A pattern of sorts is setting at the telecom giant. Latest financial results announced by the Pakistan Telecommunications Co. Limited (PSX: PTC) group for the year ended December 31, 2018 show that the subsidiaries (mainly Ufone and UBank) continue to do better compared to the heavyweight (PTCL Company). It’s significant that subsidiaries helped the group record its strongest bottomline in five years.

Thanks to double-digit topline growth at those two subs, the group recorded a healthy 8 percent year-on-year topline growth. This is no ordinary feat, because in recent years, the group topline has consistently shown yearly decline. Similarly, the subs were also a source of operating profits for the group – the subs used to return operating loss previously – helping the group nearly triple the operating profits for the year.

While Ufone is doing well, worrying for the management is the fact that the main breadwinner, the PTCL Company, posted sizable yearly decline in both its operating profits (9%) and its net profits (11%). The PTCL Company’s main problem in scoring better profits is its lackluster topline growth, but not so much its operating expenditures which have been trimmed over a series of cost-cutting measures.

Consequently, one sees the Company’s declining share in the group topline. PTCL had averaged 62 percent share in PTC topline between CY13 and CY17 – then in CY18, the share had gradually reduced to 59 percent. On one level, this reducing dependency on one firm is a good thing. But not when that firm continues to be the sole provider of net profits. The subs are yet to return net profits.

The Rs1.7 billion losses at the subsidiaries reduced group profits to Rs5.7 billion in CY18. PTCL’s net profits were Rs7.4 billion in CY18 – down on a yearly basis but still vital for the PTC group. The group profits were also helped by lower income tax provisions. But even without the tax impact, the group did comparatively well year-on-year, absorbing the blow from significantly lower ‘other income’ on account of PKR depreciation and lower return on liquid holdings.

In the medium term, the PTCL Company will have to fix its topline problem. The company’s much-hyped Network Transformation Programme will need to show better results to boost fixed broadband service and to counter the decline from sagging revenue streams (voice and LDI). A new CEO has now stepped in to steer the firm – let’s see what new strategy the board approves in the future.

Down on the stock market, the stock has lost nearly a quarter of its value in the year-to-date period. The stock performance has fared worse in the last five years and the trend is of a persistent decline. Despite better operating performance by subsidiaries, it appears that investors are instead watching the financial performance of PTCL, a company with immense potential yet disappointing results. The Company’s 4QCY18 topline and bottomline showed some promise – let’s see if this persists in CY19.