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Stock Commentary

DITO CME lost P7.3 billion on forex in H1

Merkado Barkada
DITO CME lost P7.3 billion on forex in H1
When DITO says that the losses are “unrealized”, what it means is that they expect to lose that amount (as of the current exchange rates) as DITO makes its payments on its outstanding debt.
Merkado Barkada

DITO CME [DITO 3.76 0.53%] [link] posted a Q2/22 net loss of P8.6 billion, down 292% from its Q2/21 net loss of P2.2 billion, and down 9% from its Q1/22 net loss of P7.9 billion.

DITO is the parent company of Dito Tel, but the 3rd telco’s financials were not officially incorporated into DITO’s financial statements until the share-swap was executed in H2 of 2021.

Prior to Dito Tel’s inclusion, DITO’s financials were basically the interest that the company made off of extending loans to Dennis Uy’s other companies, like Udenna Corp and Chelsea [C 1.18], while waiting for the share-swap to complete.

The result is that year-on-year comparisons of the Q2 and H1 data are basically useless.

Of course, DITO will show a 957% uptick in H1 revenue; it didn’t really earn anything in H1/21. Of course DITO will show massive upticks in H1 expenses; it didn’t really do anything in H1/21.

This means that we need to be looking at quarter-on-quarter data to derive anything interesting about Dito Tel.

On a q/q basis, DITO’s P8.6 billion net loss is only 9% worse than the P7.9 billion loss it posted in Q1. Comparing DITO’s Q1 report to its Q2 report, total revenues are up 27% to P1.7 billion, but DITO’s operating loss widened by 0.35% to P3.4 billion.

General expenses were up 3% to P2.9 billion. Interest expense was up 34% to P0.8 billion.

DITO also revealed that it incurred P7.3 billion in unrealized foreign exchange losses in H1, as the value of the Philippine Peso (the currency its customers use to pay for its services) dropped dramatically as compared to the US Dollar and the Chinese Yuan.

As of the end of H1, DITO has $1.16 billion in interest-bearing loans that, at current exchange rates, represent P63.9 billion in liabilities.

The exact same loan, measured at the end of 2021, represented “only” P59.0 billion in liabilities.

That’s a net difference of P4.9 billion in just 6 months. 

MB BOTTOM-LINE

Those forex losses are startling.

When DITO says that the losses are “unrealized”, what it means is that they expect to lose that amount (as of the current exchange rates) as DITO makes its payments on its outstanding debt.

The losses will be “realized” when the payments are made, and the foreign exchange difference is felt.

It also means that the underlying exchange rates could continue to change to help DITO or to hurt it even worse. Outside of that unsolved forex problem, Dito Tel’s operating losses are still growing, despite throwing a ton of new subscribers onto its network.

While the headline will be distractingly bad, there are two things I liked from an administrative perspective.

First, DITO actually referred to Dito Tel as “the Company’s largest investment” in the first paragraph of its Management Discussion section (the only change in the paragraph from Q1).

Second, DITO revealed that its average revenue per unit (ARPU) for H1 was P81.

ARPU is a basic telecommunications metric that measures the profitability of a company’s users, and this was the first time that DITO has publicly used this metric in its earnings reports.

Is this a good result for DITO? No, but operations are not as bad as the headline losses could make you think.

I mean, don't get me wrong, they’re not good. And DITO still has a massive amount of forex exposure risk, but the operating loss basically flat-lined while going from 5 million subscribers at the start of Q1 to 9.6 million at the end of Q2.

In a sea of red, that’s something to work with.

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Merkado Barkada is a free daily newsletter on the PSE, investing and business in the Philippines. You can subscribe to the newsletter or follow on Twitter to receive the full daily updates.
Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.

CHELSEA LOGISTICS AND INFRASTRUCTURE HOLDINGS CORPORATION

DITO TELECOMMUNITY CORP.

PHILIPPINE STOCK EXCHANGE

UDENNA CORP.

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