Now, Ayala Corporation (AC) – led Globe Telecom, Inc. or GLO in the Philippine Stock Exchange looks to be on the verge of a price meltdown until the company does something that would induce investors to get back in. You see, while a lot of other issues had performed exceptionally well in 2010, GLO did not. In fact, it was one of the sleepers as it traded on a downward slope from an opening of PHP 915.00 during the start of January 2010 to a closing of 800.00 Philippine Peso at the end of the year. For 2010, things look even worse as GLO slipped to a low of PHP 739.00 yesterday (February 17), setting up a new 2-year low. As I’ve mentioned, GLO’s outlook appears to be even more bleak given its price action for the past 12 years. Looking at its price canvas above, you will see that it has been forming a godzilla-like head and shoulders pattern for the last 7 years. Gone are the days when GLO was trading PHP 1,400.00 or even PHP 1,600.00 plus. At present, it is dangerously exchanging near the pattern’s neckline around PHP 700.00. And a breach of this support could send GLO further down to around PHP 400.00 or less.
On the fundamental side, Globe Telecom reported last week a 22.4% drop in its net income to PHP 9.7 billion last year from PHP 12.6 billion in 2009 due to the “hypercompetitive” nature of the telecommunications industry. For those who noticed, the telecom giants like Smart, Globe, and Sun were virtually engaged at a price war, launching several new call, text, and social media promos every so often. While such was good for the common people, it definitely dented the carriers’ immediate bottom line. As you know, the Philippines’ mobile and telecoms market are very much saturated with a good number of people having more than one hand phone, with the Philippines even being branded as the text-capital o the world.
In Globe’s recent disclosure, company president Ernest Cu said that for 2011, “we will continue to build on service quality as key differentiator for Globe. We will implement a proactive approach in meeting the upsurge in voice data requirements across all customer segments, including larger enterprises. We will also improve power and transmission management to meet our quality objectives in terms of network availability and capacity.” While it is true that Globe should continue to improve its network’s capacity and speed, doing such at the same pace as their other competitors would only do so much for the company. Again, the only way that it can eat up on its competitors’ market share with its present strategy is if it is able to increase its network capacity and speed at an exponentially faster pace. If not, they better look elsewhere.
Take for instance SK Telecom which is South Korea’s largest mobile carrier. For the past several years, it has been taking opportunities to invest overseas to counter South Korea’s already saturated telecoms market. For more than a decade now, the company has invested in different countries like Vietnam, India, Mongolia, Malaysia, China, and the US, making SK Telecom one of the biggest company in terms of revenues in Asia for the last few years. Manila Water Company, a sister company of Globe, did a similar strategy when it entered India. Globe should at least follow this approach and enter other emerging countries. Without any new growth drivers, Globe’s profits will remain at par at best.