Moody’s affirms PLDT’s Baa2 rating, stable outlook

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Moody’s Investors Service has affirmed the Baa2 issuer rating and senior unsecured rating of Philippine Long Distance Telephone Co. (PLDT) and maintained the telco’s stable rating outlook.

“Despite increasing capex and ongoing competitive pressures, PLDT’s margins and credit metrics continue to solidly position the company in the Baa2 rating category,” said Gloria Tsuen, a vice president and senior analyst at Moody’s.

“The affirmation of the ratings reflects PLDT’s dominant market position in the Philippines’ duopolistic telecommunications market, strong margins compared to global telecommunication peers in the Baa rating category, solid credit profile, and excellent liquidity,” Tsuen, also Moody’s lead analyst for PLDT, said.

Moody’s expects PLDT to continue to dominate its major segments. As of June 2015, the company had market shares by subscribers of approximately 59 percent for cellular telephony, 67 percent for fixed-line voice services, and 58 percent for broadband.


PLDT’s reported consolidated service revenues were down 2 percent year-over-year in the second quarter 2015 to P40.6 billion.

Declines in toll revenues (international long distance and national long distance)–which accounted for 12 percent of consolidated service revenues in second half 2015–weighed on revenue growth, as increasing internet data usage has shrunk voice and texting usage. In addition, the company’s reported consolidated EBITDA margin fell 1.6 points to 43.4 percent in second quarter 2015, excluding MRP costs.

Notwithstanding, PLDT’s strong operating profile, Moody’s expects PLDT’s EBITDA margin to erode slightly over the next 12-18 months as domestic competition will remain intense and as high-margin toll revenues decline.

In addition, the company will need to continue its network and service investments, notably in digital businesses, Moody’s said.

However, PLDT should maintain an adjusted consolidated EBITDA margin of over 50 percent, which is strong for both its rating level and compared to similarly rated industry peers with 30 percent to 40 percent EBITDA margins.

PLDT has increased capital expenditure estimates by up to P4 billion to P43 billion for 2015, compared to P35 billion in 2014. Moody’s also expects that capex will remain elevated in 2016, as the company is carrying out investments to improve its network quality and customer experience.

In addition, the company seeks to strengthen its ability to deliver multimedia content through its broadband and mobile networks and grow its e-commerce business, given its strategy to transform itself into a multi-media organization.

Management has indicated however that any new acquisitions will be in the range of $10 million (P463 million) to $20 million (P925 million) each and possibly three or four per year.

PLDT’s liquidity position is strong. As of June 2015, the company had debt maturing in the next 12 months of about P17 billion, which it can cover with its cash and cash equivalents of P37 billion. Refinancing is likely, given the company’s excellent access to the local bank and bond markets.

“The stable outlook reflects our expectation that PLDT will maintain its solid margins and liquidity profile, given its dominant market position,” the report said.

“We also expect that management will remain prudent in its use of cash particularly during periods of high and accelerated capex,” Moody’s said.

Any additional material investment in non-core businesses could also be negative for the ratings.

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