Globe gets positive outlook, stock rating now overweight

MANILA, Philippines — Globe Telecom Inc. obtained positive outlook and stock rating upgrade from investment house Morgan Stanley amid its move to increase capital expenditures for network improvements.

“Globe has been winning market share from competition in the mobile and broadband segments, which has resulted in Globe outperforming competition by six percent in 2017. Unlike competition, we like that Globe has made efforts to increase its capex to densify the network in preparation for 4G,” Morgan Stanley said in a research paper.

While Morgan Stanley recognizes the risk of the entry of a third player, it said it would take two to three years before a new player is operational.

In the meantime, Morgan Stanley said Globe’s effort in driving improvements in the network is seen as positive for growth.

As a result, Morgan Stanley upgraded the Philippines from its least-preferred market to rank in line with Malaysia and Thailand, at the same time raised Globe shares from underweight to overweight.

A stock rating of overweight means the stock’s total return is expected to exceed the average total return of the Morgan Stanley analyst’s industry (or industry team’s) coverage universe, on a risk-adjusted basis, over the next 12 to 18 months.

The upgrade was given due to lower depreciation charges, increases in data monetization and improvement in customer growth.

Morgan Stanley said it expects Globe’s data revenues to grow at an 11.5 percent compounded annual growth rate from 2016 to 2019 and be driven by the increase in mobile data traffic from a low base, and improved data monetization as a result of lower mobile competition in the market.

Morgan Stanley also forecasts data revenue to account for 73 percent of wireless revenue by 2020, up from 54 percent in 2015.

As President Duterte wants a third telco player to enter the market and break the duopoly, Morgan Stanley said it also expects increased competition in the mobile space in the future.