20000207

Philippine telecom sees higher earnings

MANILA: Industry leader Philippine Long Distance Telephone Co (PLDT) is likely to post higher profits in 2000 with the fold-in of the country's largest mobile phone firm, lower provisions for bad accounts and a leaner organisation.

But losses from financially troubled mobile phone firm Pilipino Telephone Corp (Piltel) and lower revenues from international calls will limit PLDT's profits.

The average of forecasts from four brokerage houses indicates PLDT will show a net income in 1999, excluding dividends on preferred shares, of 1.86 billion pesos ($46 million), rising to 3.92 billion this year.

In 1998, the company recorded a net income of only around 15 million pesos after deducting dividends to preferred shareholders of 1.106 billion pesos, analysts said.

"(Income in) 2000 is clearly better...but it's going to be suppressed by Piltel," said Alexandra Connor, analyst at W.I. Carr Phils. Securities Inc.

Analysts said the integration of leading cellular phone firm, Smart Communications Inc, into PLDT this year will balance out Piltel's losses.

PLDT finalised a deal to acquire Smart in September from common controlling shareholder, Hong Kong-based First Pacific Co Ltd, and Japan's Nippon Telegraph and Telephone Corp (NTT), through a share-swap scheme.

Analysts estimate Smart to contribute about 20 percent of total revenue this year. They expect Smart to be fully consolidated into PLDT by the second half, although PLDT targets the move for April.

Piltel, saddled with debt, posted a net loss of 2.56 billion pesos in the first nine months of 1999 from the year-earlier loss of 38 million. PLDT owns more than 50 percent of Piltel.

"It will take two to three years before Piltel returns to the black," said Andrew Long, research head of Vickers Ballas Securities Phils Inc.

Piltel is now negotiating with creditors on a restructuring plan for its 34.9 billion peso debt. Its bank creditors have agreed on the plan, but it still has to resolve an impasse with Marubeni Corp, which is owed a third of its total debt.

LOWER INTERNATIONAL REVENUES

Another dampener on PLDT earnings is its cut in the accounting rate, which impacts the revenue from handling international long distance calls that are split equally between local and foreign carriers.

From January 1, PLDT adopted the U.S. benchmark accounting rate of 38 U.S. cents per minute for international long distance services, from 57 cents earlier.

The company said it expected a surge in call volume to compensate for the cut but analysts were not as optimistic.

"I don't really see that it will stimulate volume for them...only if the company cuts IDD (international call) rates," said W.I. Carr's Connor.

"It will reduce profits by about seven percent in 2000, it will have a negative impact on profits."

Another analyst said the share of international calls in total revenue would drop to 31 percent this year from an estimated 35 percent last year.

In 1999 and 2000, lower provisions for doubtful accounts and obsolete assets and savings from streamlined operations would have raked in benefits for PLDT.

Analysts estimate PLDT's provisions for bad accounts slid to five percent of total revenues in 1999 from 10 percent in 1998. The current level of provisions will be retained this year.

The cost of a redundancy programme was also seen to have fallen to 200 million pesos in 1999 from 750 million in 1998.

Still, growth for PLDT this year will largely depend on the pace of the country's economic recovery as call volumes rise with more activity in the business sector, Vickers' Long said.

Connor said: "We're looking at a stronger 2001 of about 4.3 billion pesos."-Reuters