Earnings Call Transcript - PHI Q1 2023

Operator, Operator

Good afternoon and thank you for joining us today to discuss the company's financial and operating results for the first quarter of 2023. A copy of today's presentation is posted on our website. For those who have not been able to do so, you may download the presentation from www.pldt.com under the Investor Relations section. Kindly note that this briefing is being recorded. The podcast of this event will be available on our website after the call. QR codes for the presentation, the MD&A, FS and the podcast are on the screen and in the confirmation notices emailed to you. In today's presentation, we have with us our Chairman, Mr. Manny Pangilinan; Al Panlilio, our President and CEO; Mr. Danny Yu, our newly appointed Chief Finance Officer; Attorney Marilyn Aquino, our CorSec and Chief Legal Officer; Mr. Shailesh Baidwan, President of Voyager Innovations and PayMaya Philippines as well as other members of the PLDT management. At this point, let me turn the floor over to Mr. Panlilio to begin the presentation.

Alfredo Panlilio, President and CEO

Thank you, Melissa. Good afternoon to all and thank you for joining us today. I'm happy to report the first quarter results. But as you all know, the first quarter has been very tough for us, with challenges that we had that we hope to resolve by the end of the first quarter. Last year, we defined our purpose for the company. I wanted to share that we are a Filipino company inspiring tradition and meaningful connections to generations. That has been the purpose that we defined as management, and we are working with the entire organization on this. We've defined our vision and mission, as you can read on the screen. That purpose drives us in our key business priorities. We sustainably shape the market with innovation, with new products, and are exploring new areas of business for PLDT. As we continue to grow our core business, we continue to strengthen very healthy businesses that we have across Individual, Wireless, Home, and Enterprise. Our EBITDA level is still at a very healthy 52% margin in the first quarter compared to 51% at the end of 2022. As part of our strategic pillars, we continue to streamline our operations, bringing costs to serve down and improving efficiency, becoming more productive as a company. We continue to reinforce our core infrastructure; homes passed by the end of the period are up 11%, now hitting 17.2 million homes. We also continue to expand our domestic and international fiber footprint, reaching now 1.1 million kilometers, making us the fastest and most extensive network in the country. I'm happy to share that we are still the undisputed fastest integrated network in the country. In Barcelona, during the Mobile Congress in February, Smart was awarded the Philippines' Fastest and Best Mobile Network for five years now, and just two weeks ago, Ookla awarded PLDT as the Philippines' Fastest Fixed Network for five straight years. Our 2023 Q1 performance shows that we are holding the fort amidst challenges. We are strengthening our offerings at Home, increasing our Fixed Line subscriptions despite installation challenges. For Smart, our new tagline is 'Live More Today,' and we have stable revenues this past few quarters. We aspire to be the trusted partner for growth for our Enterprise business and SMEs. We continue to integrate connectivity management to enable core businesses in the Philippines. We're pushing various solutions to the market, focusing on sustainability in our actions. So, despite the challenges, we have shown growth behind adversity. Our Telco Core is up 5% to PHP8.6 billion compared to last year's PHP8.2 billion. Net service revenues are up 2% to PHP47.1 billion versus last year's PHP46.1 billion. And our EBITDA is at an all-time high quarterly EBITDA of PHP26 billion, which is a 2% increase versus the same period last year, again at a 52% margin for EBITDA. I will now turn you over to Danny, who will provide more details regarding our financial performance.

Danny Yu, CFO

Good afternoon. Allow me to share PLDT's financial and operating results for the first quarter of '23. Consolidated service revenue for the first quarter amounted to PHP47.1 billion, which is higher by 2% from last year. EBITDA for the quarter also rose by 2% to PHP26 billion, marking an all-time high quarterly number. The EBITDA margin remained strong at 52%, higher than the full-year margin of 51% in '22. The Telco Core Income, excluding the impact of asset sales and Voyager, grew 5% to PHP8.6 billion from last year's PHP8.2 billion. Looking at segment performance, our Home business continued to be a main driver of growth with a 6% year-on-year increase to PHP15 billion. Fiber-only revenues rose by 14% to PHP12.8 billion. Our Enterprise business improved by 5% to PHP11.8 billion. In the face of industry headwinds, our Individual business remained stable year-on-year, registering revenues of PHP19.8 billion. Fiber net adds of 81,000 in the first quarter are more than three times those in the fourth quarter due to lower churn and higher migrations. PLDT's competitive advantages lie in strong brand equity, superior network quality, and the capability of offering a fixed and wireless portfolio to address different markets. We see strong emerging revenue growth in our Enterprise business. Corporate data rose 7% due to higher fiber, managed IT, and i-Gate revenues. ePLDT increased by 14%, mainly from data center and cloud services. Additionally, PLDT Global registered a 42% increase in revenues from the Enterprise IPLC, data center, and carrier hubbing. The Individual business saw mobile data revenues grow by 4% despite the impacts of SIM registration fewer new activations. Overall, we had a solid financial performance for the first quarter, reflecting resilience amidst the ongoing market challenges.

Shailesh Baidwan, President of Voyager Innovations

Thank you, Danny. Good afternoon, everyone. We are approaching our first-year anniversary since the launch of Maya Bank. We are pleased with the recognition we've received, particularly on the consumer bank side. We've been acknowledged by external forums like Forbes as part of the World's Best Banks, and we are the only Digital Bank from the Philippines to make that list. While we have the bank, we have two other large pieces of the business: payment processing facilities where we are the number one merchant acquirer and the revamped Maya app, which has received high ratings on both Android and Apple stores. The bank powers various financial services and provides enterprises with robust payment facilities. Our market share in merchant acquiring is significant, extending beyond large enterprises into micro and SMEs. On the consumer side, we launched our first credit product, Maya Credit, and in the first year of operation, we hit 1.8 million customers, with deposits over PHP21 billion. We expect to exceed two million customers by the end of this month, solidifying our position. We’ve already disbursed more than PHP6 billion worth of loans since the launch. As we move forward, we'll offer an expanded suite of financial services targeting both consumers and micro SMEs, areas that remain underserved in the Philippines.

Alfredo Panlilio, President and CEO

Yes. Thank you, SB. Just a few updates. First, regarding SIM registration, it has been extended until July 25, 2023. As of May 3, Smart has registered 44.7 million of its subscribers, roughly 67% of our declared base before, and over 80% of our revenues actually come from this registered base. We expect to register another 9 million to 10 million subscribers by the July deadline. On the class suit developments, two individuals presented by different law firms filed separate motions to serve as lead plaintiffs. The total number of shares owned by the two is 37 shares, with losses claimed of only $263. PLDT will have an opportunity to file a motion to dismiss once served with a copy of the amended complaint. We've also filed a notice for the purchase of Sky Cable Corporation's broadband business with the Philippine Competition Commission and are awaiting approval. Regarding the sale and leaseback of the towers, as of 30 April, we've sold and leased back 5,182 towers for close to PHP68 billion. The balance of 725 towers is expected to be transferred on or before August 23.

Operator, Operator

We're now ready to take your questions. You may type your questions in the Q&A box in the upper right side of the screen. You may also click the Raise Hand button and wait for the moderator to call your name before you unmute your microphone. You may also send your questions via e-mail to [email protected]. Please indicate your name and company name so that we can get back to you for any additional information you may need.

Arthur Pineda, Analyst

Hello. Thanks for the opportunity. Just three questions, please. First, on the Class Action lawsuit, if I may just clarify. Am I to understand that this is done and dusted at $263 and there's no subsequent case related to the CapEx, which is pending? The second question I had is with Maya. I do know that you've got PHP21 billion on your deposit base against loan disbursement of just around PHP6 billion. What's holding the company back from more aggressively monetizing the deposit base? Any guidance on the drive to profitability would be useful. And the third question I had is with regard to the SIM registration process. It seems like it's been quite slow in terms of registering the subscribers. So I'm just wondering, what are the key bottlenecks to this? Is there any risk that you could actually see a revenue drop-off by the deadline in July if these are not addressed? Thank you.

Alfredo Panlilio, President and CEO

Hi, Arthur. Thank you. Let me answer the third question first and then maybe the first by Attorney Marilyn and the second by SB. The process for SIM registration has been quite straightforward for us. We've invested in the system, which is why we are already at a 67% registration rate. What's upcoming is really the true active base of subscribers. We will continue to push for the balance, but we don’t foresee any risk on our revenues. Over 80% of our revenues are coming from the 44.7 million registered subscribers, so we expect to maintain our Smart base accordingly.

Francis Bautista, CFO

To add, the challenge faced by all telcos indeed relates to the lack of a national ID in our system, which complicates the registration process. However, we've been working closely with the NTC to provide solutions. Additionally, we are focusing on enhancing outreach efforts for those who may not be tech-savvy or have access to smartphones. We are confident in securing our business moving forward.

Marilyn Victorio-Aquino, Chief Legal Officer

To clarify regarding the Class Action lawsuit, yes, those are the only holders of the depositary receipts that filed for the Class suit. They are the only ones who filed within the deadline set by the court. The process will take time, and we expect the motions to dismiss and amended complaints to be resolved by June next year.

Arthur Pineda, Analyst

Just a follow-up question about the broadband side. You mentioned higher default rates and tighter credit controls. Are you looking to launch prepaid broadband as well? I'm curious because your focus has mainly been on postpaid broadband. How quickly can PLDT launch a similar product?

Jeremiah De La Cruz, Chief Technology Officer

We constantly evaluate our product options. Prepaid is one of them, but there are logistical challenges involved with fixed-line broadband that differ from mobile. We will focus on lower price postpaid plans, bringing value using our fiber plans and will also leverage fixed wireless options to reach underserved areas without fiber connectivity.

Alfredo Panlilio, President and CEO

On your other question regarding CapEx, while we aim for a target range of about 25% to 30% in the medium term, I don't anticipate having it in the mid-teens. Additionally, we still have pending sales of approximately 750 towers across various portfolios.

Operator, Operator

There are no more questions in the queue. Last chance to ask your questions. There are none. I'll now turn the floor back to Mr. Panlilio for closing remarks.

Alfredo Panlilio, President and CEO

Thank you very much for being here today. We look forward to our AGM on June 13. Again, thank you.

Operator, Operator

Thank you. If you have any questions, please feel free to reach out to Investor Relations. Thank you very much. This conference is over.