Market Event

NTC declared DITO Telecommunity Corp. compliant with its requirement to cover 37.0% of the country’s population and provide a minimum average broadband speed of 27 Mbps in its first year of service.

Opinion

This initially gives a peek into DITO’s operational capacity. Note, however, that only less than 200 cell towers (12% of the total) were covered in the technical audit. Operational statistics such as bandwidth speed may differ once subscribers start to utilize DITO’s infrastructure this March 8.

Meanwhile, DITO CME (listed) has yet to acquire significant ownership stake in the 3rd telco. This involves an issuance of 11.2 Bn new primary shares at P6.11 per share to Udenna Corp. in exchange for full ownership of UCME (Udenna Communications Media and Entertainment Holdings), which has 53.4% indirect stake in DITO Tel. Total dilution to existing shareholders is estimated at 87.5%. Assuming DITO CME’s stock price remained at P18 post-issuance, this would translate to a market cap of P405Bn, almost double that of GLO’s. Keep in mind, that only 53.4% of DITO Tel will be infused to DITO CME (listed).

Given the current competitive environment in the telco space, it will be difficult for DITO to gain enough significant market share to justify a market cap of that level. Also, at a D/E of 7.5x, above GLO’s 3.2x and TEL’s 3.6x, DITO may be prompted to look for other sources of cash to meet their expected CAPEX to the tune of P27 Billion per year until 2024, as indicated in the issued CPCN.

Although the technical audit win may stir positive market sentiment in the short-run, we advise to trade with caution.

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