Piltel May Be Worth a Call [WSJ]
Focus on Basic Service Benefits Philippine Cellphone Company
By CRIS LARANO
March 13, 2006; Page C10
MANILA, Philippines -- At a time when growth in the Philippine cellular market seems to be slowing, the country's third-largest mobile operator is drawing looks from investors.
Following several years of heady expansion, the increase in mobile-phone subscribers in the Philippines moderated last year. And growth is likely to be more sluggish this year, as the industry starts to move to a third-generation, or 3G, platform with enhanced services that include Internet access and video.
Pilipino Telephone Corp., known as Piltel, isn't planning to spend billions of pesos to enter the high-end 3G business. Instead, it is focusing on wooing the millions of rural Filipinos who still lack mobile phones with its inexpensive prepaid 2G service.
Analysts say that strategy of stressing basic service, and the low valuation on Piltel's shares, make the company a good bet in the Philippine telecommunications sector.
"Piltel's business model is stable, despite the long-awaited slowdown in subscriber growth," says James Lago, research head at Westlink Global Equities. "Despite the concerns, it remains attractive on a valuation basis."
Cellular service still is the key driver of the nation's telecommunications industry. A decade ago, a mobile phone was a status symbol in the Philippines. Given a nation of scattered islands, and with an estimated one in 10 Filipinos living or working overseas, it has become a necessity. And Filipinos love text messaging, sending more than 300 million messages a day -- an average of 10 for each cellphone owner -- according to industry estimates.
With the country's penetration rate for cellphones at about 44%, there still is room for growth. The Hong Kong and Singapore markets are both well above 90% saturated.
With 4.98 million subscribers, Piltel is No. 3 behind unlisted Smart Communications and publicly traded Globe Telecom. At one time, Piltel was directly owned by Philippine Long Distance Telephone. A restructuring in 2003 left Smart, itself wholly owned by PLDT, holding 91% of Piltel. With the restructuring, the maturity of Piltel's debt was extended, and the company is far ahead of earnings and subscriber targets. In 2005, Piltel had record net profit of 13.46 billion pesos ($262.6 million), up 38% from 2004.
Jose Vistan, research head at AB Capital Securities, says that while Piltel may be hard-pressed to match last year's results, the share price is 3.7 times forecast 2006 earnings of 86 centavos a share, making the stock attractive. (The overall Philippine market trades at about at about 13 times earnings.)
He says that even if Piltel trades at a 50% discount to the average of the price-earnings ratios of PLDT and Globe -- roughly 10 -- its shares should reach 4.30 pesos. Friday, Piltel closed at 3.15 pesos. A Thomson Financial survey gives an average 12-month price target of 3.65 pesos for Piltel shares.
Analysts say potential in current mobile platforms jibes well with Piltel's decision not to seek a license for 3G, which enables carriers to charge higher fees but whose local earning potential isn't yet known.
Napoleon Nazareno, president of both Piltel and Smart, has high hopes for the domestic market. He believes there are at least 20 million more potential cellular subscribers -- an estimate also used by rival Globe -- but says providers must offer more affordable services to rural people. Cellular companies have lowered call rates to about six pesos a minute from more than eight pesos a few years ago.
Piltel shares hit a record 44 pesos in 1996, the last year the company had a net profit before a seven-year string of heavy losses. Restructuring debt cleared up cash-flow problems, but the share price has yet to recover.
A slowing new-subscriber rate is one reason some investors are cautious. Piltel added 372,000 subscribers last year, compared with more than 1.7 million in 2004 and 1.1 million in 2003. The company blamed stiffer competition and the end of a marketing program that enticed customers from rivals.
One Philippine fund manager warns that Piltel "does not own its destiny. It is subject to the whim of Smart, or ultimately that of PLDT." Still, he says, Piltel offers an opportunity for big price gains if it starts paying a dividend or is used as a back door to a listing of Smart.
Meanwhile, analysts endorse the strategy of steering away from 3G. "It's a logical step Piltel has taken, given their target market," Edser Trinidad of CLSA Philippines says.
"We don't need to apply for a 3G license," Piltel spokeswoman Debbie Tan says, "because we could just resell the service provided by Smart." |
