Accelerating Digital Transformation Will Power 5G And Fintech Expansion

Key Takeaways

• Expansion of Mynt (GCash), data centers, and broadband strengthens Globe's position in digital, payments, and enterprise services, unlocking new, recurring revenue streams.
  
• Digital transformation, operational efficiency, and industry support drive margin improvement and support long-term profitability and dividend growth.
  
• Intensifying competition, high investment needs, and a shift toward commoditized data services threaten Globe Telecom's margins, growth prospects, and revenue stability amid macroeconomic headwinds.

Catalysts

Engages in the provision of telecommunications services to individual consumers, corporate, and small and medium enterprise clients in the Philippines.

• While analyst consensus recognizes Mynt's (GCash) robust growth and future IPO as a key value driver, they likely underappreciate Mynt's international expansion and deep financial inclusion, which position GCash to tap into the global remittance ecosystem and a broader suite of payments, lending, and wealth services, accelerating Globe's equity income and future net income well beyond current forecasts.
  
• Analysts broadly agree on the secular growth in data center demand, but the actual ramp at STT GDC Philippines-with its strong, multi-year sales pipeline, rapid expansion to over 124 megawatts, 75%+ utilization rates, and leadership in AI and sustainable infrastructure-puts Globe on track for a step-change in recurring high-margin B2B revenues and a significant uplift in consolidated margins.
  
• The transformation in smartphone penetration-now at 93%-in conjunction with mass digitalization, underpins a future inflection in mobile data ARPU growth, subscriber monetization, and digital services consumption, ensuring a multi-year acceleration in both top-line revenue and long-term earnings power.
  
• The surge in prepaid fiber adoption through GFiber, alongside a dual "protect and grow" strategy in broadband, unlocks a vast, underserved market and sets the stage for recurring revenue gains, reduced churn, and meaningful EBITDA margin expansion as fixed broadband normalizes and household connectivity becomes ubiquitous.
  
• Globe's digital transformation initiatives, including automation and AI-driven operational efficiency, combined with industry consolidation and regulatory support for infrastructure sharing, are expected to drive further reductions in opex and capex intensity, which should structurally boost free cash flow, net margins, and enable sustained dividend growth.

Globe Telecom Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Globe Telecom compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Globe Telecom's revenue will grow by 4.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 12.7% today to 16.5% in 3 years time.
• The bullish analysts expect earnings to reach ₱34.1 billion (and earnings per share of ₱234.96) by about July 2028, up from ₱23.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.2x on those 2028 earnings, up from 10.6x today. This future PE is greater than the current PE for the PH Wireless Telecom industry at 9.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.88%, as per the Simply Wall St company report.

Globe Telecom Future Earnings Per Share Growth

Risks

• The long-term decline of traditional voice and SMS services, as demonstrated by falls of 6% and 16% in those segments, respectively, highlights ongoing ARPU and legacy revenue pressures that may not be fully offset by gains in mobile data, placing overall top-line growth at risk as data becomes increasingly commoditized.
  
• Despite progress in lowering capital expenditures and optimizing spending, Globe Telecom still faces persistently high capex needs for 5G rollouts, rural expansion, and data center builds, which may strain free cash flow and drive up financial leverage, ultimately weighing on margins and earnings.
  
• Heightened price competition and commoditization in the Philippine telco market, especially with new entrants and government pressure on pricing, could erode Globe's market share and compress industry-wide profitability, jeopardizing net income growth.
  
• Globe's growing reliance on digital platform businesses such as Mynt (GCash) exposes the company to fintech competition from both established banks and new fintech startups, which may result in margin compression and reduced incremental earnings, especially as Mynt contributed a meaningful 12% of net income before tax.
  
• External macroeconomic risks-including persistent inflation, potential economic stagnation, and income inequality in the Philippines-could limit mass-market consumer spending on premium data and telecom services, capping Globe's revenue growth ceiling and negatively affecting future ARPU and revenue metrics.

Valuation

• The assumed bullish price target for Globe Telecom is ₱2750.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Globe Telecom's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₱2750.0, and the most bearish reporting a price target of just ₱1550.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ₱206.7 billion, earnings will come to ₱34.1 billion, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 11.9%.
• Given the current share price of ₱1690.0, the bullish analyst price target of ₱2750.0 is 38.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.