“Considering Globe Telecom (GLO) and PLDT (TEL)’s heavy dependence on mobile data revenues, the net impact of COVID-19 on the topline of these two telecommunication companies will likely be positive.
Overall, there will be a spike in revenues sourced from mobile data and “at home” products, specifically Wireless and Fixed Line Home Broadband. This is possible even if we take into account the possible downside risk to non-service revenues as both telcos will be hard-pressed to increase the sales of their computers, phone units, SIM cards, and other products amid the ongoing Enhanced Community Quarantine (ECQ).
We introduced a scenario analysis tackling three different possibilities regarding the length of the ECQ in the country. All cases resulted in upward revisions of the 2020 service revenue estimates — but the effect will be larger on GLO since it has a more established presence in data-related services.
Upbeat revenues for GLO and TEL amid COVID-19 pandemic
Nevertheless, regardless of which of the scenarios hold true in the near-term, our view on telco service revenues remain the same: there will be upbeat revenues for GLO and TEL amid the telecommuting trend.
The modern trends of digitalization and telecommuting which allowed telcos to boost revenues pre-pandemic are still very much applicable and even more emphasized during the ECQ.
Valuation-wise, PLDT (TEL) was the more volatile of the two, having spiked +13.68% year-to-date (YTD) as of April 21 against GLO’s +2.83%. Over the developing course of the pandemic, GLO and TEL reached stock price lows of PHP 1,658.00 and PHP 860.50, respectively.
Yet these two are nevertheless considered to be better-performing than the Philippine Stock Exchange index (PSEi), whose lowest value this year, at 4,039.15 points, was down by a whopping -45% from January 2020. This can be considered indicative of the resilience of the Philippine telco sector.
Philippine Telco Industry is a Resilient Sector
The Philippine telecommunications industry is now considered to be a more resilient sector compared to other harder-hit local industries. While the short-term impact of the ECQ will be upward shocks to revenues, the lockdown will have a much more permanent effect on operations in the long-term once all of this is over.
The telcos’ revenue compositions may start to rely more heavily on “at home” products as there may now be a faster migration to a flexible work setting. Once the pandemic eases down and companies settle into the new normal, telcos will have gained first-hand experience in dynamic network traffic management while businesses and their telco partners will have a better understanding of the challenges of homeworking.
Base Case, Worst Case, Best Case Analysis of Telco Sector
Our “Base Case” scenario tackles partial lifting of the ECQ on May 16 and gradual resumption of operations after that. Note that our estimates forecast only changes in service revenues, ceteris paribus. We assume no changes past topline yet, since the potential supply chain disruptions and additional expenses are yet to be identified. In addition, our analysis only focuses on the direct operational impact of COVID-19, not the possible headwinds of a looming global recession.
Should the base case hold, our 2020 service revenue estimates for GLO and TEL will inch up by +0.53% and +0.72%, respectively. We expect the possible softening of mobile data revenues and normalization of revenues of “at home” products to be offset by the gradual growth in corporate data revenues once part of the working population return to their offices—hence, the minimal movements in estimates.
In our “Worst Case” scenario, should the government decide to extend the ECQ until the 1st Half of 2020, there will be a more significant movement in service revenues as mobile data revenues — which account for a large chunk of GLO and TEL’s topline — continue to spike. This, coupled with a continued surge in revenues generated from “at home” products (Wireless and Fixed Line Home Broadband) will push up our estimates by +4.45% for GLO and +1.15% for TEL. The increase is larger for GLO since we took into account its more established presence in data-related services.
For the “Best Case” scenario, if the ECQ is fully lifted May 16 and normal operations immediately resume, our 2020 service revenue estimates will increase by +3.47% for GLO and +0.94% for TEL. These movements are marginally higher than the adjustments in our base case scenario since the immediate resumption of operations entail a simultaneous spike in corporate data revenues — as opposed to the base case’s gradual growth — before revenues from mobile data and “at home” products even begin to normalize. We expect the growth of corporate data revenues to slightly outpace the softening of its counterparts.
Regardless of which of our scenarios hold true in the near-term, our view on telco service revenues remain the same: there will be upbeat revenues for GLO and TEL amid the telecommuting trend. The modern trends of digitalization and telecommuting, which allowed telcos to boost revenues pre-pandemic are still very much applicable, and even more emphasized, during the ECQ.”
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