Analysis

Converge Information and Communications Technology Solutions, Inc. (CNVRG) saw stellar earnings growth in 2020, which was unsurprising given the company’s ambitious expansion around the globe. The bottom-line output was in line with our optimistic forecasts, so no significant model changes were needed on our part.

In this article, we present our optimistic 2022E predictions, which are bolstered by hopes of continued high demand for fixed broadband, as well as the strong commercial deployment in Visayas and Mindanao. CNVRG’s goal of 55% household coverage by 2025 is, in our opinion, highly attainable. This is also with the possibility of DITO entering the broadband industry.

Since 2016, the firm’s subscription base has increased by the high double digits. Cumulative subscriptions have increased at a 92 percent CAGR over the last four years. CNVRG stated in its most recent briefing that it is on schedule to complete its national backbone in 1H21. The company intends to go commercial in VisMin by the second half of 2021. Expansion in Visayas and Mindanao involves 1,800 kilometers of submarine sea cables linking more than 20 landing stations across the region.

CNVRG would almost certainly be able to sustain secure ARPU even though it aggressively expands outside of Luzon. This is because new HFC customers are migrating to FTTH, which has higher margins in the long run.

Given that CNVRG is still in its early stages of growth, dividend declaration is not yet on the horizon. Nonetheless, there is more money to be found by market inflation. The company, in our opinion, has good fundamentals that will quickly catch up to its fair value.

Recommendation

We are issuing a BUY recommendation on the stock, since our Target Price of P22.50 per share provides a significant upside to its prevailing market price.

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