GLO
A few days ago, Globe’s 917Ventures is venturing into another project in which it will penetrate a segment in the Electric Vehicle market. They will be partnering with a company called Gogoro from Taiwan in which they will roll out their Smart Scooters powered by a battery that can be swapped in a station if it runs out of energy. The scooters, batteries, swap stations, and mobile app are all proprietary and work only within the Gogoro ecosystem. In some countries where Gogoro has already expanded, consumers can either rent or purchase the scooters. As for the case of Globe and Gogoro’s partnership, the ecosystem will be pilot tested in the logistics and delivery industry in Manila. Depending on the outcome, if sustainable, it can be rolled out to the rest of the country and hopefully, it can be offered to consumers as well. Gogoro is a successful company in Taiwan. Last January 2021, 80% of electric scooters that have been sold are from Gogoro and at least 25% used Gogoro scooters for deliveries.
GLO probably took this opportunity since the current administration is pushing the use of Electric vehicles even though the penetration rate is just around 10%. The government cut Electric Vehicle tariff rates to zero hence importing Gogoro scooters into the Philippines will save them money. The tariff cut will run for the next 5 years and the government is in talks with companies like Shell to study the feasibility of deploying charging stations nationwide.
The success rate and sustainability of the venture are uncertain since gas is still cheaper than electricity. GLO however is a risk taker when they see the opportunity and they have all the resources that Ayala Corporation can provide such as construction, land, logistics, power, and even manufacturing equipment for charging stations. They are into decarbonization since this gives them incentives and positive sentiment toward investors, especially in future endeavors. For context, GLO took the risk more than a decade ago to build GCash even though the country is a cash-based society. For more than 10 years, they’ve been operating GCash with minimal to no profit and only to realize its value during the pandemic and the shift to digitalization. That said, GLO might be able to push through with the Gogoro venture for as long as it takes until it realizes its value.
TEL
While GLO is busy taking risks on new ventures outside the telecommunication business, TEL is also making a move on its own. Although it is nothing new, TEL is further cementing its place to be the leader in the data center market. Currently, TEL has around 65 percent of the power share in terms of the data center in the country. They currently have 10 data centers and are pushing to complete their 11th data center in Laguna, the largest data center to date.
With only 25% left for the Internet market segment to penetrate, it is understandable why GLO and TEL are looking for new ventures. As for TEL, they continue to build more data centers to attract hyper-scale investors, and since the government is pushing businesses to adopt digitalization. Instead of businesses pouring out expenses to make their business available online, they can opt to use TEL’s data center at a cheaper cost.
To give context as to why TEL chose the data center as their venture, we have to look at their financial statements from a year ago. For the first 9 months of 2022, 48% of the revenue came from the wireless segment and 52% from the fixed line segment. The fixed line segment revenue is starting to overtake wireless segment revenue year on year. 35% of the fixed line segment revenue is from where the data centers are operating. Since the future of digitalization is still bright, it is projected that demand for data centers will continue to grow.
FILRT
Dividends from FILRT are not looking good, at least from a personal analysis. The dividends from a quarter ago have decreased by 24% due to lower rental revenue and a decrease in occupancy rate to 88%. After another quarter, the occupancy rate of 88% has been maintained as per their disclosed and latest fund manager’s report. That said, investors were expecting a stable dividend income moving forward or a possible increase since they have acquired an asset from Boracay. It turned out wrong, the dividends that were declared a week ago have further dropped to 0.071 PHP/sh from a high of 0.088 PHP/sh quarter on quarter, a 19% decrease.
As of to date, nobody knows what is happening since FILRT is not disclosing anything with regards to the further decrease of dividends. We can however speculate while waiting for the official financial report which is due on March 15. What we do know is FILRT had 2.25 billion PHP worth of cash for the first 9 months of 2022. They purchased a property in Boracay that is worth 1 billion PHP and they have fully redeemed 6 billion PHP worth of bonds a month ago. With only 2.25 billion PHP in cash, we do not know where FILRT got the rest of the cash hence we have to wait for the quarterly financial report.
To give further context, the net income from a quarter ago is around 345 million PHP, a 47% decrease from a high of 647 million PHP from a quarter earlier. That same quarter, they released a quarterly dividend of 0.088 PHP/sh or approximately 431 million PHP. They were already paying dividends more than what they have earned for the quarter but it was fine since they had 2.25 billion PHP worth of cash at that time. Things got a bit questionable when they decided to redeem the bonds and purchased an asset in Boracay.
We speculate that the rental revenue for the recent quarter will be around 345 million PHP as well since the 88% occupancy rate has been maintained. A dividend of 0.071 PHP/sh is equivalent to a distributable income of 347 million PHP, which is more than a 100% dividend payout ratio relative to the net income. That said, it would seem like there would be little to no cash left for FILRT’s growth.
A question from a few investors is whether the 0.071 PHP/sh is going to be sustained assuming that the 88% occupancy rate holds. After the purchase of an asset in Boracay and the redemption of bonds, we need to find out where they got the rest of the cash. Most probably they borrowed money, and if they did borrow money, we need to know if the debt is a long-term liability or a current liability. If it is a current liability, then it is something they need to pay in the short term and dividends would surely be affected.
With the negative sentiment surrounding FILRT, the management is trying to convince others that their current dividend yield of 7.35% is competitive and higher than the 10-year government bond yield of 6.34%. The only issue with that claim is that the 7.35% yield is calculated by adding the previously declared dividends. The 7.35% dividend yield however is not achievable in the past because the share prices were higher. Hence, many investors are forward-looking in terms of dividend yield. Assuming that 0.071 PHP/sh is sustained, then the forward-looking dividend yield is around 4% to 5% at current trading prices which does not beat the trailing twelve months inflation rate of 6.2%. Early FILRT investors are experiencing capital depreciation coupled with decreasing dividend income. To add salt to the injury, FILRT has been removed from MSCI's small cap index. Prices are expected to be volatile until February 28.
