Lance Gokongwei, the heir to the throne of the elder John Gokongwei’s JG Summit empire and currently the President and COO of JG Summit Holdings, is still confident that the government would still approve of the telecommunications deal between Digital Telecommunications (DGTL) and the Pangilinan-led Philippine Long Distance Telephone Company (TEL). Then again, the August 26 deadline set by the two telecommunications giants had already lapsed, leaving the deal in the clouds again. The National Telecommunications Commission under Gamaliel Cordoba has not been able to issue a decisive stance on the issue, preferring to place it on the Philippine Chief Executive’s lap instead.

President Aquino has already expressed his concerns about the greater implications of the deal, and rightfully so. Many consumer groups have lobbied their increasing concerns over the apparent monopolizing effect of the deal and its effect on market competition. The deal, as many people believe, will promote PLDT’s hold over the telecommunications market once again, basically undoing the damage of years of inefficient service of PLDT and returning to PLDT the right to do the same thing that they have done in the 70’s, 80’s and the 90’s with their tremendous service backlogs. However, the younger Gokongwei assures customers that the deal would be made in order to strengthen the telecommunications infrastructure of the two companies and eventually lead to lesser costs and theoretically, lower prices for consumers while providing quality service to the general public. On the flipside, the deal potentially stands to benefit the millions of subscribers to their stocks.

Then again, Lance Gokongwei iterates that the disapproval of the deal will not lead to the collapse of the company. In the same way that Manuel Pangilinan had earlier opined on the issue weeks ago, Gokongwei also said that Digitel will definitely continue its operations with full strength with or without the deal with PLDT.

In any case, the fact that the “shining jewel” of JG Summit’s operations would be sold to PLDT was welcomed initially with mixed responses. The market was especially optimistic in the starting days of the deal’s announcement, with Digitel stock prices spiking upwards from its sudden drop due to the previously-unsubstantiated rumors that swirled around the market for more than a month before PLDT announced the deal with the Gokongweis. The stock reached the highest year-long closing price at 1.83 pesos per share. At that juncture, however, the stock price dropped sharply downward to go back to its previous stock price levels around the P 1.50 to P 1.60 price marks, attributable to the stock suddenly being overbought in the market (indicated by its relative strength index levels). After the dramatic increase, the stock had previously stagnated in the support and resistance lines between P 1.50 to P 1.60, before the stock broke the P 1.50 support line in early August. The stock today continues to stagnate in that level in the same way that the news about the PLDT-Digitel deal had stagnated in the hands of the NTC and the government as a whole.

Company performance in the 1st half of 2011 was stellar in terms of revenues as consolidated revenues amounted to a P 1.286 billion, or 16% increase, as compared to the 1st half of 2010’s revenue levels. The 1H 2011 revenue level stood at around P 9 billion due to the increased revenue from its continuously aggressive drive to bring in more subscribers to its myriad services, especially in its mobile telecommunications unit, Sun Cellular. However, net income growth was hindered by the surprisingly high cost and operating expenses borne by the company during the 1H 2011. Digitel saw a 21% increase in its costs and operating expenses. Costs and expenditures rose from P 6.91 billion in 1H 2010 to P 8.39 billion in the 1H of 2011, and was attributed to the increased push in advertisements and expansion efforts. As a result, net income was more or less at P 147 million from the P 145 million posted during the 1H 2010. Considering that the company was able to mount a continuous campaign and maintain the same level of profitability shows that Digitel is still a good investment opportunity, with or without the help of Pangilinan or PLDT.

In any case, earnings before income taxes and depreciation (EBITDA) for Digitel increased by 25%, a marked growth in a span of one year. For the 1H 2011, total assets increased by P 861 million due to a 46% increase in cash and cash equivalents and a 330% increase in total equity. As a result, the net debt to equity ratio significantly decreased from 720x to 170x, proving that the ownership of the stakeholders is starting to take over its debts, signaling a significant decrease in dependence on liabilities. Earnings per Share (EPS) are still maintained at P 0.02 per share.



In light of the situation, it can be said that Digitel stocks can somewhat maintain their standing as a reliable investment, given the profitability of the continuously progressive telecommunications company. Its continuing drive to promote the unlimited bucket-priced services to the general public, bundled with new technologies such as mobile internet access, proves to be a worthwhile investment as the company maintains its profit levels. However, in the short-term standpoint, it would be more advisable to continue holding onto the stock as stock prices have basically stood still. With the stock and inching closer towards the 1.46 support level, it is therefore advisable to either hold on to the stock until the decision of the government, favorable or otherwise, gets released.

Sources:
http://www.businessmirror.com.ph/home/top-news/15920-gokongwei-confident-telco-deal-will-be-approved
http://www.digitel.ph/
http://www.pse.com.ph/
http://www.bloomberg.com/apps/quote?ticker=DGTL:PM
http://www.spot.ph/the-feed/47983/pldt-to-buy-515-percent-of-sun-cellular-operator-digitel/