WED 25 AUG 2021

Top Story:

Telecom Sector: Elevated demand for data shaping bullish narrative for (AS OF AUG 24, 2020)
telco operators INDICES

Close Points % YTD%

PSEi 6,678.82 87.15 1.32 -6.46

Other News: All Shares 4,144.88 33.92 0.83 -2.99

Financials 1,440.59 12.70 0.89 -0.49
Holding Firms 6,678.89 112.85 1.72 -9.19
Economy: Budget deficit narrows in July Industrial 9,807.25 138.04 1.43 4.41
Economy: Government seeks more loans from ADB and WB Mining & Oil 9,199.61 81.64 0.90 -3.45
Property 3,073.39 30.32 1.00 -16.13
Services 1,650.68 6.01 0.37 9.02

COVID-19 Update: Dow Jones 35,335.71 216 0.61 15.45

S&P 500 4,479.53 37.86 0.85 19.26
Total Cases Total Deaths Total Recoveries Nasdaq 14,942.65 227.99 1.55 15.94

Philippines 1,869,691 (+12,067) 32,264 (+303) 1,709,724 (+14,565)

INDEX GAINERS
USA 38,965,668 (+144,362) 648,126 (+1,130) 30,620,558 (+50,329)
Ticker Company Price %
FGEN First Gen Corp 29.00 6.81
Worldwide 213,945,685 (+649,473) 4,463,876 (+10,379) 191,437,412 (+621,814)
GLO Globe Telecom Inc 2280.00 4.97
MER Manila Electric Co 289.00 2.85
BLOOM Bloomberry Resorts 6.09 2.70
Market Summary: JGS JG Summit Hldgs Inc 65.20 2.52

The local stock market rebounded on Tuesday following the news that Metro Manila INDEX LOSERS
Ticker Company Price %
already vaccinated 43% of its target population.
ICT Intl Container Term 177.30 -1.50
CNVRG Converge ICT Solutions Inc 30.00 -1.48
The PSEi gained 87.15 points or 1.32% on Tuesday to close at 6,678.82. The top movers SMC San Miguel Corp 110.70 -1.16
were FGEN (+6.81%), GLO (+4.97%), MER (+2.85%), BLOOM (+2.70%), and JGS (+2.52%). MEG Megaworld Corp 2.90 -0.34
MBT Metrobank 46.40 -0.22
On the other hand, the only decliners were CNVRG (-1.48%), SMC (-1.16%), MEG (-0.34%),
and MBT (-0.22%).
TOP 5 MOST ACTIVE STOCKS
Value turnover declined to Php5.5Bil from the Php6.3Bil traded in the previous session. Ticker Company Turnover
GLO Globe Telecom Inc 529,278,100
Meanwhile, net foreign buying increased to Php291.1Mil from the Php105.8Mil registered
ACEN AC Energy Phils 377,634,600
on Monday. ICT Intl Container Term 335,549,900
CNVRG Converg ICT Solutions Inc 311,571,200
JGS JG Summit Hldgs Inc 206,214,800

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.
 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

WED 25 AUG 2021

Top Story:

Adrian Alexander Yu
Senior Research Analyst
Telecom Sector: Elevated demand for data shaping
bullish narrative for telco operators
Kerwin Malcolm Chan
Research Analyst Core earnings up y/y across all three telcos

PLDT, Inc. The telecom sector’s 2Q21 core earnings increased by 24.6% y/y to Php15.2Bil from
BUY Php12.2Bil with all three telcos recording strong bottom-line growth. CNVRG posted
PHP1,820 a 148.6% y/y growth in net income to Php1.7Bil while GLO’s core income improved by
27.8% y/y to Php5.8Bil from Php4.5Bil. Meanwhile, TEL saw its core income increase by
Globe Telecom, Inc. 10.3% y/y to Php7.7Bil.
BUY
PHP2,530
CNVRG’s 1H21 net income outperformed our expectations at 56.7% of COL’s FY21
estimates due to improved operational efficiency and lower-than-expected depreciation
Converge ICT Solutions, Inc.
expense. Likewise, GLO topped our earnings estimate (55.6% of full year forecast) as
HOLD
PHP25.40 GCash performed better than expected, and as the company enjoyed lower taxes during
1H21. Meanwhile, TEL’s 1H21 profits were largely in line with expectations (50.2% of
full year forecast) as consumer wireless and home broadband revenues continued their
upward momentum.

Exhibit 1: Core Earnings Summary

% of forecasts
in PhpMil 2Q20 2Q21 % change 1H20 1H21 % change
COL Consensus

GLO 4,520 5,777 27.8 11,080 13,219 19.3 55.6 -

TEL 6,990 7,710 10.3 13,868 15,212 9.7 50.3 -
CNVRG 685 1,703 148.6 1,259 3,252 158.4 56.7 -
Total 12,195 15,190 24.6 26,207 31,683 20.9 53.0 -
source: GLO, TEL, CNVRG, COL estimates

Service revenue growth boosted by strong mobile and home broadband data usage

The telecom sector’s 2Q21 service revenues grew by 10.6% y/y to Php88.9Bil from
Php80.4Bil. All three telcos delivered higher revenues, led by CNVRG which delivered a
strong 79.7% y/y growth. TEL recorded an 8.9% y/y improvement in top-line numbers,
while GLO’s service revenues increased by a more modest 5.9% y/y to Php37.6Bil. The
elevated usage of mobile and home broadband data during the lockdown continued to
drive service revenue growth. Data-related revenues of all three telcos grew by 17.7% y/y
to Php70.7Bil, accounting for almost 80% of total service revenues in 2Q21. This brought
the telecom sector’s 1H21 service revenues to Php177.1Bil, in line with our expectations
at 48.4% of our full year forecast.

COL Financial Group, Inc. 2

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

WED 25 AUG 2021

Exhibit 2: Total Service Revenues Summary

% of forecasts

in PhpMil 2Q20 2Q21 % change 1H20 1H21 % change COL Consensus

GLO 35,540 37,647 5.9 72,422 75,460 4.2 48.8 -

TEL 41,346 45,022 8.9 82,841 89,866 8.5 48.2 -
CNVRG 3,469 6,235 79.7 6,490 11,781 81.5 47.9 -
Total 80,355 88,904 10.6 161,753 177,107 9.5 48.4 -

source: GLO, TEL, CNVRG, COL estimates

Wireless revenues of TEL and GLO continue to show modest growth

TEL’s 2Q21 wireless revenues grew by 6.4% y/y to Php21.7Bil, mainly driven by the 12.3%
y/y growth in mobile data revenues. During 1H21, TEL noticed higher prepaid top-ups
and an increase in mobile data traffic compared to 1H20 levels as more subscribers
availed of its attractive GIGA data packages. Similarly, GLO’s wireless revenues in 2Q21
increased by 5.2% y/y to Php26.3Bil. This was primarily due to the strong 12.2% y/y
growth in their mobile data revenues, which completely offset the 10.6% y/y decline
in its legacy (Voice and SMS) segments. GLO also introduced a new mobile data plan
under GOMO, which provided users non-expiring data, contributing to higher mobile
prepaid top-ups seen in the quarter. The new data-only promo attracted more mobile
subscribers to GLO’s user base, bringing subscriber count to 81.7 million as of end June,
up 2.0% y/y and 2.5% q/q.

Exhibit 3: Mobile Subscribers

% change
in thou 1H20 1Q21 1H21
y/y q/q
GLO 80,172 79,766 81,749 2.0 2.5
Prepaid 77,501 77,258 79,249 2.3 2.6
Postpaid 2,671 2,508 2,500 (6.4) (0.3)
TEL 70,185 71,804 71,686 2.1 (0.2)
Prepaid 67,738 69,707 69,625 2.8 (0.1)
Postpaid 2,447 2,098 2,061 (15.8) (1.7)
source: GLO, TEL

COL Financial Group, Inc. 3

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

WED 25 AUG 2021

CNVRG and TEL’s home broadband maintains growth while GLO’s slows down

During 2Q21, CNVRG and TEL both managed to sustain robust growth in the home
broadband segment after adding more subscribers to their fiber network while keeping
churn minimal. CNVRG added roughly 58,000 net subscribers per month in 2Q21,
an improvement from the 50,000 monthly net additions in the previous quarters.
Management also noticed that more subscribers were availing of its premium broadband
plans and additional data offerings. The improvements seen during the quarter brought
2Q21 broadband revenues up by 101.2% y/y to Php5.4Bil.

TEL also saw home broadband revenues improve by 26.9% y/y to Php11.8Bil driven by the
strong demand for FIBR internet connection. According to management, gross monthly
additions reached around 90,000, improving from the 75,000 monthly installations in
the previous quarters. This, coupled with the lower churn rate, brought TEL’s broadband
subscriber base to 3.5 million users, up 32.3% y/y and 5.3% q/q.

On the other hand, GLO saw a slowdown in its home broadband revenues, declining by
2.3% q/q. During 2Q21, GLO only managed to add an average of 25,000 fixed wireless
users per month, much slower than the 80,000-90,000 monthly net additions seen in
1Q21. This was mainly attributable to the growing number of users who are shifting
to a more reliable fiber internet connection. GLO ended the first half with 4.2 million
broadband subscribers, up 46.9% y/y, but only 3.0% q/q.

Exhibit 4: Cumulative Broadband Subscribers

% change
in thou 1H20 1Q21 1H21
y/y q/q
GLO 2,867 4,088 4,211 46.9 3.0
Fixed Line 678 785 830 22.5 5.8
Wireless 2,189 3,303 3,381 54.5 2.3
TEL 2,609 3,276 3,451 32.3 5.3
Fixed Line 2,105 2,385 2,539 20.6 6.4
Wireless 504 891 912 81.0 2.4
CNVRG 732 1,182 1,355 85.2 14.7
Fixed Line 732 1,182 1,355 85.2 14.7

source: GLO, TEL, CNVRG

COL Financial Group, Inc. 4

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

WED 25 AUG 2021

GCash benefiting from increase in use cases

GLO disclosed that GCash reached a new milestone of achieving positive EBITDA and NIAT
for the month of June. Management noted that this was mainly because of successful
monetization and cost control efforts. GLO is seeing a rapid improvement in Mynt’s
(GCash operator) profitability after the company booked a reversal in equity in net profits
to Php654Mil in 1H21 from a loss of Php1.2Bil in 1H20. Equity in net losses of associates
and joint ventures outperformed our full year estimates of a loss of Php1.8Bil.

Some of GCash’s services include GLife, GInvest, GCash Padala, among others. The fintech
recently added a new service called GLoans, which gives fast and accessible credit to
pre-approved GCash users. GCash ended 1H21 with over 44 million users and 2.5 million
merchants in its network. The mobile wallet is expecting to end 2021 with Php3Tril gross
transactions, three times the value it recorded last year.

Positive outlook for 2H21

All three telcos are maintaining their positive outlook for the second half of 2021 as
the extended lockdowns continue to fuel mobile and home broadband data usage. TEL
maintained its guidance of high-single digit revenue growth as it expects consumer
wireless and broadband to sustain their upward growth momentum. Meanwhile,
GLO is maintaining its low-to-mid single digit growth in service revenues despite the
slower growth in home broadband revenues booked during 1H21. Likewise, CNVRG is
maintaining its guidance of 1.6 to 1.7 million subscribers by the end of the year in lieu of
a firm top-line revenue guidance.

TEL also mentioned that they expect FY21 core income to reach Php30Bil, up 7% y/y
from the Php28Bil booked in FY20. While GLO did not mention any bottom-line guidance
management noted that they are expecting full year EBITDA margin to stay at low-50s
levels on the back of their top-line growth and cost cutting initiatives.

TEL is maintaining its 60% dividend payout policy with a possible additional 5% payout
as special cash dividends for the year. Similarly, GLO is preserving its payout policy of 60-
75% for the remainder of the year. Note that the first three cash dividends declared by
GLO this year were equivalent to a 74% payout ratio of previous year’s profit.

COL Financial Group, Inc. 5

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

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Maintaining BUY rating for TEL and GLO and HOLD rating on CNVRG

Since the start of the pandemic, individuals and corporations have been increasing their
data usage to boost productivity. We believe that their dependence on stable and fast
internet connections will continue to drive growth for all telcos. Moreover, we like the
telecom sector due to its significant growth potential given the underpenetrated fixed
broadband segment.

We reiterate our BUY rating on TEL with an FV estimate of Php1,820/sh. At its current price
of Php 1,245/sh, capital appreciation potential and 2021E dividend yield are attractive at
46.18% and 6.45%% respectively.

We also reiterate our BUY rating on GLO with an FV estimate of Php2,530/sh. At its
current price of Php2,172/sh, capital appreciation potential and 2021E dividend yield are
attractive at 16.48% and 4.81%respectively.

Lastly, we have a HOLD rating on CNVRG with a FV estimate of Php25.4/sh. Due to its
recent inclusion in the PSEi, CNVRG saw a sharp increase in share price. At its current price
of Php30.45/sh, the stock is already trading at a premium to our FV estimate. As such, we
recommend investors to wait for pullbacks before buying the stock.

Other News:

Research Analysts Economy: Budget deficit narrows in July

John Martin Luciano, CFA The National Government’s budget deficit narrowed in July 2021 to Php121Bil, down
Frances Rolfa Nicolas 13.6% y/y. Broken down, overall public spending in July inched up by 0.7% y/y to Php377Bil
Justin Richmond Cheng
given the high base last year with the government’s cash subsidy programs. Meanwhile,
Adrian Alexander Yu
revenue collections for the same month grew 9.2% y/y to Php256Bil amid a 10% increase
Kerwin Malcolm Chan
in tax revenues. For the first seven months of 2021, the budget deficit stood at Php837Bil,
up 19.5% compared to the comparable period last year. (Source: BusinessWorld)

COL Financial Group, Inc. 6

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

WED 25 AUG 2021

Economy: Government seeks more loans from ADB and WB

Documents for the proposed 2022 national budget showed that the government is
planning to tap its development partners, including the Asian Development Bank (ADB)
and the World Bank (WB) to fund projects mostly aimed at helping the economy rebound
from the pandemic. For next year, the government will seek ADB financing worth
US$400Mil each for projects supporting universal healthcare, employment recovery, and
infrastructure financing among others. Likewise, the government will ask the WB for
US$433Mil in loans to support projects including programs to promote resilience to
natural disasters, and to support teacher’s competencies. Moreover, the government
is looking to tap Japan International Cooperation Agency (JICA), Agence Francaise De
Developpement (AFD), and Spanish Agency for International Development Cooperation
(AECID) for a total of US$636.15Mil mostly to support its pandemic response. Note that
the government borrows from both local and foreign lenders to address the funding gap
seen to hit 9.3% of gross domestic product (GDP) this year. (source: Businessworld)

Changes in Shareholdings

Date of Acquired or Price per

Stock Volume Person (Designation)
Disclosure Disposed share
254,500 17.06 Josefa Consuelo C. Reyes
24-Aug SCC A
245,500 17.10 (Director)
18,235 1,249.00 James L. Go
24-Aug TEL A
10,000 1,250.00 (Director)
Belinda C. Fernandez
25-Aug BDO 4,000 D 111.90
(Senior Vice President)
10,000 112.00 Ramon S. David
25-Aug BDO D
10,000 112.80 (Senior Vice President)
Josefa Consuelo C. Reyes
25-Aug SCC 100,000 A 16.46
(Director)
Source: PSE

COL Financial Group, Inc. 7

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

WED 25 AUG 2021

I M P O R TA N T 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 M P O R TA N T 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.

CO L R E S EAR C H T EAM

APRIL LYNN TAN, CFA

CHIEF EQUITY STRATEGIST
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

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, CFA
SENIOR RESEARCH ANALYST RESEARCH ANALYST SENIOR RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

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

CO L F IN ANC IAL G R O UP, IN C.

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EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
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WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 9