Elevated inflation seen to affect telco, ICT companies’ earnings

THE PROFITABILITY of telecommunications and information and technology (ICT) companies could take a hit from the impact of elevated inflation on consumers’ purchasing power and increased competition, analysts said.

Listed telco companies PLDT Inc. and Globe Telecom, Inc. recorded lower results for 2022, while Converge ICT Solutions, Inc. posted a small gain amid a 32% drop in the fourth quarter of 2022.

Other listed ICT companies — DITO CME Holdings Corp. and Philippine Telegraph and Telephone Corp. — have yet to disclose their full year 2022 results.

Analysts expect these firms to be challenged by elevated prices, subscriber identity module (SIM) registration and saturated markets, resulting in a moderate growth outlook for the sector.

“Earnings-wise, the ICT was above expectations at 58%, while the three telcos — Globe, PLDT, and Converge — averaged flat. Onwards, with the telco industry maturing and with elevated domestic inflation, telcos face tougher competition to gain market share and thus earnings outlook is challenged,” First Metro Investment Corp. Head of Research Cristina S. Ulang said in a Viber message.

“ICT will be resilient and remain on the growth path earnings-wise, despite global recession risks given its strategically located businesses worldwide and expansion thrust,” Ms. Ulang added.

China Bank Securities Corp. Research Analyst Stephen Gabriel Y. Oliveros likewise said in an e-mail that he expects the telco sector’s performance to be “challenged” as high inflation dents consumers’ purchasing power.

“For the broadband business, we may see some moderation in growth as sustained data demand from enterprises are met with expectations that the residential postpaid broadband market is nearing saturation,” Mr. Oliveros said.

“Meanwhile, we are keeping an eye on the launch of prepaid fiber as this may buoy growth prospects of the residential fixed broadband space,” he added.

In March, Converge announced the launch of its prepaid fiber product called Surf2Sawa, which allows subscribers to use unlimited fiber Internet connection at 25 megabytes-per-second speeds for as low as P50 per day or P700 for 30 days.

“As for the legacy wireless business (call and text, mobile data), we think that growth will be driven mainly by mobile data,” Mr. Oliveros said.

“Furthermore, we remain on the lookout on how the mandatory SIM registration will impact the growth trajectory over the near term. We think that the SIM registration exercise will allow telcos to better tailor their service offerings to active subscribers, possibly leading to revenue windfall down the line,” he said.

Key themes for the industry include companies’ deleveraging efforts through capital recycling, such as tower sales, and the “utility maximization” of existing infrastructure assets, Mr. Oliveros added.

In 2022, Pangilinan-led PLDT booked a 60.2% decline in its attributable net income to P10.49 billion from P26.37 billion in 2021. This came amid the 6% increase in its consolidated revenues to P205.25 billion in 2022, from the P193.26 billion it booked a year earlier.

Meanwhile, Ayala-led Globe’s core net income was 9.8% lower at P19.17 billion in 2022 from P21.25 billion in 2021 due to a 3.8% rise in its top line to P157.98 billion in 2022 from P152.26 billion a year ago.

Converge was the sole telco company to record income growth in 2022, with a 3.9% rise in its profit to P7.44 billion. Its revenues likewise climbed to P33.7 billion in 2022, up by 27.3% from the P26.48 billion a year earlier. — Justine Irish D. Tabile