August 7, 2023

TEL

Before the year ended a year ago, TEL committed that strengthening its balance sheet is its goal for 2023. This was due to the budget overrun issue that caused their annual net income to drop to as low as 10 billion PHP from a high of 26 billion PHP. Now that we are already past the first half of 2023, it may seem like TEL’s dedication to meeting its promise is materializing. Looking at their recent first-half financial results of the year, their core net income of 17 billion PHP is almost the same as the first half from a year ago. It may not seem like good news since it didn’t grow, but it is an indicator that the earnings may have found its bottom and not drop further. That being said, whatever TEL has been doing to turn things around is probably working. 

TEL recently announced their first tranche of regular dividends for this year which amounted to 49 PHP/sh. Last April, I wrote that the dividend of TEL is something to be concerned about due to the drop in their net income caused by the budget overrun issue. To sustain the regular dividends, they have to at least shell out 19 billion PHP and the problem back then was they only netted 10 billion PHP in 2022. The better news today is that the recently declared 49 PHP/sh dividend is only 60% of the core earnings they made in the first half of 2023. If they continue to maintain their earnings for the next half of this year, then most likely the 2nd tranche of dividend is sustained as well.

Going back to the budget overrun issue, the management made a firm statement that they will continue giving out dividends while they fix the mess. They are open to tap their credit line and take out more debt if necessary. TEL’s debt has increased, but on a positive note, the maturities of this debt have been spread out evenly, at least 50% will mature in 2029 and onwards. This implies that TEL’s dividend payout has a higher chance of being sustainable for as long as they maintain their earnings.

Somehow, it does not make sense for a business to give out dividends and at the same time incur more debt. We can probably safely assume at this point that TEL is trying to return shareholder value through dividends. After all, TEL’s focus at the moment is not to grow earnings but to achieve a positive free cash flow, hence the probability of the share price going up is minimal. As for the first half of 2023, TEL’s free cash flow is still in negative territory. 

TEL’s growth is dependent on the data centers and hyperscalers that they have been constructing. The rate of revenue from their data centers is increasing at a faster rate than all other segments. However, it is only contributing less than 1% to the overall revenue. At least 80% of TEL's consolidated revenue is from the data and broadband segment. Under this segment, at least 47% of the revenue is from the mobile data segment. The SIM registration ended a week ago and TEL was only able to register around 80% of their subscribers. It would be interesting to see how the mobile segment’s profit is affected in the next quarter report.