PTCL in CY17

The telecom giant’s quest towards stabilizing the top line decline continues. Latest financials, reported on February 14, by the Pakistan Telecommunications Co. Limited (PSX: PTC), for the year ended December 31, 2017, show that the group top line had only marginally declined over previous year.

That the group net profits were still 2.7 times the prior year owes mostly to non-operating events. On one hand, the massive surge in ‘other income’ – attributed by the management mainly to “favorable outcome of certain legal cases” – provided a much-needed fillip to the bottom line. Additionally, the one-time Rs4.6 billion charge booked in CY16 on account of employee voluntary separation scheme (VSS) was at work helping the CY17 bottom line grow so heavily year-on-year.

The PTCL Company – which is PTC’s main subsidiary, accounting for roughly 60 percent of group revenues – saw a top line drop of 2.3 percent year-on-year. Though CY17 is the third successive year of revenue decline at the firm, the extent of the top line drop was contained last year. During the year, growth was visible in revenue streams of DSL (fixed wireline broadband), Charji LTE (fixed wireless broadband), corporate services, and LDI (international business).

BR Research had discussed the group’s prospects in an earlier piece titled; “Can PTCL bounce back?” published October 25, 2017. As pointed out then, even now a tug of war continues between the declining revenue streams – such as PSTN (fixed-line voice) and EVO CDMA (fixed wireless) – and the growing revenue streams – such as DSL, corporate services, and Charji LTE. In CY17, the former won. It seems that the latter streams may be close to turning the tables and helping standalone-top line grow in CY18.

But that’s not going to be easy. The management seems cognizant of the issues in their fixed access network, which is the key to scaling the revenue streams that are growing. Under the current CEO, the firm has been spending big on a network transformation programme to upgrade the legacy PTCL exchanges through a mix of putting in new optic fiber cable and rehabilitating the old copper network. A few years of sustained effort are needed to modernize a sizable number of exchanges.

While PTCL Company is still a source of net profits for the group, Ufone has been making losses since CY14. It appears that the last-ranked cellular firm also incurred net losses in CY17, though the extent of losses is reducing. For a turnaround, Ufone will need to invest more in its network and people. It hasn’t bought additional spectrum since opting for a smaller, 5MHz spectrum for 3G in April 2014. Ufone is operating in a tough competitive environment, but it seems to be closing in towards a top line growth.

For the long-run vitality of the group, the PTCL Company will have to step up. It has a massive opportunity in expanding its services in fixed broadband, where penetration is currently reported really low, around 5 percent. If the firm can fix the issues in its fixed network, it can reliably scale its operations and become a premier provider of high-speed data, video, and voice on the same network.

Meanwhile, over at the bourse, the PTC stock has witnessed a steady decline in recent years (see the illustration).

The stock has lost 27 percent of its value in the year-to-date period, compared to a 12 percent decline in the benchmark KSE-100 index in the same period. With the results’ announcement came no declaration of a cash payout. The stock closed that day 5 percent lower, at Rs12.61 per share. Let’s see if CY18 can give investors some reason to cheer.