First Metro Securities: China Telecom-backed DITOTel to disrupt PH mobile sector

Five years after its launch and with government-mandated network audits successfully completed, DITO Telecommunity is bringing in disruptive moves to ramp up pressure on tech giants PLDT and Globe.

First Metro Securities Research outlined fresh risks in the changing telco landscape in a report titled “The clear and present danger of DITO,” which was prepared by equity research head Mark Angeles; Estella Dhel Villamiel, head of research for institutional clients, and Samantha Patricio.

Big picture

Last month, DITO announced the successful passing of mandatory audits, allowing the venture between Davao-based tycoon Dennis A. Uy and China Telecom to focus on seizing market share from competitors in line with its goal to become profitable in 2028.

“Given the maturity of the mobile market, it is likely that incumbent players will suffer market share losses and slower growth in mobile service revenue,” according to First Metro Securities.

“We expect incumbents to respond by reducing mobile data [average revenue per user], increasing advertising and promotion expenditure, and enhancing capital investments to counteract DITO’s aggressive efforts to capture market share,” it added.

Mark Angeles

First Metro Securities equity research head

Heightened competition

First Metro Securities expects DITO to secure around 6 percent of the mobile market (25 million users) and generate 11 percent of industry service revenue (over P26.5 million) within the next two years.

“Currently, DITO Tel is on track to meet its 16 million subscriber target by the end of 2024 and has introduced competitively priced offerings. Based on the comparison table below, DITO Tel offers the most competitive pricing on a price per [gigabyte] basis among the major players,” it noted.

Estella Dhel Villamiel

 First Metro Securities head of research for institutional clients

Industry response, erosion of margins

DITO Tel’s aggressive customer acquisition strategies are likely to pressure incumbent players, leading to market share losses and slower mobile service revenue growth, the report showed.

In response, Globe and PLDT are expected to launch more competitive pricing and ramp up marketing efforts, which could impact earnings before interest, taxes, depreciation, and amortization margins and return on invested capital, it added.

“[T]hese factors will create a challenging environment for existing providers, exerting downward pressure on mobile service revenue and profit margins,” according to First Metro Securities.

Converge is a buy

For now, First Metro Securities said investors should remain wary of their exposure to mobile players, with the safe choice being fixed-internet giant Converge ICT Solutions (CNVRG), which was founded by Dennis Anthony Uy and Maria Grace Uy.

They have a “buy” rating on the stock with a target price of P20.50 per share plus potential for upside from dividend payouts.

“This has allowed the stock to deliver earnings faster than peers with mobile exposure, and we believe it will continue to do so, in view of its recent initiatives gaining traction,” the report showed.

“We highlight that the counter now accounts for 35 percent of the fixed broadband segment’s service revenue as of [first half 2024], from only 11 percent pre-COVID,” it added.