2020 09 09 PH S Glo PDF
2020 09 09 PH S Glo PDF
2020 09 09 PH S Glo PDF
Sustained demand for fixed wireless products. Total fixed wireless subscribers of GLO
as of end June jumped by 35.7% q/q to 2.2 million from 1.6 million as of end March. The
strong demand for fixed wireless subscriptions in 2Q20 mainly came from people who
BUY
needed more data to work-from-home. Moreover, there are still many households looking
for internet solutions as public and private schools resume classes in October through TICKER: GLO
distance learning. Hence, the strong growth of fixed wireless subscribers and top-ups is
expected to continue in the second half of the year. FAIR VALUE: 2,390
CURRENT PRICE: 2,110
Higher mobile data usage expected following shift to GCQ. Although there is high
demand for fixed wireless products, mobile data usage is also expected to increase as UPSIDE(%): 13.27
businesses reopen and public transportation resumes amid the looser restrictions under
GCQ. Note that mobile top-ups have already recovered and returned to pre-ECQ levels last
July. GLO plans to continue upgrading its mobile data offers to improve latency and reduce SHARE PRICE MOVEMENT
churn rates. Although GLO initially planned to build more than 1,000 cell towers this year,
because of the delays caused by the lockdown, it will most likely be able to build only 1,000
cell towers in 2020 which is at par with the number of towers it built in 2019. 110
Higher collection rate should result in normalized provisions. Despite the crisis,
management said that it registered a 100% collection efficiency in June and July, with the
same expected for August. As such, GLO may no longer have to set aside above average
100
provisions going forward. Recall that in 2Q20, GLO booked Php2.9Bil worth of provisions,
much higher than its usual level of quarterly provisions worth Php900Mil-Php1Bil.
90
Conservative FY20 guidance maintained. Even though GLO is expecting higher data and
broadband usage in the second half of the year, it is maintaining its conservative FY20
revenue guidance - that it will suffer from low single digit y/y decline. The main factor that
will pull down revenues is the continuous drop in its legacy business revenues (SMS, voice
80
9-Jun-20 9-Jul-20 9-Aug-20 9-Sep-20
calls). Aside from expecting a single digit decline in revenues, GLO said it is maintaining its
low-50s EBITDA margin forecast, similar to previous years. GLO PSEi
Reiterate BUY rating. We reiterate our BUY rating on GLO with an FV estimate of Php2,390/
sh. We continue to like GLO because of its a) dominant position in the wireless business; ABSOLUTE PERFORMANCE
b) strong growth of its fixed line business; c) resiliency of demand for data despite the
COVID-19 pandemic; and d) strong GCash presence. At its current price of Php2,120/sh, 1M 3M YTD
capital appreciation potential is attractive at 12.7% while dividend yield is 4.9%. GLO is
GLO -0.47 -2.76 4.46
trading at a 2020E EV/EBITDA of 5.3x.
PSEi 1.92 -9.50 -23.76
FORECAST SUMMARY
Year to December 31 (Php Mil) 2017 2018 2019 2020E 2021E 2022E
Total Revenues 135,281 151,173 166,660 175,392 183,319 190,520
MARKET DATA
% change y/y 7.2 11.7 10.2 5.2 4.5 3.9
Service Revenues 127,906 132,875 149,010 157,496 164,812 171,433 Market Cap 281,543.05Mil
% change y/y 6.6 3.9 12.1 5.7 4.6 4.0 Outstanding Shares 133.43Mil
EBITDA 52,669 62,913 72,848 78,880 81,588 85,687
52 Wk Range 1,590 - 2,300
% change y/y 5.4 19.4 15.8 8.3 3.4 5.0
EBITDA margin (%) 41.2 47.3 48.9 50.1 49.5 50.0
3Mo Ave Daily T/O 135.66Mil
Core Income 13,546 18,735 22,451 23,120 24,016 24,916
% change y/y (15.4) 38.3 19.8 3.0 3.9 3.7
Core margin (%) 10.6 14.1 15.1 14.7 14.6 14.5
Core EPS (Php) 97.6 136.1 164.5 173.8 180.5 187.3 Adrian Alexander Yu
% change y/y (15.4) 39.4 20.9 5.7 3.9 3.7 Research Analyst
adrian.yu@colfinancial.com
RELATIVE VALUE
P/E (X) 21.7 15.6 12.9 12.2 11.7 11.3
EV/EBITDA (X) 7.8 6.6 5.7 5.3 5.9 5.7
Kerwin Malcolm Chan
Dividend yield (%) 4.3 4.3 4.3 4.9 5.3 5.5 Research Analyst
ROE (%) 20.0 26.1 28.5 27.0 25.3 24.0 kerwin.chan@colfinancial.com
so urce: GLO, COL estimates
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FIELD NOTES I GLO: DATA CRITICAL IN POST-PANDEMIC WORLD
Total fixed wireless subscribers of GLO as of end June jumped by 35.7% q/q to 2.2 million
from 1.6 million as of end March. The strong demand for fixed wireless subscriptions in
2Q20 mainly came from people who needed more data to work-from-home. Although
most of the modems were acquired by end-users, a number of GLO’s corporate clients
also provided fixed wireless modems for their employees. Moreover, there are still many
households looking for internet solutions as public and private schools resume classes in
October through distance learning. Hence, the strong growth of fixed wireless subscribers
and top-ups is expected to continue in the second half of the year.
GLO will also continue with its 5G and fiber network rollout in large metropolitan cities.
The company plans to rollout their 5G service for fixed wireless postpaid access by
progressively building more 5G base locations. GLO is also laying down more fiber optic
cables and replacing its outdated copper cabling. This is part of GLO’s plan to gradually
shift fixed wireless prepaid subscribers to postpaid and fiber as more people require
faster internet speed and higher bandwidth.
Although there is high demand for fixed wireless products, mobile data usage is also
expected to increase as businesses reopen and public transportation resumes amid the
looser restrictions under GCQ. Note that mobile top-ups have already recovered and
returned to pre-ECQ levels last July. GLO plans to continue upgrading its mobile data
offers to improve latency and reduce churn rates. Although GLO initially planned to build
more than 1,000 cell towers this year, because of the delays caused by the lockdown, it
will most likely be able to build only 1,000 cell towers in 2020 which is at par with the
number of towers it built in 2019.
GLO’s enterprise segment was hard hit in 2Q20 as clients cut their subscriptions following
the shutdown of non-essential businesses during ECQ. Nonetheless, there were corporate
clients that remained operational at a work-from-home basis through GLO’s fixed wireless
products.
GLO plans to help its corporate clients adopt to the new normal so that they can survive
the crisis. On top of providing internet solutions, GLO will also provide enterprise clients
with cloud services and ICT solutions to help them digitalize their business and thrive
under the new normal.
Recall that GLO announced that it will acquire a 67% stake in Third Pillar Business
Applications Inc., a business application consulting and systems integration firm.
According to GLO President and CEO Ernest Cu, this acquisition will expand the telco’s
cloud business offerings to its corporate clients. We expect the corporate segment to
weather the pandemic as GLO continues with its various initiatives to further improve
their ICT services.
Despite the crisis, management said that it registered a 100% collection efficiency in
June and July, with the same expected for August. As such, GLO may no longer have
to set aside above average provisions going forward. Recall that in 2Q20, GLO booked
Php2.9Bil worth of provisions, much higher than its usual level of quarterly provisions
worth Php900Mil-Php1Bil.
Even though GLO is expecting higher data and broadband usage in the second half of the
year, it is maintaining its conservative FY20 revenue guidance - that it will suffer from low
single digit y/y decline. The main factor that will pull down revenues is the continuous
drop in its legacy business revenues (SMS, voice calls). Certain streams of income have
also disappeared because of the pandemic such as roaming revenues, inbound traveler
revenues, and prepaid top-ups from the POGO segment. However, these only represent
a small portion of GLO’s total revenues.
Aside from expecting a single digit decline in revenues, GLO said it is maintaining its low-
50s EBITDA margin forecast, similar to previous years.
Risks: Return of price war and irrational Acquires 77% of Electronic Commerce Payments, Inc. (ECPay) for Php1.54Bil 10/25/2019
VALUATION ASSUMPTIONS
I MP OR TA NT R AT ING 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.
I MP OR TA NT DISC L AIM ER
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.
C O L R E S EAR C H T EAM
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