RP telcos Q2 net seen dampened by forex losses


The country’s top two telecom firms are likely to post lower quarterly profits this week as subscriber growth slows and a weak peso makes payments on foreign-denominated debts more expensive, analysts said.

Philippine Long Distance Telephone Co.(PLDT) and Globe Telecom Inc. would struggle to match profits from the same quarter last year, when the run-up to a presidential election sparked a nationwide surge in mobile phone use.

Competition from a third mobile player, Digital Telecommunications Inc., and a maturing industry facing weaker subscriber growth are also eating into profit growth.

PLDT would post net income between P4.60 billion and P6.75 billion ($82.1 million to $120.5 million) in the second quarter to June, three analysts surveyed by Reuters estimated. This was lower than a 6.8 billion-peso profit a year ago.

The company has said it expected second-quarter core profits, or its profits without extraordinary gains, to at least match the P7 billion it posted in January to March.

PLDT, due to release second-quarter results on Thursday, controls nearly all of the fixed-line traffic in the Philippines and has 58 percent of the mobile phone market through its units Smart Communications Inc. and Pilipino Telephone Corp.

Globe, with about 38 percent of the mobile market, is expected to post second-quarter profit on Wednesday between P1.5 billion and P2.5 billion, the analysts said, down from P3.8 billion in the same three months of 2004.

PLDT had mostly foreign-denominated debts of $2.4 billion and Globe over $900 million at the end of the first quarter. A weaker peso made repayments costlier in the quarter just ended, the analysts said.

Allegations of election fraud against President Gloria Arroyo helped push the peso down to 56 per U.S. dollar in late June from about 54.75 at the start of the quarter, which analysts said would weigh on profits.

"Both telcos would show an adverse impact on forex," said Jojo Gonzales, managing director of Philippine Equity Partners.

PLDT, partly owned by Hong Kong's First Pacific Co. Ltd. and Japan's NTT Communications, has said it paid off loans of $100 million in the second quarter after debt payments of $150 million to $200 million in the first quarter.

PLDT shares rose almost 17 percent in the second quarter as Globe -- owned 44.6 percent by Singapore Telecommunications Ltd. -- fell nine percent. The Philippines' main stock index lost 1.6 percent in the period.

Hitting the ceiling?

About 40 percent of the country's 85 million people have a mobile phone, compared to 42-43 percent in Thailand and 57 percent in Malaysia. There is more room for growth in Indonesia, for example, where only a fifth of the population use mobiles.

Even Digitel Telecommunications' net additional subscriber numbers have been slowing, proof that it is only serving a market niche, an analyst from a foreign brokerage said.

PLDT is expected to have net profit of P28.6 billion this year, up about two percent from P28 billion in 2004, according to consensus forecasts from Reuters Estimates.

Globe's net profit was seen at P11.1 billion this year, down about 1.7 percent from 11.3 billion pesos last year.

Analysts said PLDT and Globe might realize cost savings after both cut, in the second quarter, a SIM-swap mobile subscriber promotion that did not create much revenue.

"They're cleaning up their subscriber base," said Jody Santiago, research head at UBS Securities Philippines Inc. "It's not really revenue-generating, but they said cutting the programme would mean over P1 billion in savings a year."

Newspapers reported on Monday that Globe expects slower revenue growth in the second half, with analysts saying this was mainly due to the possible impact of a broader sales tax.

The Supreme Court stopped the expanded value-added tax hours after it came into force on July 1 as opposition groups and oil dealers questioned whether it was constitutional.

If the court freeze is lifted this month, as is widely expected, prices of fuel, power and other items are likely to rise. That may result in lower mobile phone usage as consumers scrimp on spending, the analyst from the foreign brokerage said.

Reuters/abs-cbnNEWS.com