PLDT, Inc.

FRI 07 MAY 2021

1Q21 core income up 9.1% y/y

on higher data-related revenues,
in line with estimates
1Q21 core earnings rise 9.1% y/y. TEL’s 1Q21 core income rose by 9.1% y/y to Php7.5Bil
from Php6.9Bil, in line with COL (24.8%) FY21 estimates. The strong performance
was primarily driven by the robust revenue growth in its consumer wireless and home
BUY
broadband segments. 1Q21 service revenues grew by 8.1% y/y to Php44.8Bil, accounting
for 24.0% of COL estimates. Likewise, EBITDA increased by 7.5% y/y to Php23.3Bil despite TICKER: TEL
the 200bps margin contraction to 51.9%, in line with both COL (24.6%) and consensus
(24.6%) estimates. FAIR VALUE: 1,820
CURRENT PRICE: 1,264
Mobile data drives consumer wireless growth. TEL’s 1Q21 consumer wireless revenues
increased by 6.8% y/y to Php22.1Bil from Php20.7Bil on the back of higher mobile data UPSIDE (%): 43.99
usage. Mobile data revenues grew by 13.4% y/y to Php17.5Bil from Php15.5Bil in 1Q20 as
prepaid top-ups maintained its upward trajectory during the period. Although TEL’s mobile
subscriber base fell by 1.7% y/y, management saw more active users top up to TEL’s GIGA
packages.
Home broadband still enjoys high demand. Meanwhile, home broadband revenues grew
by a robust 18.5% y/y to Php10.9Bil, recording the strongest growth out of TEL’s business
segments. Home broadband data packages sustained its popularity as people continued
to work and study from home, especially with COVID-19 cases rising rapidly in March. The
higher installations and improvement in churn brought TEL’s broadband subscriber base to
3.1 million users as of end March 2021, up 43.5% y/y and 6.0% q/q.
Year starts on a positive note. After the strong performance in 1Q21, management expects
the upward trend in earnings to continue. As such, TEL is maintaining its FY21 core income
guidance of Php29-30Bil, driven by high single-digit growth of service revenues. Although
the consumer wireless segment may face some headwinds with the prolonged lockdown
and limited mobility in 2Q21, management still expects high single-digit growth for the
year. Moreover, home broadband revenues are expected to sustain its robust growth as
people rely on broadband connection to work, study, and keep in touch with other people.
Maintaining estimates, reiterating BUY rating. We reiterate our BUY rating on TEL with
an FV estimate of Php1,820/sh. At TEL’s current price of Php1,264/sh, capital appreciation
potential is attractive at 44.0%. The stock also provides a very attractive dividend yield of
6.4%. We continue to like TEL due to the strong growth of its mobile data business and its
dominant position in the home broadband business.
FORECAST SUMMARY
Year to December 31 (Php Mil) 2017 2018 2019 2020 2021E 2022E
Total Revenues 159,926 162,914 169,187 181,004 196,460 211,025
% change y/y (3.2) 1.9 3.9 7.0 8.5 7.4
Service Revenues 151,165 152,369 161,355 173,634 186,518 200,755
% change y/y (3.8) 0.8 5.9 7.6 7.4 7.6
EBITDA 66,174 79,229 84,704 93,804 94,333 102,547
% change y/y 8.2 19.7 6.9 10.7 0.6 8.7
EBITDA margin (%) 43.8 52.0 52.5 54.0 50.6 51.1
Net Income (Recurring Core) 23,600 24,047 27,080 28,087 30,248 33,625
% change y/y 16.8 1.9 12.6 3.7 7.7 11.2
Recurring Core Net Margin (%) 15.6 15.8 16.8 16.2 16.2 16.7
EPS (Php) 61.6 130.1 104.0 112.1 118.9 134.5
% change y/y (33.2) 111.2 (20.1) 7.8 6.1 13.1 Adrian Alexander Yu
Research Analyst
RELATIVE VALUE
adrian.yu@colfinancial.com
P/E (X) 20.5 9.7 12.2 11.3 10.6 9.4
P/BV (X) 2.6 2.4 2.4 2.4 2.2 2.0
EV/EBTIDA (X) 6.2 5.0 5.2 4.9 4.8 4.4 Kerwin Malcolm Chan
Dividend yield (%) 6.1 5.1 5.7 6.1 6.4 7.1 Research Analyst
ROE (%) 12.5 25.8 20.3 21.6 21.5 22.7 kerwin.chan@colfinancial.com
source: TEL, COL est imat es

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of the
COL Financial website as these may be subject to tampering or unauthorized alterations.
 EARNINGS ANALYSIS I TEL: 1Q21 CORE INCOME UP 9.1% Y/Y ON HIGHER DATA-RELATED REVENUES,
IN LINE WITH ESTIMATES

FRI 07 MAY 2021

1Q21 core earnings rise 9.1% y/y

TEL’s 1Q21 core income rose by 9.1% y/y to Php7.5Bil from Php6.9Bil, in line with COL
(24.8%) FY21 estimates. The strong performance was primarily driven by the robust
revenue growth in its consumer wireless and home broadband segments. 1Q21 service
revenues grew by 8.1% y/y to Php44.8Bil, accounting for 24.0% of COL estimates. Data-
related revenues accounted for a higher share of service revenues at 74.2% compared to
70.2% in 1Q20. Likewise, EBITDA increased by 7.5% y/y to Php23.3Bil despite the 200bps
margin contraction to 51.9%, in line with both COL (24.6%) and consensus (24.6%)
estimates.

Exhibit 1: Results Summary

% % of forecasts
in PhpMil 1Q20 1Q21
Change COL Consensus
Service revenues 41,495 44,844 8.1 24.0 -
EBITDA 21,636 23,252 7.5 24.6 24.6
EBITDA margin (%) 52.1 51.9 - - -
Core income 6,878 7,502 9.1 24.8 -
Core income margin (%) 16.6 16.7 - - -
source: TEL, Bloomberg, COL estimates

Mobile data drives consumer wireless growth

TEL’s 1Q21 consumer wireless revenues increased by 6.8% y/y to Php22.1Bil from
Php20.7Bil on the back of higher mobile data usage. Mobile data revenues grew by
13.4% y/y to Php17.5Bil from Php15.5Bil in 1Q20 as prepaid top-ups maintained its
upward trajectory during the period. Although TEL’s mobile subscriber base fell by
1.7% y/y, management saw more active users top up to TEL’s GIGA packages, which are
customized to fit the data requirements of its broad customer base including students,
workers, gamers, and others. Also, TEL noted that top-ups remained resilient against the
effect of tighter restrictions in March compared to 1Q20 as more subscribers topped up
through TEL’s online channels like the Smart platform and PayMaya. As a result, mobile
data’s contribution to consumer wireless revenues reached 79.3%, much larger than the
74.6% share recorded in 1Q20.

For 2Q21, management mentioned that the consumer wireless segment may be hurt by
the extension of stricter lockdowns and slow vaccination rollout as these would result to
limited mobility. Nonetheless, top-ups are expected to remain strong as TEL maintains
its online channels to make topping up more convenient and accessible to its mobile
subscribers.

COL Financial Group, Inc. 2

 EARNINGS ANALYSIS I TEL: 1Q21 CORE INCOME UP 9.1% Y/Y ON HIGHER DATA-RELATED REVENUES,
IN LINE WITH ESTIMATES

FRI 07 MAY 2021

Home broadband still enjoys high demand

Meanwhile, home broadband revenues grew by a robust 18.5% y/y to Php10.9Bil,

recording the strongest growth out of TEL’s business segments. Home broadband data
packages sustained its popularity as people continued to work and study from home,
especially with COVID-19 cases rising rapidly in March. During the quarter, TEL connected
an average of 90,000 new homes per month, higher than the 74,000 monthly installations
in 4Q20. Moreover, churn rates saw a q/q improvement as TEL pursued more initiatives
to improve customer experience. As a result, TEL’s broadband subscriber base increased
by 43.5% y/y and 6.0% q/q to 3.1 million users as of end March 2021.

Due to the elevated demand for data, TEL plans to continue ramping up its home
installations while improving customer experience to reduce churn. One of their initiatives
to reduce churn include upgrading its network and repair capabilities to improve user
connectivity. TEL is also in the process of migrating its remaining 500,000 copper-based
broadband subscribers to the faster and more reliable fiber network, which is expected
to be completed by the end of the year.

Exhibit 2: Cumulative Broadband Subscribers

% Change
in Thousands 1Q20 2Q20 3Q20 4Q20 1Q21
y/y q/q
Subscribers
Fixed Line 1,986.8 2,105.1 2,194.9 2,273.6 2,385.2 20.1 4.9
Fixed Wireless 296.0 504.0 646.8 816.5 890.9 201.0 9.1
Total 2,282.8 2,609.2 2,841.8 3,090.1 3,276.1 43.5 6.0
source: TEL

Enterprise segment shows modest growth

During 1Q21, TEL’s enterprise revenues increased by 4.0%y/y to Php10.3Bil from

Php10.0Bil despite the difficult economic conditions for its MSME clients. The modest
growth is mainly attributable to the growing number of hyperscalers or large-scale
cloud companies who are setting up their data centers here in the country. Management
mentioned that this new market could serve as a potential growth driver in the enterprise
segment, which could also offset the weaker demand of its other clients that are struggling
amid the pandemic.

COL Financial Group, Inc. 3

 EARNINGS ANALYSIS I TEL: 1Q21 CORE INCOME UP 9.1% Y/Y ON HIGHER DATA-RELATED REVENUES,
IN LINE WITH ESTIMATES

FRI 07 MAY 2021

Elevated OPEX on the back of higher depreciation and

provisions

TEL’s 1Q21 operating expenses increased by 16.0% y/y to Php37.7Bil from Php32.5Bil due
to higher depreciation expense and provisions booked during the period. Depreciation
expense grew by 14.0% y/y to Php11.7Bil as the company continued with its aggressive
network expansion program. Provisions also increased by 50.2% y/y to Php1.6Bil from
Php1.1Bil in 1Q20. Nonetheless, provisions were lower than the quarterly average of
Php1.9Bil in FY20. Meanwhile, cash operating expenses increased by 9.7% y/y to
Php19.7Bil from Php17.9Bil due to higher salaries and selling and promotions expenses.

Year starts on a positive note

After the strong performance in 1Q21, management expects the upward trend in earnings
to continue. As such, TEL is maintaining its FY21 core income guidance of Php29-30Bil,
driven by high single-digit growth of service revenues. Although the consumer wireless
segment may face some headwinds with the prolonged lockdown and limited mobility
in 2Q21, management still expects high single-digit growth for the year. Moreover,
home broadband revenues are expected to sustain its robust growth as people rely on
broadband connection to work, study, and keep in touch with other people.

For 2021, TEL intends to maintain its dividend payout policy which is equivalent to 60%
of past year’s profits. TEL is also considering paying out another 5% special dividend this
year, bringing its payout ratio to 65%. During its 1Q21 analyst briefing, TEL mentioned
that they are earmarking Php88-92Bil for capex this year. This would include rolling out
more fiber lines and expanding their 5G presence in the country. TEL is putting more
focus on projects that will improve the network quality and user experience for both its
wireless and broadband subscribers.

Maintaining estimates, reiterating BUY rating

We reiterate our BUY rating on TEL with an FV estimate of Php1,820/sh. At TEL’s current
price of Php1,264/sh, capital appreciation potential is attractive at 44.0%. The stock
also provides a very attractive dividend yield of 6.4%. We continue to like TEL due to
the strong growth of its mobile data business and its dominant position in the home
broadband business.

COL Financial Group, Inc. 4

 EARNINGS ANALYSIS I TEL: 1Q21 CORE INCOME UP 9.1% Y/Y ON HIGHER DATA-RELATED REVENUES,
IN LINE WITH ESTIMATES

FRI 07 MAY 2021

PLDT, Inc. (TEL) INCOME STATEMENT (IN PHPMIL)

2017 2018 2019 2020 2021E 2022E
COMPANY BACKGROUND
Revenues 159,926 162,914 169,187 181,004 196,460 211,025
PLDT or TEL is one of the two major % Growth -3% 2% 4% 7% 9% 7%
Wireless 87,354 81,349 88,243 95,748 99,403 106,721
telecommunications and digital services
% Growth -12% -7% 8% 9% 4% 7%
provider in the Philippines. Its business is
Fixed Line 63,811 71,020 73,112 77,886 87,115 94,034
primarily divided into two major groups – % Growth 10% 11% 3% 7% 12% 8%
the wireless segment and fixed line segment. EBITDA 66,174 79,229 84,704 93,804 94,333 102,547
Under the wireless segment, the company % Growth 8% 20% 7% 11% 1% 9%
Depreciation (51,915) (47,240) (39,656) (47,480) (49,920) (53,525)
operates three brands (Smart, TNT and
Interest expense (7,370) (7,067) (8,553) (10,086) (7,865) (7,900)
Sun) and services around 71.8Mil mobile Other income (expenses) 11,016 14,166 (257) 5,715 (1,287) (1,287)
subscribers thru voice, SMS and data related EBT 14,569 32,074 32,336 33,021 34,336 38,839
products. Meanwhile, under its fixed line % Growth -34% 120% 1% 2% 4% 13%
network, TEL provides landline, broadband Taxes 1,103 3,842 9,550 8,441 8,584 9,710
Net Income to Equity 13,371 28,175 22,521 24,284 25,752 29,129
and fiber connections to majority of homes
Recurring Core Income 23,600 24,047 27,080 28,087 30,248 33,625
and offices in the country, in addition to its % Growth 17% 2% 13% 4% 8% 11%
international and national call services. BALANCE SHEET (IN PHPMIL)
2017 2018 2019 2020 2021E 2022E
Cash 33,979 52,819 24,683 41,226 46,077 46,595
REVENUE BREAKDOWN
Accounts Receivables 33,761 24,056 22,436 22,053 27,045 29,109
Inventory 3,933 2,878 3,412 4,085 3,713 3,902
11% Other Current Assets 17,996 8,563 11,489 10,679 13,037 13,972
15%
Total Current Assets 89,669 88,316 62,020 78,043 89,872 93,579
20%
PPE 186,907 195,964 232,134 260,868 273,685 285,730
40% Other Assets 182,868 180,875 198,392 205,545 193,762 195,765
Total Assets 459,444 465,155 492,546 544,456 557,320 575,075
Accounts Payable 60,445 74,610 77,845 82,413 78,439 78,469
35%
31%
ST Debt 90,740 95,724 100,815 107,759 113,843 119,606
Current Portion of LT Debt 14,957 20,441 19,722 17,570 17,711 15,131
34%
Other Current Liabilities 1,949 1,833 2,851 1,752 1,752 1,752
15% Total Current Liabilities 168,091 192,608 201,233 209,494 211,745 214,957
LT Debt 157,654 155,835 172,834 205,195 207,484 212,353
Other Liabilities 22,516 17,641 18,355 21,467 21,467 21,467
Wireless - Data Wireless - Non-Data
Total Liabilities 348,261 366,084 392,422 436,156 440,696 448,777
Fixed Line - Data Fixed Line - Non-Data
Minority Int 4,341 4,308 4,303 4,257 4,257 4,257
Shareholder's Equity 106,842 94,763 95,821 104,043 112,366 122,040
CASHFLOW STATEMENT (IN PHPMIL)
2017 2018 2019 2020 2021E 2022E
Operating CF 56,114 61,116 69,392 85,076 88,618 89,892
Net income 10,019 20,371 30,239 30,773 25,752 29,129
Non-cash items 59,921 49,903 55,829 64,813 57,997 62,208
Change in working cap (13,826) (9,158) (16,676) (10,510) 4,869 (1,445)
Investing CF (21,060) (25,054) (84,316) (68,669) (60,904) (64,307)
PPE (36,616) (47,247) (88,246) (76,503) (63,416) (66,249)
Dividend received 833 0 0 316 0 0
Interest received 1,217 1,115 1,723 1,106 1,833 1,263
Other non-current assets 13,506 21,078 2,352 6,412 679 679
Financing CF (40,319) (18,144) (11,613) 463 (22,864) (25,066)
Cash dividends (16,617) (13,928) (15,592) (16,721) (17,429) (19,455)
Other financing CF (27,867) (4,242) 9,382 22,965 (5,435) (5,611)
Net effect of forex rate changes (552) 831 (748) (1,002) - -
Change in Cash (5,817) 18,749 (27,285) 15,868 4,851 519
Cash (Begin) 38,722 32,905 51,654 24,369 40,237 45,088
Cash (End) 32,905 51,654 24,369 40,237 45,088 45,606

COL Financial Group, Inc. 5

 EARNINGS ANALYSIS I TEL: 1Q21 CORE INCOME UP 9.1% Y/Y ON HIGHER DATA-RELATED REVENUES,
IN LINE WITH ESTIMATES

FRI 07 MAY 2021

INVESTMENT THESIS: KEY RATIOS

2017 2018 2019 2020 2021E 2022E
Consumer wireless segment continues
ROE 13% 26% 20% 22% 22% 23%
growth Mobile Services
TEL’s wireless segment revenues rose by 6.8% Blended ARPU 150 134 121 131 136 146
y/y in 1Q21 to Php22.1Bil as prepaid top-ups Subscribers ('000) 58,294 60,499 73,118 72,934 72,934 72,934
maintained its upward trajectory during the Home Broadband (Php)
period. Although TEL’s mobile subscriber base Subscribers ('000) 1,951 2,026 2,161 3,090 3,090 3,090
Blended ARPU (Php) 924 1,116 1,130 1,047 1,012 1,113
fell by 1.7% y/y, management saw more active
CorpData & DataSvc (Mil) 19,636 23,026 24,480 25,100 30,159 33,175
users top up to TEL’s GIGA packages, which % Growth 15.5% 17.3% 6.3% 2.5% 20.2% 10.0%
are customized to fit the data requirements of EBITDA Margin 44% 52% 52% 54% 51% 51%
its broad customer base including students, NPM 16% 16% 17% 16% 16% 17%
CA/CL (X) 0.5 0.5 0.3 0.4 0.4 0.4
workers, gamers, and others.
D/E Ratio (X) 1.6 1.6 1.7 1.9 1.8 1.7
Net Debt/EBITDA (X) 2.1 1.6 2.0 1.9 1.9 1.8
Fixed line segment posed for significant
MAJOR CORPORATE DEVELOPMENTS (5-YEARS)
growth
TEL’s fixed line segment, composed mainly Acquired 50% of SMC Vega telecom for Php 35 Bil 05/31/2016
of the Home and Enterprise businesses,
now accounts for 35.3% of the total service Major management resturcuring 11/15/2016
revenues. Both Home and Enterprise segments
are forecasted to grow for the foreseeable Sold 25% equity stake in Beacon for Php26.2 Bil 05/30/2016
future driven by strong demand for data and
TEL’s improving infrastructure. TEL is expected Completed divestment of 25% equity stake in Beacon for Php21.8Bil 06/13/2017
to maintain its lead as competitors will need
to invest in a significant amount of capex to Sold 7.5Mil Rocket Internet shares for Php11.4 Bil 05/08/2018

replicate TEL’s current infrastructure.

KKR, Tencent and IFC to infuse US$215Mil in Voyager for >50% stake 11/01/2018

Increasing share of data to help profits JGS acquires around US$138.83Mil or 3.26% of TEL's outstanding shares
08/01/2020
turnaround (7Mil shares at US$19.7/sh)
As of 1Q21, data already contributed SEC approved creation of JV, Telecommunications Connectivity Inc, between
01/22/2020
approximately 74.2% of total service revenues. TEL, GLO, and DITO
The continued growth in the company’s data
Partners up with AI platform, Senti AI to create more relevant solutions 03/04/2020
revenues should completely offset the decline
in their legacy business (SMS, Voice, and ILD). Voyager commits up to US$120Mil to support PayMaya's rapid growth 04/06/2020

TEL issues US Dollar-denominated 10-year and 30-year bonds worth

06/23/2020
US$600Mil

Voyager commits up to US$120Mil to support PayMaya's rapid growth 04/06/2020

TEL issues US Dollar-denominated 10-year and 30-year bonds worth

06/23/2020
US$600Mil

COL Financial Group, Inc. 6

 EARNINGS ANALYSIS I TEL: 1Q21 CORE INCOME UP 9.1% Y/Y ON HIGHER DATA-RELATED REVENUES,
IN LINE WITH ESTIMATES

FRI 07 MAY 2021

Valuation VALUATION ASSUMPTIONS

Methodology DCF assumptions

Risk premium 6.5%
Risk free rate 4.0%
Beta 0.95
Cost of equity 10.2%
Cost of debt 6.5%
Tax rate 25.0%
WACC 7.4%
Terminal growth rate 2.0%

PV (2021-2025) 132,806
PV of term Value 443,218
Enterprise value 576,023
Less: Net Debt -183,038
Equity value 392,985
Number of outstanding shares (Mil) 216
Equity value per share 1,820

COL Financial Group, Inc. 7

 EARNINGS ANALYSIS I TEL: 1Q21 CORE INCOME UP 9.1% Y/Y ON HIGHER DATA-RELATED REVENUES,
IN LINE WITH ESTIMATES

FRI 07 MAY 2021

IMPORTANT RATING DEFINITIONS

BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the next six to
12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might be poor
or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the next six to twelve
months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

IMPORTANT DISCLAIMER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may be
incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are subject to change
without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial and/
or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies mentioned in this report and may trade
them in ways different from those discussed in this report.

COL RESEARCH TEAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

JOHN MARTIN LUCIANO, CFA FRANCES ROLFA NICOLAS JUSTIN RICHMOND CHENG
SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

RESEARCH ANALYST RESEARCH ANALYST
adrian.yu@colfinancial.com kerwin.chan@colfinancial.com

COL FINANCIAL GROUP, INC.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 8