DITO's strange Q1 earnings report (Tue, May 18)

[ignissus]

Happy Tuesday, Barkada --​

The PSE closed up 14 points to 6284 ▲0.2%​

Shout-out to /@godismyredeemermyrock and the anonymous redditors for the Reddit awards, to Mike Ting for the FB share, and to Lance Nazal, Chip Sillesa, and Jing for the retweets.

In today's MB:

• DITO Q1 profit ▼70% y/y, ▼44% q/q
• C Q1 profit (net loss) ▲37% y/y, ▲69% q/q
• GMA7 Q1 profit ▲248% y/y, ▲38% q/q

Read below for more detail and analysis!

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▌Main stories covered:​

• [Q1] Dito Telecommunity [DITO 8.10 ▼9.90%] Q1 profit ▼70% y/y, ▼44% q/q... Q1/21 profit of ₱8m, down 70% from Q1/20 profit of ₱28m, and down 44% from Q4/20 profit of ₱15m. The company’s expenses shot up from roughly ₱1m in 2020 to over ₱17m in 2021 due to the additional “professional fees” and salaries that they’ve had to pay. Whatever profit DITO made in the first quarter was still dominated by interest earned on loans and advances to companies that are also owned by Dennis Uy, like Udenna Corp and Chelsea Logistics [C 4.28 ▼4.04%]. DITO executives noted that it was able to sign up 500,000 subscribers in its first two months of operations (but did not indicate how many of those subscribers were from the period between March 8 and March 31, the period for which this earnings report was created), said that the sign-up pace was “sustainable”, and reiterated that their goal is to obtain a 30% marketshare. DITO also said that it is “very challenging” to add additional phones to its list of compatible devices.
  • MB: The fact that DITO runs the country’s third telco was barely apparent from reading its quarterly earnings. Not only because the most dominant income statement line item is “OTHER INCOME” (what it makes on loans to Dennis Uy’s companies), but also because it feels like the company has purposefully tried not to speak about its business in the Discussion section. CTRL+F “subscribers” = No matches found. Hell, CTRL+F ""Dito Telecommunity"" = 1 result. That's crazy. DITO formally launched in Metro Manila yesterday, an event that was easily overshadowed by the Miss Universe competition and somewhat tarnished by the company’s plummeting stock, which managed to drop another 10% in the day’s trading. In terms of subscribers, Globe [GLO 1919.00 ▼0.93%] has 79.8 million (52.47%), SMART [TEL 1045.00 ▲0.87%] has 71.8 million (47.21%), and DITO has 0.5 million (0.33%), for a total mobile subscription market of 152.1 million. To achieve its goal, DITO needs to sign at least 45 million more subscribers (assuming zero growth of the addressable market size). The Metro Manila launch will tell the tale, but at this “sustainable” rate, DITO will take over 7 years to reach its goal. With this disclosure, the game is officially on, and all eyes will be on DITO’s Q2 report that will (hopefully?) contain metrics relating to subscribers and its crucial Metro Manila launch.
• [Q1] Chelsea Logitics [C 4.28 ▼4.04%] Q1 profit (net loss) ▲37% y/y, ▲69% q/q... Q1/21 net loss of ₱218m, up 37% from Q1/20 net loss of ₱345m, and up 69% from Q4/20 net loss of ₱709m. Revenues fell 28%, and operationally, C’s net profit from operations fell 37% y/y. The sale of C’s indirect interest in 2Go Logistics [2GO 8.50 ▼3.41%] as part of Dennis Uy’s COVID-19 emergency response plan to strengthen his group’s financial statements was the only thing that allowed C to narrow its net loss on the quarter.
  • MB: There’s nothing new here. The Uy Group continues to run the company at a loss, and in a way that fails to inspire confidence in C’s ability to drag itself to be operationally self-sufficient. The Uy Group’s efforts to use C as one of its shells to move money and assets around in recent years has left the company disfigured; it’s like it’s stuck mid-transformation, with the failing organs of its original, regional shipping and logistics firm, and the underdeveloped and energy-started appendages of its infrastructure holding company grafted on but failing to thrive. Clearly, Dennis Uy’s focus has not been on the competent operation of Chelsea as a stand-alone company; he appears to be using the entity in furtherance of goals that may not align with those of Chelsea’s minority investors.
• [Q1] GMA [GMA7 5.40 ▲0.19%] Q1 profit ▲248% y/y, ▲38% q/q... Q1/21 profit of ₱2.0bn, up 248% from Q1/20 profit of ₱0.6bn, and up 38% from Q4/20 profit of ₱1.4bn. Advertising revenue was up 57% over last year, with operating expenses only increasing 5% y/y. Advertising revenue still accounts for nearly all of GMA7’s revenue (>93%). Production costs fell 10%, due in large part to COVID and the reduction in the scope and frequency of live events.
  • MB: The tone of the earnings report reads like the owners and management group have basically spent the past three months hitting “refresh” on their internal financial dashboards. They are basically living on an island with no known predators, and are left on their own to make something lasting from this once-in-a-generation opportunity. Will they innovate and reinvest in the business to build up a moat and increase profitability, or will they grow fat and lazy gorging on the low-hanging fruit, developing bad habits that will eventually provide a chance for a competitor to make landfall on the island? With a presidential election next year, I expect that GMA7 will benefit from that bump progressively throughout the rest of this year. But again, what will they do with that windfall?

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[surskit]

@ignissus Programming-wise, GMA is being complacent on what they have right now. I bet the next admin will be ABS friendly, and should it happen, manna from heaven will stop falling if they won't strategically position themselves from everything ABS had pre-shut down era

 

[eknekron]

@surskit Not just programming (if you're talking about the line-up of shows they're producing and broadcasting), but overall business-wise I think GMA is quite complacent. They actually have a really interesting opportunity right now. They have a cash cow business that is advantaged by their competitor going out, BUT free-to-air TV will be on the decline now that people have more entertainment choices and better access due to ISPs/telcos reaching more subscribers.

Not to mention, essentially their whole business is advertising-driven and advertisers are now moving to digital/social media where there's data on what viewers are watching, when and where, and what things they like (everything we do online is tracked so sites/apps "can offer better services" lol). With free-to-air TV, consumer data is much more limited so advertisers are doing guess work who's actually watching the shows and if they're inclined to buy the products shown during those shows' commercials.

If I'm a GMA long-term holder, what I'd like to see is how they're using their healthy cash flows now (no competitor, building up to an election year, etc.) to invest in the next stage of the business and make sure they will still be the dominant player for years to come. I'd like to see that more than them just increasing dividends to keep shareholders happy in the short-term, which in the long-term context of FTA TV being disrupted and eventually declining is actually harmful to their interests.

 

[surskit]

@eknekron Agree on this. I am in awe how their closest competitor massively build up their online presence even though it is incurring losses on their end. GMA‘s wait and see/sure but steady ballgame won’t work wonders for them in the long-term. It hates to see that they are always one step forward, two steps backward in this industry (look at their DTTV receivers, who would buy them if I can access their content online?)

 

[ignissus]

@surskit They're definitely riding on re-runs.

 

[fvp]

@ignissus

https://imgur.com/a/m7GDQSn

found this v accurate meme for GMA7 haha

 

[ignissus]

@fvp a c c u r a t e