Wednesday June 8, 1:56 PM
ASIAN STOCK FOCUS: Philippines' PLDT Still Has Upside
By Micheline R. Millar
Of DOW JONES NEWSWIRES
MANILA (Dow Jones)--The 6.7% dip in Philippine Long Distance Telephone Co. (PHI) shares over the past two sessions has created a good opportunity to buy one of the most attractive shares on the Philippine bourse, analysts say.
PLDT shares have risen 13% since the start of the year, but analysts say PLDT is still cheap - particularly after its recent decline - while its new dividend payout schedule promises significantly higher dividend income in coming years. The shares hit a record high of PHP1,645 on Monday, before being dragged down with the broader market on concern over allegations of illegal gaming links and election fraud against Philippine President Gloria Macapagal Arroyo and her family. PLDT shares closed Wednesday at PHP1,535, down 3.5%. The broader market fell 2.5% to 1953.28 points.
"We are maintaining our outperform recommendation on the stock," says Macquarie Securities senior analyst Gilbert Lopez.
ATR Kim Eng Securities senior analyst Martin Enrile says that even after this year's gains, PLDT trades at around 10 times prospective 2005 earnings - below the broader market's 16 times earnings. At that level, it's also cheaper than its overseas peers: Macquarie's Lopez estimates other Asian telecom companies trade at an average of 12.5 times earnings.
In recent years, PLDT - an affiliate of First Pacific Co. (0142.HK) of Hong Kong - has posted record earnings due primarily to strong growth of the domestic cellular industry. From a little over 15 million subscribers at the end of 2002, the domestic industry finished 2004 with 31 million subscribers. PLDT held 58% of that market.
In the three months ended Mar. 31, the company posted net profit of PHP9.36 billion - up 64% from a year earlier thanks to contributions from cellular unit Smart Communications Inc. and foreign exchange gains resulting from accounting changes. Revenue was down 1.8% to PHP30.25 billion, even as cellular revenue rose 11% to PHP17.4 billion, due to weaker fixed line operations.
But company executives have warned that with nearly four in 10 Filipinos already owning mobile phones, growth in the cellular industry will likely moderate this year. Despite the strong first quarter, PLDT Chairman Manuel Pangilinan said last month the company is maintaining its forecast for 2005 net profit of PHP27 billion, little changed from 2004's PHP27.97 billion. "It will be difficult for Smart to match the momentum it had over the last three years," Pangilinan said.
Even with the warnings, PLDT continues to stir interest.
"Prospects are still there for PLDT, despite the maturing market for cellular phones," says First Grade Holdings managing director Astro del Castillo.
"It continues to be innovative. It's not just focusing on the mobile phone industry, but also on other services," says del Castillo, who is keeping his "buy" call on PLDT.
Del Castillo and other analysts point to PLDT's call center and data services as new businesses that will help make up for the slowing growth in the cellular market.
In the first quarter, call center revenue soared 53% to PHP408 million, while revenue from Internet-related businesses jumped 50% to PHP652 million.
PLDT hasn't given a clear revenue target for its growth business segments. But Ray Espinosa, managing director of ePLDT, the group's information and communication technology arm, said that PLDT sees the call center and Internet businesses maintaining their positive growth trend for the rest of the year.
Macquarie's Lopez says the prospect of slowing cellular demand isn't a big concern.
"That's to be expected. PLDT's current valuation already takes that into account," says Lopez. "But while PLDT's earnings growth may be slowing, its dividends are getting bigger, and that provides good support to the stock."
With free cash flow up 17% on year to PHP11.3 billion in the first quarter, PLDT declared a PHP21 per share cash dividend and cut debt by $165 million. The first-quarter dividend brings the target dividend payout to 30% of projected 2005 per share earnings.
PLDT's Pangilinan said last month the dividend payout target will be 40% for 2006 and 50% for 2007, bringing PLDT on par with other telecommunications companies in the region.
Macquarie's Lopez believes the company could pay out even more in the future. "I think they were being conservative when they first came out with their dividend schedules. I think there is room for even higher dividend payments," he says.
PLDT's efforts to build up its other businesses to ensure steady revenue growth also make the stock an attractive investment option, analysts say.
"There should still be enough reason to hold investor interest with some of the things PLDT is doing now, such as the expansion of Smart overseas and debt reduction," says ATR Kim Eng's Enrile.
Last year, PLDT introduced Smart's "1528" service in Hong Kong. In addition to selling prepaid call cards, the service allows Smart subscribers to initiate electronic money transfers using their mobile phones. The overseas expansion just started last year and PLDT has yet to confirm if it has started contributing to the group's bottom line.
To be sure, by some measures PLDT appears expensive.
BNP Paribas Peregrine Securities senior analyst Edser Trinidad, who has downgraded PLDT this year to a "hold" from "outperform" last year, says that on the basis of enterprise value to earnings before interest, taxes, depreciation and amortization - a widely used measure for utility companies - PLDT already looks toppish at 5 times compared to the 5.4 times average in Asia.
But Trinidad concedes that whenever sentiment in the market turns positive, PLDT is one of the first stocks to benefit.
PLDT, with a market capitalization of PHP271.3 billion, has a 19.2% weighting on the benchmark Philippine Stock Exchange Index.
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PLDT TEL PHI
PLDT TEL PHI
On Target...
...year end@mid 30's usd
...a worthy MVP performance 
Meanwhile in NY...
the one's who disclosed their selling/shorting earlier this week are netting usd1.+
regardless; mancom target usd35.- remains on track 
www.smart.com.ph
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PLDT, Solar, Velarde interested in RPN-9
The planned sale of state-controlled Radio Philippines Network (RPN) has caught the interest of telecommunication giant Philippine Long Distance Telephone Co. (PLDT), El Shaddai Catholic charismatic group’s Brother Mariano "Mike" Velarde, and Solar Entertainment of businessman Wilson Tieng, a source said.
The government wants to privatize the sequestered TV and radio network this year -- by selling its franchise, shares, or assets -- and is set to bid out this week a service contract for a financial adviser to help in the sale. Of the three interested parties, only the Manuel V. Pangilinan-led PLDT has been vocal in acquiring its own TV station, and is still reported to be wooing the owners of GMA Network, Inc. In 2001, PLDT’s Mediaquest Holdings Inc. planned to acquire 66.67% of GMA for P8.5 billion, but negotiations bogged down over the network’s valuation. Mr. Pangilinan already controls radio stations nationwide under Nation Broadcasting Corp., which were previously owned by Senator Manuel Villar, which had bought them from radio broadcasting veteran Abelardo Yabut. Mr. Velarde, head of the El Shaddai charismatic group, was also close to operating Channel 11 through his Delta Broadcasting Service during the Ramos administration, but had failed to get a congressional franchise. Channel 11 eventually went to ZOE Broadcasting Inc. of evangelical preacher Eduardo C. Villanueva, who ran for president in May 2004. Solar, led by film distributor Wilson Y. Tieng, has been providing content for RPN for sometime. It also operates a number of sports and variety channels on cable TV. Solar, which started in the late 1970s by releasing Jackie Chan movies locally, holds the Philippine broadcast rights to the NBA games, and had aired several high-profile boxing matches previously. But all three parties’ interest in the RPN network could not be confirmed. They could not be reached for comment as of press time. Meanwhile, seven firms have qualified to bid for the contract to serve as the government’s financial adviser for the RPN sale: BPI Capital, CLSA Exchange Capital, Ernst & Young, KPMG Laya Manang-haya, PCI Capital, Pricewater-houseCoopers, and Punongbayan & Araullo. The source said the financial adviser would be given two months to make a valuation of the network’s assets as well as recommend a mode of sale that would be best for the government. RPN, controlled by the late sugar businessman Roberto S. Benedicto during the Marcos government, was previously estimated to be worth P1.3 billion. Including the flagship TV station RPN-9 in Metro Manila, the network also owns seven TV stations and 14 radio stations around the country. It also owns 2,930 square meters of land in Mandaue, Cebu. The Presidential Commission on Good Government (PCGG), which had seized RPN following the 1986 EDSA revolt, now controls 72.4% of the network, of which 32.4% was voluntarily surrendered by Mr. Benedicto. Control over the remaining 40% is being disputed in court by PCGG and Far East Managers and Investors Inc., a company made up of former Benedicto employees. Officials had earlier said the ownership dispute should not be a problem as one of the options was to place the proceeds of the network’s sale in an escrow account, to be awarded by the court to whoever would win the case. -- Felipe F. Salvosa II
56k and below = narrowband 56k and up = broadband back in the good ol days circa 98's you can have isdn for 90kbps to 115kbps for roughly 60,000 pesos a month. now its being offered at 788 pesos a month. 
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