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Opinion

4.6%

FIRST PERSON - Alex Magno - The Philippine Star

This is a pleasant surprise. Along with the rapidly decelerating infection numbers, we could have a happier Christmas than we expected.

Yesterday, the nation’s statistical authority reported October’s inflation rate at 4.6 percent. For the National Capital Region, the inflation rate was tracked at 3.2 percent. The lower inflation number appears to run against anecdotal expectation. Largely because of the cost-push caused by higher fuel prices, we expected a much higher inflation number.

Also, prices tend to rise faster as Christmas approaches. This is due to demand pressure on available commodities exerted by higher spending power during the holidays.

Economies all over the world are dealing with mounting inflationary pressures. These are due to a host of factors, including: supply shortages due to a congested global logistics system, higher post-pandemic labor costs and heavy public borrowing to meet the public health emergency.

The statisticians attribute the lower inflation number for October on softening prices for meat, chicken and vegetables. This means our producers are responding efficiently to the recovering domestic market.

A higher fuel price regime will still take its toll. The inflation rate for the remaining two months of the year will be determined mainly by the price of oil.

The US, worried about a fuel price-driven inflationary spike in its domestic economy, is exerting pressure on the oil producing countries to increase supply to ease price pressures. The oil producers are likely to make small concessions.

Just yesterday, OPEC approved a 400,000 barrel-a-day increase in its oil output. That might be enough to break the oil price surges we saw the past few weeks. But it might not be enough to support a healthy post-pandemic expansion of the global economy. Oil prices must come down more.

We need a million barrel-a-day additional production output to push back oil prices from the very high levels they are at now. That will happen if supplies from Iran, Libya and Venezuela are allowed to freely flow back to the market.

Still, supply chain bottlenecks will continue to hamper global economic recovery. In some advanced economies such as the UK and the US, serious labor shortages are becoming more manifest. The adjustments that need to be done are numerous.

Economies do not just wake up one fine morning and snap back to pre-pandemic growth rates. There are deep scars inflicted by the health crisis – including malnutrition and education gaps – that will continue to rein in growth expectations into the longer term.

At any rate, lower-than-expected inflation and infection rates are welcome any day.

Undervalued

Information and communications technologies are rapidly shifting. Companies that depend on these technologies to keep their businesses viable must be constantly adapting not only to technological conditions but market conditions are well.

Our stock market has had a healthy run the past two weeks. Among the biggest beneficiaries of this bull market is Converge ICT Solutions, the only listed pure play in the fiber broadband space.

Information from the Philippine Stock Exchange as of end-October show that Converge is trading at a fantastic price-to-earnings ratio of 52.1 times. That is a very high multiple, especially when compared to the bigger telecoms giants. PLDT Inc. is trading at 14.7 times while Globe Telecom is at 22.2 times.

Converge’s very high price-to-earnings ratio may be due to the fact that it is the only fiber-to-home player in the market. The entry of a competitor in the space it dominates could force a severe price correction.

PLDT Home Fiber is clearly ahead in the metrics. As of June, the company had 1.77 million fiber broadband customers compared to its 1.29 million subscribers at the end of 2020. Converge has 1.36 million subscribers as of end-June.

By end-September, PLDT Home increased its subscriber base to 2.09 million. The company expects that by early next year, it could reach a total of 15 million homes. These are residences within a 300-meter radius of its network.

Ookla’s Speed Test Award consistently recognized PLDT’s fiber-to-home broadband as having the highest download and upload speeds. The entry of more 5G devices will supplement this advantage.

In the first half of this year, PLDT Home Fiber posted service revenue of P14.1 billion – a whopping 74 percent more than its end-2020 revenues. In comparison, Converge posted a total of P10.2 billion – double its earnings in the same period of the previous year.

In addition, PLDT is using its financial muscle to sustain its expansion. Its domestic and international backbone is expected to reach 92 terabits and 60 terabits respectively.

When PLDT Home Fiber does enter the market, investors will have a more reliable benchmark in pricing the companies. Our market will have a better valuation of the competitors in the same industry space.

The open market always offers the best pricing and valuation mechanisms. It is also the best assurance that customers will be better served by companies adopting the best technology and services.

When a third major player entered our telecommunications space, prices for services dropped dramatically. We expect the same thing happening when PLDT Home Fiber enters our capital market. Consumers always benefit from competition on an even playing field.

When the telecoms companies begin adopting more efficient strategies for raising capital from the market, this will drive the modernization we all need.

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