WED 09 SEP 2020

Globe Telecom, Inc.

Data critical in post-pandemic world

Sustained demand for fixed wireless products. Total fixed wireless subscribers of GLO
as of end June jumped by 35.7% q/q to 2.2 million from 1.6 million as of end March. The
strong demand for fixed wireless subscriptions in 2Q20 mainly came from people who
BUY
needed more data to work-from-home. Moreover, there are still many households looking
for internet solutions as public and private schools resume classes in October through TICKER: GLO
distance learning. Hence, the strong growth of fixed wireless subscribers and top-ups is
expected to continue in the second half of the year. FAIR VALUE: 2,390
CURRENT PRICE: 2,110
Higher mobile data usage expected following shift to GCQ. Although there is high
demand for fixed wireless products, mobile data usage is also expected to increase as UPSIDE(%): 13.27
businesses reopen and public transportation resumes amid the looser restrictions under
GCQ. Note that mobile top-ups have already recovered and returned to pre-ECQ levels last
July. GLO plans to continue upgrading its mobile data offers to improve latency and reduce SHARE PRICE MOVEMENT
churn rates. Although GLO initially planned to build more than 1,000 cell towers this year,
because of the delays caused by the lockdown, it will most likely be able to build only 1,000
cell towers in 2020 which is at par with the number of towers it built in 2019. 110

Higher collection rate should result in normalized provisions. Despite the crisis,
management said that it registered a 100% collection efficiency in June and July, with the
same expected for August. As such, GLO may no longer have to set aside above average
100

provisions going forward. Recall that in 2Q20, GLO booked Php2.9Bil worth of provisions,
much higher than its usual level of quarterly provisions worth Php900Mil-Php1Bil.
90
Conservative FY20 guidance maintained. Even though GLO is expecting higher data and
broadband usage in the second half of the year, it is maintaining its conservative FY20
revenue guidance - that it will suffer from low single digit y/y decline. The main factor that
will pull down revenues is the continuous drop in its legacy business revenues (SMS, voice
80
9-Jun-20 9-Jul-20 9-Aug-20 9-Sep-20
calls). Aside from expecting a single digit decline in revenues, GLO said it is maintaining its
low-50s EBITDA margin forecast, similar to previous years. GLO PSEi

Reiterate BUY rating. We reiterate our BUY rating on GLO with an FV estimate of Php2,390/
sh. We continue to like GLO because of its a) dominant position in the wireless business; ABSOLUTE PERFORMANCE
b) strong growth of its fixed line business; c) resiliency of demand for data despite the
COVID-19 pandemic; and d) strong GCash presence. At its current price of Php2,120/sh, 1M 3M YTD
capital appreciation potential is attractive at 12.7% while dividend yield is 4.9%. GLO is
GLO -0.47 -2.76 4.46
trading at a 2020E EV/EBITDA of 5.3x.
PSEi 1.92 -9.50 -23.76
FORECAST SUMMARY
Year to December 31 (Php Mil) 2017 2018 2019 2020E 2021E 2022E
Total Revenues 135,281 151,173 166,660 175,392 183,319 190,520
MARKET DATA
% change y/y 7.2 11.7 10.2 5.2 4.5 3.9
Service Revenues 127,906 132,875 149,010 157,496 164,812 171,433 Market Cap 281,543.05Mil
% change y/y 6.6 3.9 12.1 5.7 4.6 4.0 Outstanding Shares 133.43Mil
EBITDA 52,669 62,913 72,848 78,880 81,588 85,687
52 Wk Range 1,590 - 2,300
% change y/y 5.4 19.4 15.8 8.3 3.4 5.0
EBITDA margin (%) 41.2 47.3 48.9 50.1 49.5 50.0
3Mo Ave Daily T/O 135.66Mil
Core Income 13,546 18,735 22,451 23,120 24,016 24,916
% change y/y (15.4) 38.3 19.8 3.0 3.9 3.7
Core margin (%) 10.6 14.1 15.1 14.7 14.6 14.5
Core EPS (Php) 97.6 136.1 164.5 173.8 180.5 187.3 Adrian Alexander Yu
% change y/y (15.4) 39.4 20.9 5.7 3.9 3.7 Research Analyst
adrian.yu@colfinancial.com
RELATIVE VALUE
P/E (X) 21.7 15.6 12.9 12.2 11.7 11.3
EV/EBITDA (X) 7.8 6.6 5.7 5.3 5.9 5.7
Kerwin Malcolm Chan
Dividend yield (%) 4.3 4.3 4.3 4.9 5.3 5.5 Research Analyst
ROE (%) 20.0 26.1 28.5 27.0 25.3 24.0 kerwin.chan@colfinancial.com
so urce: GLO, COL estimates

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of
the COL Financial website as these may be subject to tampering or unauthorized alterations.
 FIELD NOTES I GLO: DATA CRITICAL IN POST-PANDEMIC WORLD

WED 09 SEP 2020

Sustained demand for fixed wireless products

Total fixed wireless subscribers of GLO as of end June jumped by 35.7% q/q to 2.2 million
from 1.6 million as of end March. The strong demand for fixed wireless subscriptions in
2Q20 mainly came from people who needed more data to work-from-home. Although
most of the modems were acquired by end-users, a number of GLO’s corporate clients
also provided fixed wireless modems for their employees. Moreover, there are still many
households looking for internet solutions as public and private schools resume classes in
October through distance learning. Hence, the strong growth of fixed wireless subscribers
and top-ups is expected to continue in the second half of the year.

GLO will also continue with its 5G and fiber network rollout in large metropolitan cities.
The company plans to rollout their 5G service for fixed wireless postpaid access by
progressively building more 5G base locations. GLO is also laying down more fiber optic
cables and replacing its outdated copper cabling. This is part of GLO’s plan to gradually
shift fixed wireless prepaid subscribers to postpaid and fiber as more people require
faster internet speed and higher bandwidth.

Higher mobile data usage expected following shift to GCQ

Although there is high demand for fixed wireless products, mobile data usage is also
expected to increase as businesses reopen and public transportation resumes amid the
looser restrictions under GCQ. Note that mobile top-ups have already recovered and
returned to pre-ECQ levels last July. GLO plans to continue upgrading its mobile data
offers to improve latency and reduce churn rates. Although GLO initially planned to build
more than 1,000 cell towers this year, because of the delays caused by the lockdown, it
will most likely be able to build only 1,000 cell towers in 2020 which is at par with the
number of towers it built in 2019.

Digitizing corporate clients to help them survive the crisis

GLO’s enterprise segment was hard hit in 2Q20 as clients cut their subscriptions following
the shutdown of non-essential businesses during ECQ. Nonetheless, there were corporate
clients that remained operational at a work-from-home basis through GLO’s fixed wireless
products.

GLO plans to help its corporate clients adopt to the new normal so that they can survive
the crisis. On top of providing internet solutions, GLO will also provide enterprise clients
with cloud services and ICT solutions to help them digitalize their business and thrive
under the new normal.

COL Financial Group, Inc. 2

 FIELD NOTES I GLO: DATA CRITICAL IN POST-PANDEMIC WORLD

WED 09 SEP 2020

Recall that GLO announced that it will acquire a 67% stake in Third Pillar Business
Applications Inc., a business application consulting and systems integration firm.
According to GLO President and CEO Ernest Cu, this acquisition will expand the telco’s
cloud business offerings to its corporate clients. We expect the corporate segment to
weather the pandemic as GLO continues with its various initiatives to further improve
their ICT services.

Higher collection rate should result in normalized provisions

Despite the crisis, management said that it registered a 100% collection efficiency in
June and July, with the same expected for August. As such, GLO may no longer have
to set aside above average provisions going forward. Recall that in 2Q20, GLO booked
Php2.9Bil worth of provisions, much higher than its usual level of quarterly provisions
worth Php900Mil-Php1Bil.

Conservative FY20 guidance maintained

Even though GLO is expecting higher data and broadband usage in the second half of the
year, it is maintaining its conservative FY20 revenue guidance - that it will suffer from low
single digit y/y decline. The main factor that will pull down revenues is the continuous
drop in its legacy business revenues (SMS, voice calls). Certain streams of income have
also disappeared because of the pandemic such as roaming revenues, inbound traveler
revenues, and prepaid top-ups from the POGO segment. However, these only represent
a small portion of GLO’s total revenues.

Aside from expecting a single digit decline in revenues, GLO said it is maintaining its low-
50s EBITDA margin forecast, similar to previous years.

Reiterate BUY rating

We reiterate our BUY rating on GLO with an FV estimate of Php2,390/sh. We continue to

like GLO because of its a) dominant position in the wireless business; b) strong growth of
its fixed line business; c) resiliency of demand for data despite the COVID-19 pandemic;
and d) strong GCash presence. At its current price of Php2,120/sh, capital appreciation
potential is attractive at 12.7% while dividend yield is 4.9%. GLO is trading at a 2020E EV/
EBITDA of 5.3x.

COL Financial Group, Inc. 3

 FIELD NOTES I GLO: DATA CRITICAL IN POST-PANDEMIC WORLD

WED 09 SEP 2020

INCOME STATEMENT (IN PHPMIL)

Globe Telecom, Inc. Service Revenues

2017
127,906
2018
132,875
2019
149,010
2020E
157,496
2021E
164,812
2022E
171,433
(GLO) % Growth 6.6% 3.9% 12.1% 5.7% 4.6% 4.0%
Wireless 98,483 99,531 111,767 116,416 120,241 123,894
COMPANY BACKGROUND Fixed Line 29,423 33,345 37,243 41,079 44,571 47,539
EBITDA 52,669 62,913 72,848 78,880 81,588 85,687
GLO is one of the two major % Growth 6.4% 19.4% 15.8% 8.3% 3.4% 5.0%
telecommunications company in the Depreciation 27,513 30,422 34,144 36,719 38,588 41,156
Philippines. Globe operates under two Financing Cost 5,252 6,195 6,803 6,657 7,919 7,919
EBT 21,542 27,613 32,827 34,275 35,604 36,938
major segments - wireless and fixed line.
% Growth -1.8% 28.2% 18.9% 4.4% 3.9% 3.7%
Under the wireless segment, the company
Taxes 6,457 8,987 10,544 11,156 11,588 12,022
has two brands, namely Globe and Touch Net Income 15,066 18,641 22,269 23,120 24,016 24,916
Mobile (TM). Meanwhile, the fixed line % Growth -5.1% 23.7% 19.5% 3.8% 3.9% 3.7%
segment of GLO provides broadband Core Net Income 13,546 18,735 22,451 23,120 24,016 24,916
internet connections to houses and offices % Growth -15.4% 38.3% 19.8% 3.0% 3.9% 3.7%
EPS 97.6 136.1 164.5 173.8 180.5 187.3
nationwide.
REVENUE BREAKDOWN BALANCE SHEET (IN PHPMIL)
2017 2018 2019 2020E 2021E 2022E
2%
Cash 11,222 23,226 8,298 33,024 25,255 27,487
Accounts Receivables 27,304 20,653 21,139 25,468 26,619 27,665
9% 14%
Inventory 3,243 4,855 4,714 4,576 4,737 4,890
Mobile Voice
Other Current Assets 15,746 16,318 19,250 19,250 19,250 19,250
16% 8% MobileCurrent
Total SMS Assets 57,515 65,052 53,400 82,318 75,860 79,291
PPE
Mobile Data 162,603 169,394 182,663 201,001 223,209 244,129
Other Assets 57,649 56,581 59,889 55,075 51,808 49,578
Home Broadband
Total Assets 277,766 291,027 295,952 338,394 350,876 372,998
Corporate Payable
Accounts Data 62,233 56,219 56,979 62,378 65,119 67,250
ST Debt
Fixed Line Voice - - - - - -
Current portion of LT Debt 8,278 16,758 12,920 11,725 11,725 11,725
51% Other Current Liabilities 8,946 12,488 14,678 15,137 15,554 15,933
21%
Total Current Liabilities 79,457 85,466 84,577 89,241 92,398 94,909
LT Debt 123,250 131,524 122,943 151,556 151,556 161,556
Mobile Voice Other Liabilities 8,501 9,365 15,524 15,488 15,826 16,132
Mobile SMS Total Liabilities 211,209 226,355 223,044 256,286 259,780 272,597
Mobile Data Minority Int 43 24 135 135 135 135
Shareholder's Equity 66,515 64,648 72,773 81,973 90,962 100,267
Home Broadband
15% Corporate Data
CASHFLOW STATEMENT (IN PHPMIL)
Fixed Line Voice
2017 2018 2019 2020E 2021E 2022E
Operating CF 50,300 57,878 74,048 70,902 74,760 77,650
EBT 21,542 27,613 32,827 34,275 35,604 36,938
Non-cash expense (income) 37,606 42,916 49,078 46,151 48,561 51,116
Change in working cap -3,248 -7,876 -1,767 1,631 2,183 1,618
Income tax paid -5,599 -4,775 -6,091 -11,156 -11,588 -12,022
Investing CF -55,422 -42,652 -53,467 -53,018 -59,582 -61,888
PPE -42,121 -42,768 -50,975 -50,147 -57,396 -59,702
Interest & dividends received 238 366 566 249 971 983
Other non-current assets -13,539 -250 -3,058 -3,121 -3,157 -3,169
Financing CF 7,814 -3,435 -33,257 6,842 -22,947 -13,530
Cash dividends -12,092 -12,105 -12,118 -13,920 -15,028 -15,610
Proceeds (payment) debt 25,977 15,836 -12,046 27,419 0 10,000
Other financing CF -6,071 -7,167 -9,093 -6,657 -7,919 -7,919
Change in Cash 2,692 11,792 -12,676 24,726 -7,769 2,232
Cash (Begin) 8,633 11,222 23,226 8,298 33,024 25,255
Cash (End) 11,325 23,014 10,550 33,024 25,255 27,487

COL Financial Group, Inc. 4

 FIELD NOTES I GLO: DATA CRITICAL IN POST-PANDEMIC WORLD

WED 09 SEP 2020

INVESTMENT THESIS: KEY RATIOS

2017 2018 2019 2020E 2021E 2022E
Increasing share of data to help sustain
ROE (%) 20.0% 26.1% 28.5% 27.0% 25.3% 24.0%
revenue growth
Wireless Blended ARPU 140 121 108 117 120 122
In 1H20, GLO’s data revenues accounted for Wireless Subs ('000) 60,686 74,094 94,204 84,194 88,225 89,936
75% of total service revenues. Meanwhile, Home Broadband ARPU 1,072 1,063 998 998 1,038 1,069
the company’s legacy business (SMS and Home Broadband Subs ('000) 1,301 1,616 2,017 2,078 2,223 2,312
Voice) continues to decline as more people Fixed Line Voice ARPU 229 170 122 104 99 94
Fixed Line Voice Subs ('000) 1,301 1,616 2,017 1,916 1,916 1,916
rely on online platforms and other messaging
Corp Data Revenue Growth (%) 4.6% 14.3% 9.1% 10.0% 10.0% 5.0%
applications to communicate.
EBITDA Margin (%) 41.2% 47.3% 48.9% 50.1% 49.5% 50.0%
Core Net Profit Margin (%) 10.6% 14.1% 15.1% 14.7% 14.6% 14.5%
Attractive dividend play CA/CL (X) 0.7 0.9 0.7 1.0 0.9 0.9
Despite its high capex requirements, GLO is Net D/E (X) 1.8 1.7 1.6 1.4 1.4 1.3
committed to maintain its 60-70% dividend Gross Debt/EBITDA (X) 2.5 2.4 1.9 2.1 2.0 2.0
Net Debt/EBITDA (X) 2.3 2.0 1.8 1.7 1.7 1.7
payout ratio based on prior year’s core net
income. This, coupled with its growing MAJOR CORPORATE DEVELOPMENTS (5-YEARS)
profitability, makes GLO an attractive dividend
play.
Acquired Bayantel for Php1.83Bil 07/20/2015

Mynt starts Gcash’s monetization phase

Mynt’s cashburn levels are expected to decline Acquired 50% stake in SMC's Vega telecom for Php35Bil 05/31/2016
y/y as GCash moves into its monetization
phase. Currently, Mynt applied small charges
Ant Financial and Ayala Corp. bought 55% of Mynt for P2.78 Bil 02/17/2017
to the e-wallet’s cash-in services. Mynt is
also focusing on increasing GCash’s users,
merchants and transaction volumes. Their Incorporated Gtowers, Inc, a fully owned subsidiary 08/17/2018
efforts to grow GCash’s ecosystem are very
successful and should boost the value and Buys back 51% of Yondu for Php501Mil from Xurpas, increasing GLO's
09/11/2019
ownership to 100%
attractiveness of Mynt over the longer term.

Risks: Return of price war and irrational Acquires 77% of Electronic Commerce Payments, Inc. (ECPay) for Php1.54Bil 10/25/2019

pricing by potential third telco

SEC approved creation of JV, Telecommunications Connectivity Inc, between
Major risks facing GLO include the repeat of 01/22/2020
TEL, GLO, and DITO
the price war with TEL and aggressive and
irrational pricing of the third telco player to
Raises US$600Mil in international bond market 07/19/2020
grab market share from GLO and TEL. Our
current forecasts assume that both scenarios
will not materialize.

COL Financial Group, Inc. 5

 FIELD NOTES I GLO: DATA CRITICAL IN POST-PANDEMIC WORLD

WED 09 SEP 2020

Valuation RELATIVE VALUATION

Methodology Mkt Cap 2020E

(mn PHP) EV/EBITDA
GLOBE TELECOM INC 273,251.17 5.28
PLDT INC 285,057.83 5.64
TELEKOM MALAYSIA BHD 177,648.33 5.34
AXIATA GROUP BERHAD 336,774.93 5.31
ADVANCED INFO SERVICE PCL 868,037.80 8.14
TOTAL ACCESS COMMUNICATION 139,371.83 5.23
MAXIS BHD 480,118.57 13.36
TELEKOMUNIKASI INDONESIA PER 983,455.02 4.99
Median (ex-GLO) 5.34
so urce: B lo o mberg

VALUATION ASSUMPTIONS

Risk premium 9.0%

Risk free rate 4.0%
Beta 1.00
Cost of equity 13%
Cost of debt 4.2%
Tax rate 30.0%
WACC 7.7%
Terminal growth rate 2.0%

PV of 2020 - 2024 49,739

PV of terminal value 400,646
Enterprise value 450,385
Less: Net debt -132,050
Equity value 318,335
Number of outstanding shares (Mil) 133
Equity value per share 2,390

COL Financial Group, Inc. 6

 FIELD NOTES I GLO: DATA CRITICAL IN POST-PANDEMIC WORLD

WED 09 SEP 2020

I MP OR TA NT R AT ING DEFINITIONS
BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the
next six to 12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might
be poor or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the
next six to twelve months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

I MP OR TA NT DISC L AIM ER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may
be incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are
subject to change without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of
a security. COL Financial and/or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies
mentioned in this report and may trade them in ways different from those discussed in this report.

C O L R E S EAR C H T EAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

JOHN MARTIN LUCIANO, CFA FRANCES ROLFA NICOLAS JUSTIN RICHMOND CHENG
SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

RESEARCH ANALYST RESEARCH ANALYST
adrian.yu@colfinancial.com kerwin.chan@colfinancial.com

C O L F INANC IAL G R O UP, I NC.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 7