Globe Telecom gets positive outlook from Morgan Stanley

MORGAN Stanley & Co. Llc. said it upgraded Globe Telecom Inc. on the back of lower depreciation charges, increases in data monetization and improvement in customer growth.

The investment firm said in a statement on January 26 that it upgraded Globe shares from underweight to overweight.

As defined by Morgan Stanley, a stock rating of overweight means that the stock’s total return is expected to exceed the average total return of the Morgan Stanley analyst’s industry (or industry team’s) coverage universe, on a risk-adjusted basis, over the next 12 to 18 months.

Morgan Stanley released its research paper this month, entitled “Asean Telcos 2018 Outlook,” comparing Globe with other telecommunication companies (telcos) in the Association of Southeast Asian Nations (Asean) region with optimistic results.

Morgan Stanley noted that “Globe has been winning market share from competition in the mobile and broadband segments, which has resulted in Globe outperforming competition by 6 percent” last year.

“Unlike competition, we like that Globe has made efforts to increase its capex [capital expenditure] to ‘densify’ the network in preparation for 4G,” the investment house said in a statement on January 26.

The research paper also said Globe Telecom has significantly increased capex to improve its network compared to other countries in the Asean region. The study indicated that, though the capex cycle is an important underlying driver to boost the stock price performance of the company, it can also decrease the return of invested capital and can limit capital distribution. The capex cycle is driven by three key points, namely, technology upgrades, network expansions and fixed network investments.

“We see Globe’s effort in driving improvements in the network as a positive for growth.”

The investment firm has forecast that wireless revenues of Globe Telecom Inc. would be mainly composed of data revenues by 2020.

Morgan Stanley said it forecasts data revenue to account for 73 percent of Globe Telecom’s wireless revenues by 2020, up from 54 percent in 2015.

The company added it sees Globe Telecom’s data revenues to grow at an 11.5-percent compounded annual growth rate (2016 to 2019) “driven by strong growth in mobile-data traffic from a low base and improved data monetization as a result of lower mobile competition in the market.”

Morgan Stanley also posted a positive outlook for the Philippine telecommunications sector despite what it calls as “risk” of a third player in the sector.

“We recognize the risk of a third player but it will be two years to three years before a new player is operational,” the company said.

The company added it also upgraded the Philippines from its least-preferred market to rank in line with Malaysia and Thailand.

“The Philippines has historically been categorized as a highly competitive telecom market, despite being a duopoly,” Morgan Stanley said. “However, competition in the mobile space moderated in 2017, but we expect it to rise again in the near future, as operators go after fixed broadband market share and as risk of a third player looms.”

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