-speed fibre broadband services amid the proliferation of video streaming and multiple devices in the home.
