PLDT Inc. Q1 FY2025 Earnings Call

Good afternoon, everyone. Thank you for joining us today. I'm Jinggay Nograles, Head of Investor Relations here at PLDT. It's my pleasure to welcome you to our first quarter financial and operations results briefing. Joining us today to share insights into PLDT's performance and strategic direction are Smart Communications Chief Operating Officer, Boy Martirez; PLDT Chief Operating Officer, Jimenez Jr.; PLDT Chief Financial Officer, Mr. Danny Yu; PLDT Chief Legal Counsel, Attorney Joan De Venecia-Fabul. Before we begin, I'd like to remind everyone that we will have a Q&A session after the presentation. To start, I'd like to invite our CFO, Mr. Danny Yu, to walk us through PLDT's financial performance for the first quarter.

Good afternoon, everyone. Allow me to present PLDT's first quarter performance, covering key results and business highlights. Our net revenue slightly increased year-on-year. On a gross basis, our revenue reached PHP 53.4 billion, an increase of 2% from last year. EBITDA grew by 2% to PHP 27.9 billion, driven by continued strength in our fiber and ICT segments, coupled with prudent cost management. Telco Core income was recorded at PHP 8.8 billion, down 6% year-on-year, reflecting increased depreciation linked to recent strategic investments in network infrastructure, coupled with related financing costs. Core income was steady at PHP 8.9 billion, driven by Maya's positive earnings contribution as it turned profitable this quarter. As we move forward, we will continue to pursue steady revenue growth, disciplined expense management, asset monetization, and prudent capital allocation. Net service revenue growth reflects stable demand across our key business segments: mobile data, fiber, corporate data, and ICT. Starting with Home, revenue rose by 4% year-on-year to PHP 15.2 billion, thanks to continued fiber demand. Fiber now accounts for 97% of Home revenues, up from 92% in 2024 as we steadily migrate legacy subscribers. In enterprise, total revenue remained steady at PHP 11.9 billion year-on-year with a slight 1% uptick in corporate data and ICT revenues. Within this segment, ICT stands out, growing 16% year-on-year to PHP 2.2 billion, now accounting for over 22% of enterprise revenues, up from 19% a year ago. Although our connectivity business is navigating a transitional phase, we are actively building a pipeline of new opportunities by leveraging our emerging technologies. Lastly, on mobile, revenues were down slightly at PHP 21.3 billion due to lower packet Wi-Fi usage as customers shifted to smartphones or fixed data access. Some prepared packages available in the first quarter of 2024 were also adjusted, leading to less headline growth but better fundamentals. We're also encouraged by rapid 5G adoption and a steady rise in data traffic, which point towards improved monetization and growth moving forward. Mobile data, fiber, corporate data, and ICT, which now account for 89% of total revenues from 88% in 2024, continued to expand, offsetting legacy revenue declines. Excluding legacy services, net service revenues grew by 2%. Now let's take a closer look at Home segment. Home revenue rose 4% year-on-year, reaching PHP 15.2 billion. This growth was mainly driven by fiber, which posted a healthy 7% increase to PHP 14.7 billion. Our shift from legacy to fiber is progressing well, with fiber now representing 97% of total home revenues, up significantly from 92% in 2024. We also added 101,000 net new subscribers this quarter compared to negative net additions a year ago. This improvement came from stronger network coverage and expanded port availability from recent investments. ARPU remained stable at around PHP 1,493, reflecting our success in bundling high-value products while managing churn effectively. Our churn rate of less than 2% remains among the lowest in the industry. Looking ahead, we will continue to expand our fiber footprint with targeted initiatives and diversified offerings. Turning now to Enterprise. The unit delivered steady results with total revenues at PHP 11.9 billion. Corporate data and ICT, on the other hand, improved by 1% to PHP 8.8 billion. This growth was tempered by the impact of lost connectivity as the industry shut down last year. That said, our business continues to perform well, growing at 16% compared to the same period last year. Managed IT services expanded 101%, cyber security services rose by 69%, credit scoring by 48%, and data center colocation revenues jumped 37%. As a result, ICT now makes up over 24% of our enterprise revenues compared to 19% a year ago. We're working on new opportunities, leveraging our network application programming. Additionally, the recently activated Asia Direct Cable further strengthens our competitive advantage, enhancing international capacity and network resilience for enterprise customers. Our CapEx stood at PHP 10.8 billion, lower compared to last year, resulting in a reduced CapEx intensity of 20%. This lower spend is partly due to timing as a significant portion of our project completions will occur in the second half of the year. Our CapEx guidance for 2025 is adjusted slightly to PHP 68 to PHP 70 billion to improve our quality of service. While we work on increasing CapEx, we are committed to delivering greater outcomes through efficient use of capital and strengthening negotiations with contractors and suppliers. Our net debt at the end of March stood at PHP 270.7 billion, resulting in a net debt-to-EBITDA ratio of 2.48x, slightly improved from 2.52x at the end of 2024. Our debt maturity profile remains well-balanced, with 52% of total debt maturing beyond 2030. The average debt maturity stands at 6.5 years. We maintain prudent risk management, and foreign currency exposure remains low, with just 5% of total debt unhedged. Importantly, PLDT retains investment-grade credit ratings of BBB from S&P Global and Baa2 from Moody's, underscoring investor confidence in our financial health. Looking forward, we remain committed to generating positive free cash flow by 2026 and continue working towards reducing our leverage, targeting around a 2.0x net debt-to-EBITDA ratio over the medium term.

Thank you, Danny, for your insights on the growth initiatives and key developments across our different business units. As you've seen today, there are some near-term challenges, but we do remain confident in our market position, supported by our strong operational fundamentals, strategic investments in digital infrastructure, and promising growth trajectory in Maya. I'd like to open the floor to your questions.

Three questions, please. Firstly, on the Enterprise segment. You mentioned that there were some POGO-related revenue pressures in the first quarter, which is pulling it down. I'm just wondering, is this all done? Or do you still see further downturn from this segment? I'm basically trying to figure out if we should start to see enterprise accelerating into the following quarters, given the new capacities from data center and all? Or are there still some revenue pull from POGO cancellations? Second question I had is with regard to VITRO. Can you provide color on the take-up levels for the new capacities? Have you actually signed anchor tenants for this? I'm wondering how material the contribution could be for profits and revenues for the year? And third question is on Maya. Where do you see the profit momentum trending for the balance of the year? Should we see this as further expanding on a hockey stick basis? Or is it a gradual improvement in terms of momentum?

Thank you for the question. So on the POGO, as I think you remember, POGO was shut down in July of last year. So from that standpoint, we're still anticipating a continuation of the impact, especially from a same period last year compare on POGO revenues as well as other connectivity programs that were discontinued over that time. So we should still see some drag maybe until about Q3. But I think when you look at the performance, a lot of the programs that the team has been running have helped us at least keep flat and make up a lot of that revenue gap. But there will still be some drag going into at least Q3.

Thank you, Blums. Thank you, Arthur, for the question. I'm happy to share that for VITRO Santa Rosa, we've actually landed a big hyperscale customer of ours that's already availing of 4 megawatts of capacity. Because it's the first hyperscale data center in the country, we've been getting a lot of interest from Western and Chinese hyperscalers as well. There are ongoing discussions with them together with some big enterprises to help fill up the capacity in Santa Rosa.

Thanks, Arthur, for the question. I think what we have seen is that we have been consistently reducing losses throughout last year and have now turned profitable. One of the reasons for that is that we have fairly strong operating leverage in the business. And so we should continue to see an increase in the margins and profitability as we continue to scale the business. I don't think you should expect hockey stick growth, but a more steady and gradual margin improvement over time.

Sorry, if I could just have one follow-up. It's with regard to the mobile business. I'm just wondering what the thoughts are into the second quarter. Obviously, the first quarter was challenging, contracting year-on-year, Q-on-Q. I'm just wondering, your competitor has been communicating to the market that we've been seeing mobile improvements in the second quarter. Are you seeing similar trends?

We see that the market has softened, but the more important thing that we are focusing on is that we continue to grow traffic year-on-year. And this gives us confidence in monetizing demand for the balance year. Our aspiration is to continue to be always better than last year. So that we will do through innovations and network expansion.

Yes, thank you for that question. Well, so far, the water utilization levels that we are tracking in Santa Rosa are still at normal levels, similar to other data centers. We expect the water usage to increase once we start onboarding AI-specific workloads, which would need to run on liquid cooling technology. We are in coordination now with the water utility to be able to anticipate and see whether we can already prepare for that eventuality. But so far, with regards to water usage utilization in Santa Rosa, it's still at normal levels. I think we'll be limited in terms of exact disclosure of the numbers to some extent. But yes, the receivables do include the receivables from the credit card business as well. Yes. I mean, we do report numbers on a consistent basis quarterly. But at this point, I think it will be difficult for us to talk about loan yields and cost of funds specifically. Yes. So we don't have a specific target loan-to-deposit ratio, but we will continue to keep a slightly conservative loan-to-deposit ratio versus some of the traditional banks. I think we are still sort of early days in terms of the stability of the balance sheet, and we do operate a digital banking business. There's no fixed sort of number, but we don't want to see the loan-to-deposit ratio at least in the near term, push very, very high like traditional banks.

Yes, we do anticipate the growth to sustain. In fact, we are looking at the growth path for the balance of the year. Our net adds have been improving, and we are launching several products and services in rapid succession in the next few months that would address not just elevating our experience but also expanding our viewership. So the growth is not one-off. We've actually shown this in 5 quarters, a sustained growth at increasing increments every quarter, and we expect to sustain this until the end of the year.

Growth, I guess, aside from just looking at the growth, you really have to look at either we grow by postpaid or prepaid, because that is very significant in the increase in revenue. So PLDT, from a strategic point of view, we're looking at growing primarily our postpaid product because that delivers higher ARPU and lower churn. We will also look at prepaid at a very strategic and deliberate level. But I think if you're going to compare us with other telcos, you have to compare not just the growth of subscribers, but you also have to compare postpaid versus prepaid. PLDT and Smart, we do have a two-barrel shotgun to look at prepaid or to attack prepaid. Aside from prepaid home fiber, we also have fixed wireless that Smart is handling. So I think we have enough tools to be able to attack the prepaid market effectively while making sure we continue to grow our postpaid market, which is really the bigger driver of revenue for fixed-line telco.

Yes. Our churn has been showing improvement over time. We have seen our growth has been driven not just by increasing our gross adds and net adds, but also by better managing our churn. Today, we do have the best industry churn rate at a sub-2% level, and we will continue to improve that as we approach saturation.

Our focus is still on 5G and building dense 5G coverage, which is also reflected in our double-digit 5G traffic growth. We have seen over 60% growth in 5G devices. These two together bode well for us in the coming months. We have seen, for example, a high double-digit growth in 5G traffic. And I can say with confidence that there's a good double-digit percentage of traffic in 5G that has been offloaded for 4G.

It's going to be almost on the current level. If we're acquiring all.

Direct cable is a big part of our competitive advantage. When you think about our top-tier facilities like VITRO Santa Rosa, locators are looking especially international ones, are looking for multiple legs to hubs across the region. The Asia Direct Cable addresses that very specifically. With 27 terabits per second, that's the right levels for low-latency types of workloads and requirements. It is not a stand-alone thing by any means, but it is a key enabler of the potential that we're driving to with our data center business.

We have another question here in the Q&A box, Zhiwei Foo from Macquarie. Is there guidance for 2025 net income? And if not, why? It was adjusted to be provided at the first quarter results briefing during the full year 2024 briefing. Danny would you like to take that?

Given the softness of the numbers in the first quarter, I think we're unable to provide guidance at this point. If and when we invest more in Maya, you might need the help of other affiliates of First Pacific. But it's not going to be solid coming from PLDT. Our main focus now is asset monetization, which includes copper mining. That's one aspect. Second is the consolidation of central offices, which will result in selling some of the idle properties. The third is continuing to look for a strategic partner in ePLDT, specifically in data centers. So the timing is between now and the next three years.

The softness I've answered, I think, a while ago. But the question is about the rest of the industry's trend. My answer is we don't see the same trend. In fact, our data traffic continues to grow, and we see that this is being done on the back of strong 5G networks. So we're going to be relying on that for the rest of the balance of the year and in the years to come.

As you know, VITRO Santa Rosa was energized recently. It's a 50-megawatt facility that will provide 36 megawatts of IP load divided into 18 data halls of 2 megawatts each. So far, we have an anchor tenant that's already come in, that's taking on 4 megawatts of space in VITRO Santa Rosa.

We are nearing optimal levels at this point.

All right. It looks like we have exhausted the questions in the Q&A box as well as the questions that were sent to me earlier. If we don't have any further questions, I'd like to thank everybody who joined us today. We look forward to your continued interest in PLDT and look forward to having you again in our next earnings briefing come this August. Have a great day. Thank you.