PLDT - Q4 2023

Transcript

Manuel V. Pangilinan (Chairman and CEO)

I'm very pleased to share with you PLDT's financial and operating highlights for the year 2023. Consolidated service revenue for 2023 rose by 1% to PHP 191.4 billion compared to the same period last year. On gross basis, service revenue grew by 3% year-on-year. Operating expenses were lower by 2% or PHP 1.5 billion to PHP 87.1 billion. The combined increase in service revenues and decline in operating expenses resulted in a 4% rise in EBITDA to PHP 104.3 billion, a new all-time record high with EBITDA margin at Telco Core income, excluding the impact of asset sales and Maya, registered a PHP 1 billion increase to PHP 34.3 billion, higher by 3% year-on-year. Next slide, next, please. Next page. On segment basis, revenue growth continued to be broad-based. Individual revenues, accounting for about 43% of the total revenues, grew by 2% to PHP 81.8 billion.

The home and enterprise segments registered new record highs. Home revenues grew by 1% to PHP 60.4 billion, with fiber-only revenues having added 9% to PHP 53 billion. Enterprise revenues gained by 1% to PHP 47.1 billion. Let me now go through the segments in greater detail. The next slide shows that while the headline revenue growth ranges from 1%-2%, there are underlying data revenue streams growing more strongly in line, if not stronger, than the Philippine GDP growth. In the individual segment, mobile data, accounting for 87% of the total revenues, are growing 8% versus segment growth of 2%, reflecting the drag from legacy SMS voice. Fiber revenues posted a 9% growth versus 1% segment growth due to the impact of legacy non-fiber revenues. Under the enterprise segment, corporate data and ICT advanced 6%, albeit segment revenues grew only by 1%.

Overall, excluding the drag from legacy revenues, total revenues actually registered a 6% year-on-year increase. Next page, please. The individual segment showed sustained quarterly growth in 2023, signaling early signs of recovery for a business that has faced many challenges over the past years. Against an improving backdrop and early signs of market repair, individual revenues grew by 2% to PHP 81.8 billion. As a result of various initiatives implemented by the business unit, average data usage rose by 19% while ARPU grew by 17%. Worth noting is that revenues in the fourth quarter of 2023 gained 6%, following a 6% rise in prepaid and 4% growth in postpaid. Mobile data revenues underpinned the growth with a 6% rise to PHP 71.1 billion. Active data users rose to 39 million as of the end of December 2023, with usage having grown 19% to 11 GB.

Mobile data traffic hit 4,900 petabytes in 2023, higher by 11% compared to last year. Initiatives to accelerate revenue growth in the individual segment include: offer that increased usage and velocity; rationalization of packages; the launching of innovations such as prepaid eSIMs, Loan-A-Load, and online retail channels, as well as more efficient and experiential trade operations. Next, please. While home broadband revenues rose by only 1%, fiber-only revenues, which now account for 88% of the total home revenues, improved by 9% or PHP 4.5 billion versus last year. PLDT is of the view that there are unserved and underserved markets in the home broadband space. These include new areas, potential customers at the lower end of the market, as well as niche markets at the higher end. Unique to PLDT is the ability to leverage both fiber and fixed wireless technologies to serve a broader market segment.

An example of these are our fixed wireless broadband service that we offer in areas where port facilities are not available, or to the lower-end market on a prepaid basis with less than 500 ARPU. Another example of leveraging on our integrated network is our industry-first, Always On broadband service, which is able to deliver seamless ultra-high-speed connection, ensuring customers' uninterrupted access for work, study, and entertainment. In 2023, Fiber net adds stood at 234,000. PLDT continues to enjoy strong brand equity and superior network quality, making it a formidable competitor in the market. Data and ICT remain to be the key drivers of our enterprise business, which registered a year-on-year growth of 1% to PHP 47.1 billion. Excluding the impact of preterminated or non-renewed contracts, enterprise would have grown by 3%. Revenues in the fourth quarter were up by 6% quarter-on-quarter.

Corporate data climbed by 4% due to higher fiber and managed IT services. ePLDT or ICT recorded a 15% rise in revenues, mainly from data center and cloud services. The Santa Rosa data center remains on track, with the first 10 MW capacity expected to come on stream by July this year. Full capacity is expected to be a year ahead of competition, with ePLDT well-positioned to serve the existing robust demand from hyperscalers. In addition, our growth pipeline is fueled by our focus on enabling digital transformation initiatives of corporate SMEs and government, including the creation of smart cities and the first sovereign cloud. Our enterprise business has also achieved preferred partner status with Cisco, Fortinet, Microsoft, and Google, demonstrating strong solution capabilities and a robust partner ecosystem. Next, please.

The tight management of costs across the board continued, resulting in a 2% or PHP 1.5 billion drop in total operating expenses, including provisions and subsidies. Increases in repairs and maintenance, mainly due to increased electricity arising from expanded network, as well as the higher cost of services arising from SIM registration, were more than offset by lower compensation, lower selling and promo, as well as lower provisions and subsidies. The combined effect of higher revenues and lower costs resulted in a 4% improvement in EBITDA to PHP 104.3 billion, another record high, with EBITDA margin at 52%. Exceeding guidance. Next page, Telco Core income for the period rose by 3% to PHP 34.3 billion from 2022, reflecting the impact of higher EBITDA and lower depreciation, partly offset by higher financing costs and tax provision.

On reported basis, PLDT income expanded to PHP 26.6 billion, mainly from the gain from tower sale and leaseback transactions, forex, and derivative gains, but partly offset by MRP expenses in impairment of assets. Note that our share in losses from Maya stood at PHP 2.2 billion or PHP 1 billion lower than last year, in line with our expectation of Maya break-even by the fourth quarter of this year. Today. Next, please. The board of directors declared the payout of a final dividend of PHP 46 per share, which together with the interim dividend of PHP 49 brings total to PHP 95 for 2023. This represents a 60% payout in line with our dividend policy. Record date is set for March 21, while payment date is set for April 5. Next, please.

PLDT's balance sheet remains healthy, with a net debt to EBITDA at 2.3 times lower than the 2.44 times at the end of September 2023. We are confident to hit our target leverage of 2 times, with the anticipated increase in EBITDA, reductions in CapEx, and with the receipt of remaining tower sales proceeds. Gross debt amounted to PHP 256.9 billion, of which 16% are dollar-denominated and 5% unhedged. Interest costs for the period stood at 4.58% pre-tax, while the average life of debt is less than 7 years. The total CapEx for the year amounted to PHP 85.1 billion, consisting of network and IT CapEx of PHP 69.9 billion and business CapEx of PHP 7.4 billion. Of the PHP 33 billion of prior year's commitments, PHP 21 billion was included in the 2023 CapEx.

The lower CapEx for 2023, from PHP 97 billion in 2022, is in line with our objective of bringing down CapEx and aiming for positive free cash flow. Moreover, CapEx intensity for the year stood at 42%, lower than 50% in 2022. In addition, the CapEx of PHP 85.1 billion is PHP 19.2 billion lower than the EBITDA of PHP 104.3 billion. For 2024, our CapEx guidance is PHP 75 billion-PHP 78 billion, consistent with our aim to continue to reduce CapEx. Next, please. This page shows the usual network highlights. On the fixed network, we passed 17.5 million homes, covering 18,600 barangays, representing 44% of the total barangays in the Philippines. We are present in 70% of towns and 91% of municipalities nationwide. Total fiber ports grew to 6.3 million as we re-accelerated port rollout. We continue to carefully rationalize the rollout to ensure optimal utilization.

PLDT's total fiber footprint remains unparalleled, with a total of 1.1 million kilometers. On the wireless front, population coverage for our wireless networks stands at 97%, about 82% of the total handsets on the network are LTE. The number of unique 5G devices and 5G data traffic continues to show growth from the end of 2022. Based on Opensignal latest report, Smart leads with the Philippines' best 5G coverage and availability. Before we discuss the guidance, let me turn you over to Mr. Doy Vea to discuss Maya.

Speaker 7

Good afternoon. Happy to update you on Maya. Exciting times for Maya as it leads the way towards revolutionizing financial services in the country. We are making significant breakthroughs towards growth as we leverage our strong ecosystem to build the number one digital bank in less than 2 years.

We achieved this on the back of very creative and innovative banking services delivered to our payment customer base, consisting of consumers and enterprises. Some big numbers. As of the end of 2023, we had 3 million depositors at 2.1x year-on-year growth from 2022. That number is now 3.4 million. We ended the year with a PHP 25 billion deposit balance, 70% higher than our balance by the end of 2022, and that number is now PHP 27 billion. Importantly, we disbursed a total of PHP 22 billion in loans, a massive 6.9 times year-on-year leap from 2022, and that's now PHP 25 billion. On the enterprise front, we solidified our leadership as the payments backbone of the Philippines by empowering more and more businesses to accept various payment methods seamlessly.

Our omnichannel offering has established Maya as the number one processor of payment transactions for credit and debit cards, where we hold 51%-52% market share, and on QR Ph transactions, where we have a 44% market share based on Visa and BancNet data. Maya is now successfully bringing banking to the micro, small, and medium enterprises in the Philippines. We provide higher business deposit interest rates than traditional banks, and we offer up to PHP 2 million unsecured credits to businesses that typically do not have access to credit. So for 2023, we posted a 4.4 times growth year-on-year on enterprise loan disbursements. We are committed to supporting the financial needs of businesses of all sizes through all-in-one digital banking. Now, on the consumer side.

On the consumer side, our all-in-one digital banking platform is driving multi-product adoption, with Maya as consistently the number one-ranked consumer app in Google Play and App Store among local finance apps. We have pioneered what is now known as high engagement banking by integrating consumer payments with a bank account. We offer up to 14% per annum interest rates on savings accounts for consumers. As a result, bank customers transact 2-3 times more than payments-only customers. Borrowers with savings accounts are more engaged and have lower default rates. Our consumer ARPU posted a remarkable 80% year-on-year growth in 2023. Our high engagement banking strategy resulted in the doubling of our depositor base to 3 million, as mentioned earlier, and boosted our deposit balances to PHP 25 billion as of December 2023.

We also recently introduced a suite of savings and wealth-building products such as Maya Time Deposit Plus, Maya Funds, and Maya Stocks, which are all doing very well. Meanwhile, the enhanced Maya Card, the fastest-growing prepaid card in the market, enables users to use their Maya account globally. We are now the number one prepaid card in international usage among Philippine prepaid cards. All our customer transaction data are channeled to our AI-powered credit scoring platform. As a consequence, we're now championing consumer lending in the Philippines by using alternative data. We have built proprietary AI models driven by machine learning, enabling a surge in loan disbursements in 2023. Last Tuesday evening, we launched a consumer campaign featuring Liza Soberano and Dolly de Leon. I hope you saw it and you liked it. It's now trending virally in social media. So that's all for me. Thank you.

Good afternoon, and thank you for joining us this afternoon. Let me start off with our guidance for the consolidated service revenue for 2024. We're guiding service revenue at mid-single-digit growth over 2023 revenues. We foresee continued increases in data broadband revenues, attenuated somewhat by the legacy services, legacy products that are negative. It continues to show negative as they're replaced by the new data and broadband services. EBITDA is being guided at a similar manner, mid-single digit, supported by the top-line growth. But we need to continue to manage our costs as we did a good job last year in 2023, where the cash OpEx line showed very little increase. And the intentions to push EBITDA margin above the 52% margin that you saw in 2023.

Telco Core is being guided at north of PHP 35 billion for this year, and dividends at regular dividend of 50%, with a look back for most likely 10% additional and therefore 60% of core for 2024. CapEx is being guided at between PHP 75 billion-PHP 80 billion, most likely below sub-PHP 80 billion for the full year, including carryover CapEx from 2022. But the bulk of the CapEx for this year will be the fresh CapEx, which I think Danny has described the usage of. Then also, Danny referred to greater free cash flow effort this year because we want to reduce our net debt to EBITDA closer to 2x. It was reduced somewhat in 2023 to 2.3.

And if we're able to sell an interest in our data center, then the intention is to devote most of the proceeds to reduce debt so that that should bring us some ways closer to 2x net debt to EBITDA. I think that's basically it. So, Melissa.

Operator (participant)

So we're now ready to take your questions. For those who are online, you may type your questions in the Q&A box in the upper right side of the screen. You may also click the raise hand button and wait for me to call your name before you unmute your microphone. You can also send your questions via email to [email protected]. Please indicate your name and company name so we can get back to you for any additional information you may need. Allow me now to take questions from the floor first before we go to those who've joined us online.

There are microphones in the aisles. There were questions sent online by Gab and Pranav. Do you want to ask the questions yourselves, or do you want me to read out the questions? Pranav.

Speaker 3

Hi. First, for the fiber segment, additions in the segment slowed. Is this due to saturation in the markets you're present in, and which segments do you see it coming from moving forward? The fiber.

Speaker 7

Yeah. Thank you. So I believe the question was on fiber growth and what we're seeing on fiber growth. I think when you have a look, I'll zoom out a little bit because if you have a look at the presentation that Danny just took us through, it showed the home segment growing by 1%, which actually looks quite muted. Just want to remind everyone, what actually sits in the home segment are actually three big parts of our business.

Number one is our fiber business, which actually grew 9% year-on-year, right? So our actual fiber business, which is our biggest area, it's a future business for us, is actually growing at a rate of 9% year-on-year. The second bit that's actually inside the home business is fixed wireless. Now, many of you would know in the market, we have actually seen a correction and a change in that. In fact, we're seeing fixed wireless subscriber numbers quite substantially decline year-on-year. We saw a similar amount. Fortunately for us, it's not as much as, say, for example, the overall market. So we're actually seeing an improvement in terms of market share there. In fact, when you have a look at our quarter three, our quarter four numbers, we are starting to see some growth as well come out of fixed wireless.

So we're starting to use fixed wireless in areas where we don't have a footprint. We're also using fixed wireless to attack a different segment of the market. The third element that actually sits in our home business is actually our legacy business. Our legacy is whether it's our copper through our ADSL, VDSL, as well as our voice business and calling business. That is actually a really in the past, has actually been quite a large business for us, but has been undergoing a lot of decline. And that's what's actually dragging down the overall home performance if you look at our overall number. If you look at that, that itself was actually negative PHP 3.1 billion or a decline of 35% year-on-year.

So when you exclude out some of the legacy businesses, the declining businesses, you actually will see our fiber business continuing to grow at a rate of 9% year-on-year. Now, having said that, would we like to see more growth in the fiber business as we've seen in the past? Absolutely. That growth is going to come from two areas. Number one, as Danny had mentioned, in 2024, we plan on reaccelerating our deployment of our fiber network to more areas. You would already note in 2023, we actually had quite a humble 170,000 ports that we deployed, far different from what we've done in the past. So 2024, we'll actually see a reacceleration of the deployment as we cover more areas and make fiber available to more homes in the Philippines. The second one is actually making sure that we sweat our existing infrastructure where we are today.

We are already starting to see a focus in terms of customer experience. That's making sure that the lines that we provide actually get the best network experience and making sure we service our customers as best as we can. As we focus in on some of those existing areas, it's also then having other products that will allow us to target the different segments of that market, right? Those segments, whether they're the high-end, which we've recently launched Gigabit Fiber to be able to service the fastest broadband service available in the Philippines, going up to 10 gigabits, or down to the lower segments where we also have prepaid fiber available to certain areas where we have excess capacity. We do see continued growth available in the home market, and we will actually be using sort of that two-prong approach, two different ways of actually attacking it.

One is rolling out, and the second one is sweating our existing footprint. Just to follow up on that, you mentioned you have a prepaid fiber in select areas. How's that trending so far?

So we've actually been in customer trials for prepaid. As we mentioned in the very I guess when it was first launched and it was something that was heavily discussed, we've been very cautious about how we've actually deployed that. We want to make sure that it is revenue accretive and value accretive for all of us. We sit very differently. PLDT is in a different position than some of our competitors. We currently enjoy 55%-60% utilization. So if you look at billable lines, we have 55% port utilization. If you look at it from an overall obviously, you have some customers that you are in different levels of suspension and connection.

You're actually sitting at about 62% utilization. So we have a lot more of our customers, a lot more of our ports being used. We want to make sure that we use prepaid fiber to target areas where we have excess capacity as opposed to other players in the market which actually have significantly lower utilization levels.

Speaker 3

Okay. Thank you very much. Thank you. Sorry, I just have one more question. For the mobile segment, Smart's been faring better in terms of getting new subscribers and actually staying ahead of your competitor. So do you see this as a long-term indicator for revenues in the segment? Do you see that picking up? And how are you seeing competition in the mobile space broadly?

Speaker 7

Hello. Probably just to respond quickly to the question.

Number one, we came from a SIM registration bill that was enacted and put in force last year around the third quarter. So obviously, we saw a decline in our overall subscriber base. We have seen a healthier retention of customers ending at over 58 million last year combined for both prepaid and postpaid. Obviously, there's a lot of work now to do to rebuild the base, and we are pushing very heavily both on the postpaid and prepaid businesses. And we are also pushing a lot of efforts around the eSIM, which we launched on prepaid initially for digital delivery and now also available in postpaid as well. So we understand that there's going to be correction. Customers who were on rotation previously are probably not going to be as engaged as before because they have to go through the normal process of registration.

Second, we also have to match this together with the growth in devices which are sold in the open channels year-on-year.

Speaker 3

Okay. Thank you very much.

Speaker 4

Thanks. Thanks, Pranav. Gab, did you want to ask your question? Hi. Gabriel Madrid from PEP here. First question is on the PHP 13.9 billion in asset write-offs in the fourth quarter. Could you please provide more color on that? It actually pertains to an amortized subscriber acquisition costs. Customers along their date, then there's a need to write down assets related to them. It includes the cost of CPEs. Thank you. And follow up on that, fourth quarter depreciation was slightly lower than the typical run rate. I think it was about PHP 10 billion in the fourth quarter. Is that because of the assets that were written off, and do we expect that normalized run rate moving forward? Okay. Thank you.

Second question is on Maya. I believe it was mentioned in the previous briefing that Maya was in talks with existing shareholders of possibly doing another fundraising round. Is there any update on that? After our $80 million funding round in December, at this point, we are fully funded. So our focus is on growing the business, building more services, and launching more services, enlarging the base. So that's where we are at this point. Thank you. And one last question. Sorry. I want to add some color to that.

Speaker 7

Maya did the presentation to the board this morning about their results for the first two months because we're obviously closely tracking their performance on a monthly basis because their target is to break even, right, towards the fourth quarter this year. So we want to make sure that they're on track to meet those targets.

The first two months showed an improvement, significant improvement in certain financial metrics. Their segmented EBITDA has turned positive for the first two months compared to the loss last year. That is the EBITDA at the operating level. If you take into account the corporate overhead, it's still negative EBITDA, but 50%, roughly, of what it was of the loss that they showed in the first two months last year. Similarly, on a bottom-line basis, their result is similar. It's 50%, a bit more reduction in their net loss for the first two months compared to last year. On that basis, their cash burn is also 50% thereabouts of their cash burn last year. You have cash of about $3.5 at the moment, $4.4. There's $20 left out of the $80 that DOI mentioned.

So that's more than PHP 1.1 billion-PHP 1.2 billion incoming sometime this month, Shailesh. So we think that that's providing more than enough buffer to accommodate their cash burn up to the third quarter. And our expectation is they should be at least break even, if not slightly cash flow positive in the fourth quarter this year. And then in 2025, we hope they can see the light of day, right?

Speaker 4

Thank you very much. My last question is on CapEx. The continued decline in CapEx is encouraging, although the rate of decline is much slower versus other telcos. So I believe that's due to the CapEx overrun of 2022. So I just wanted to ask how much of that overrun amount is left to be paid out this year and maybe next year? Okay.

Speaker 7

For this year, if you look at the composition of projected CapEx of PHP 75-78 billion, around three-fourths, 75% is CapEx, and the balance is for 5 years. So the rest of the CapEx? Less than PHP 20 billion for 5 years. So the balance will be fully paid out by the end of this year from the overrun? Probably two more. Two more years. But only on declining days. So fresh CapEx this year, we're at PHP 60 billion. There will be additional PHP 30 billion of the CapEx. Then PHP 25 billion below. PHP 26 billion, very small, out of the bush.

Operator (participant)

Okay. Thank you very much. Thanks, Gab. There's a question from those who joined us online. Arthur, your hand is raised. You may unmute your mic.

Hi. Hi. Thanks for the opportunity. If I can go for three questions, please.

Firstly, on broadband, on the total fixed broadband momentum, that seems to be quite soft for the last two quarters. You did mention that fourth quarter was weighed down by seasonal issues. Are you seeing this moving back to positive territory into the first quarter of 2024? What are you seeing for the year? Second question was on mobile competition. What are you seeing on the ground? Are you seeing any increased activity or customer traction from the third player following their earlier capital raising? Maybe just one last question on the data center side, on the expectations here. Do you see this as immediately accretive upon operation in the end of the first half, or do you need to ramp up contracts first? I'm not sure if the capacities are already pre-contracted.

Thank you. Go ahead, Jeremiah. Okay. I might start off first.

Speaker 7

On your question, Arthur, I believe it's around broadband seasonality and slowing down in the second half of last year and what do we see for this year, I think, if I paraphrase that roughly. The short answer is we had a limited rollout in 2023, and you can actually see some of those, the momentum actually start to come off. As Danny has mentioned already, we actually do plan in 2024 an acceleration of that rollout. So you'll actually start to see those things come online in the first half where we'll be looking to monetize them as quickly as we possibly can. So we will actually expect to see that we'll start to improve some of the momentum, get the momentum back into the fiber growth fiber side of the business, getting back into, I guess, not maintaining, but actually growing. It's actually growth rate.

So if you look at it on a quarterly basis, you're seeing sort of 7, 8%, 9% growth rate, 7%-8% in the last two quarters. We actually want to take that even further when you're only isolating out the fiber business, right? So obviously, we still have some of the legacy to go that actually weighs down our number. But if you exclude that, we do expect to see actually fiber over the next well, for this year, over the balance of this year, we actually do want to ramp up our growth in our fiber business. There's a question on the data center, Jojo.

So on the data center, we have active discussions with potential partners, and that factors in the current capacity that we have of 28 megawatts plus the incoming capacity of 30 megawatts that we have for VITRO Santa Rosa when it opens in July. So that's pre-contracted, the upcoming 30 megawatts. You expect that when it launches, it's already revenue-generating? We obviously still have to fully sell out the 30 megawatts, but we have a very exciting pipeline of opportunities for our 11th data center. No. Well, the hyperscaler data center in Santa Rosa, Arthur, right? Arthur. It will be implemented in several stages. The first stage is only 10 megawatts. And I think there's one major hyperscaler that has signed up, which we cannot disclose yet. So we're quite confident that the 10 megawatts first phase will be substantially contracted for before we open.

Manuel V. Pangilinan (Chairman and CEO)

Now, with respect to the existing data centers, we're actually full up. And so there are plans to expand the non-hyperscaler data centers, particularly the one in Makati, right? Now, it's fair to say I think we've disclosed that we're in discussion with several buyers or investors in the hyperscaler data centers, which are ongoing at the moment. But despite that, business continues as usual in terms of talking to potential locators in Santa Rosa for the hyperscaler data center. Arthur, did we get all your questions? Yes. Sorry. The second question earlier was on mobile competition. Are you seeing that picking up following the recapitalization? And sorry, I just couldn't hear the answer on the CapEx a while ago because there was a microphone. If I can just get clarity in terms of the CapEx expectation. So for the mobile question first, Alex. Okay.

Let me respond first with your question, mobile. First, let me speak of what we do. We have continued to deploy differentiated offers. We talk about longer validities, larger bandwidths, better experiences. With respect to competition, expect a lot more action online. A lot of the issues regarding sales and after sales are obviously revolving around social and digital media. A lot of concerns, though, on experience. I think it's already been mentioned that we're restarting our network build, and we're intensifying investments and improving capabilities to deliver product lines that are going to be of value and relevant to the customer. Now, with respect to competition, expect them to continue to build as well. We'd like to ensure that we're able to compete. I think the question here in the end is, how do you remain relevant and to continue to provide value?

Danny, there's several requests for you to repeat your answer on the clarification of the impairment. They couldn't hear you. This actually pertains to an amortized subscriber acquisition cost of home-churn customers. Since the customers have already left us, there's a need to write down costs associated with the service. This includes costs of CPEs, installation, and others. Are these not taken out over the 2-year contract? Is it not amortized normally within the 2-year contract period? No, it's not. Historically, we amortize it over a period of 7 years. But effective this year, we're going to amortize over 6 years.

Speaker 5

Understood. Thank you. That's for installation costs. But for CPE, we amortize it over a period of 5 years. Arthur, is that okay? There's another raised hand. Thanks, Arthur. There's another raised hand from Rachel. Rachel. Hi. Good afternoon, and thank you for the call.

So I just want to get more color again on the data centers. So of the 50 megawatts, am I correct in understanding that only the 10 megawatts will be first online? And then so when will the full 50 be available? Maybe Jojo. Sure. So the build for Santa Rosa is in three phases. The first phase that goes up in July is the first 10 megawatts. The remainder of the year will enable another 10. And then the third, the balance of the remaining 10 will be enabled within the first half of next year.

Manuel V. Pangilinan (Chairman and CEO)

Okay. Thank you very much. Thank you, Rachel. There are no hands.

If I may add to that, I think what we'd like to see as we're talking to foreign investors who are operators also of hyperscalers or simply data centers abroad is to bifurcate the data center business into two. One is the hyperscaler side where they have to make commitments to us to bring in revenues from foreign locators in the Philippines for the hyperscaler data centers, anywhere between 30-50 MW capacity for each of those data centers. In respect to what I call the domestic data centers, those below 30 MW, which will address the domestic market, not only the Alpha enterprises but also the MSEs, that we can handle by ourselves. And they can take a minority or significant minority interest in the domestic data centers, which we can handle, right, all over the Philippines.

So that's the way that's the direction we're taking in terms of this data center business, right? So we don't have the capability to bring in by ourselves. I think it will enhance our capability if we bring in somebody who is a major data center player internationally. So that's the logic of bringing someone in on the hyperscaler side of our business. Rachel, you're okay with that?

Operator (participant)

Yes. Thank you. Thank you. There are no other questions online. We'll take a second round from the floor if there are any. Derek.

Derek Hung (Managing Director and Head of Transaction Management)

Hi. I'm Derek from CLSA. So I have several questions. First, on the data center side again, for the planned stakes sale, how much are you planning to sell in terms of the stake? And I might have missed it earlier. Have you already earmarked CapEx for the next data center after the 11th?

And my second question would be on Maya. You mentioned a total loan disbursed of PHP 22 billion for Maya. Is this all loans to customers, or does this involve repurchase agreements and such? What's the actual LDR for Maya, and what's your strategy in expanding loans?

Speaker 7

Thank you. Well, as I said, we will bifurcate, or we intend to bifurcate the data center business. So quite likely, the hyperscaler side, because they're big data centers, so they insist that they will have majority.

So most likely, either 50% plus one share or 51%, and we keep the 49%, right, on the premise that we told them, "You commit to bring a certain level of new revenues and, of course, finance your portion of the equity required to expand not only Santa Rosa to bring it to the full 30 MW but also new data centers either by ourselves with them or in conjunction with real estate developers here in this country," right? Now, with respect to what I call the domestic data centers, we said we have to be a majority, and they will be a minority. So that is not clear yet or decided with them whether we have 60% or at least 51%, so. Got it. Thanks. Jojo, on the CapEx for the next data center.

So the design is so we are actively looking for the location for the 12th data center. So there's a couple of candidates, but they have to be within a certain geographical location versus Makati, Clark, and Santa Rosa for it to be within, say, what you call a hyperscaler availability zone range so that you can maximize the cloud infra that is being put there. So after the selection, the design will then determine the amount of CapEx that we will need for that DC, right? So it still needs to be planned. But we have to essentially, we're targeting that we have to build starting late next year, if not early 2026. Yeah. In respect to the CapEx for the entire 30 MW, the board has approved that project in its entirety.

But since it's phased, every phase has got to, of course, they've gotten approval for the first phase of 10 MW, and the next phase would be maybe another 10. So that is subject to final approval by the PLDT board and so forth and so on. Now, let me stress that the distinct advantages of PLDT and its data center is, number one, is, of course, the connectivity. And number two is the assurance of power. A number of these data centers require a certain proportion of power supply being renewables. So I think it's only us, this group, that can provide guarantee of continued power supply despite and, of course, a proportion of that power supply being renewables. Yeah. You had several questions. First, on what type of loans this PHP 22 billion consists of. They are mostly personal loans on 30-day tenors.

A small part of it is business loans, which we are just starting to offer. On the other questions, strategically, we're pushing SME loans, well, currently, as we speak. So that will comprise a bigger part of our loan portfolio for 2020-2024. I can let SB describe other loans we are kinds of loans we are launching this year. But on LDR, current LDR is at 12%-15%. Obviously, that's still low. A lot of room to push it up. Towards the end of the year, we'll probably push it up beyond 50%. So that's on the LDR. So SB on the loans. Just as Doy mentioned, first, in the short term, all the lending is done by us directly. We are adding a longer-term loan also, installment longer-term loan as well too.

Now, that product has already launched about two months back and is scaling up nicely. And then on the micro and the small enterprise, that's really the next area where we are focusing in a big way. We've already started disbursing micro loans since November last year. And now we are testing and launching the small enterprises. So these are longer-term loans, which help us, as Doy mentioned, to end the year closer to a 50% loan-to-deposit ratio. Those are the buildouts that we're working on.

Derek Hung (Managing Director and Head of Transaction Management)

Okay. Got it. Thanks for the. I think with your indulgence, we may need additional CapEx for microphones. Danny, there's a request for you to repeat your answer because you didn't have your mic on. In respect to the CapEx overrun, how much of the 33 was already absorbed this year? We have already recorded PHP 21 billion out of the PHP 33 billion. Thank you.

Operator (participant)

Thank you. Any more questions from the floor or from online? If there are no further questions, we'll now turn the floor over back. Oh, there's one more question.

Speaker 6

One question only. Can you provide more color on the digital entity or the DigiCo that you're just wanting the disclosure in terms of the contribution or the expenses that will be involved? Can I ask you more about basketball? MVP will do the tougher question on basketball. So we're actually forming what we call a digital company or a DigiCo. So what we intend to do is harness the assets of the group. We feel that it's a good starting point. Ultimately, it's really all about providing service to the consumer, of course, in a more digitalized fashion, right? So a lot of that, of course, it will start from the data that we have.

Definitely, this is going to be based on the consumer's opt-in. And we intend to be able to bring together address needs of the consumer and address them in a better way. I think one thing that the Philippines doesn't really have today is our own expression of a digital service for ourselves, right? It's very ironic because we are a very young, digital-savvy country. I mean, if you look at Southeast Asia, right, we're probably one of the most digital, very youthful, very creative. But unfortunately, we don't have our own real super app, correct? It's still a very fragmented space. Yes, we do have Maya. Yes, we do have GCash, heavy on payments. But what about in terms of servicing? What about in terms of providing fees, providing the ability to conduct, let's say, my day-to-day activities, right, online? Many things that we can think about.

Derek Hung (Managing Director and Head of Transaction Management)

Is that comprehensive enough, or? Well, it's a very complicated animal when first presented to us. So we have to slice and dice, no? So the priorities, which Kat indicated, is data, right? Because when you look at the spectrum of the group companies, you start with the telco, which is the largest subspace, and therefore it generates a lot of data. So the question is that we probably have the data, so-called data lake, but have we curated it to the point with the deployment data analytics to be presented to the board, for example, what's the buying pattern? What's the lifestyle of each of the subscribers, be it an individual or a corporate, right? So that replicates itself in Meralco, which is the second-largest consumer base of the group. They have 8 million customers, which suggests at five people per household, for example.

That's more than 40 million people plus institutions, hospitals, schools, etc., etc., which are invariably part of the Meralco customer base. Then the next is Maynilad with 2 million postpaid customers as well. And the last is the tollways. The hospitals as well, they do generate a lot of data about not only health conditions but the way they behave. But with respect to the hospitals, they probably are the least schooled in IT adoption. So the pain points, as you know, if you've been to our hospitals, would be the digitalization, the manualized medical records. When you check in, you have to fill up every time you do that. And of course, the billing. It takes a while. It's like a hotel. They call every department to see are there outstanding bills, which takes a long time, no?

So that has got to be attacked individually, persuading each of the companies to create the proper data lake and curating it to get a 360-degree view of their customers. Then it will elevate to the next stage, which is how do you share the data? That's when you run afoul of data privacy and all the wonderful things about regulation. So that's the idea about the data issues confronting DigiCo. Let me give you another example, tollways. We have about probably 800,000 vehicles per day crossing our tollways, right? And if you transpose that to Indonesia, where we're the largest tollways, we have 2,000,000 vehicles per day in Indonesia. Now, we can count the vehicles, but we don't know who they are, right? When we get into right now, we are forcing our tollways to remove the barriers, right?

They can only do that if they have a more sophisticated, number one, payment system. So we have to tell them, "We must have 99% of the users of our roads on RFIDs," a more sensitive detection system so we could take photos of your license plate. But the photos will be useless unless we connect it to the database of LTO, which is government. And we suspect that the database of that government agency would be incomplete. It would be dirty.

And what else? What other adjectives? So we have to fix that database. So we're anticipating that. But imagine how useful it would be in reducing congestion on our roads and therefore reducing CapEx if you just can run through the no more toll booths, right? Or you have toll booths but nobody there so you don't queue up. Similar to Hong Kong. You guys have been to Hong Kong.

It's a barrier-less situation, no? So ayun, if we're able to combine the tollways of San Miguel and our tollways, so it's a single payment system, no barriers, and our ability to apprehend people whose load is either inadequate or no load at all. But Filipinos, being Filipinos, there will always be the pasaway who will insist that they want to pay in cash. So we will need at least one toll booth for these guys, cash, di ba? So ayun. But we're moving in that direction. And we should be able to tag these were the IT job of DigiCo, to tag your entry and to tag your exit. And automatically, at your exit point, it's an automatic calculation of the fare that's due. And it's an automatic debit against your payment system. That's the landscape that these guys have to achieve with the cooperation of tollways, right?

So klaro na 'yon. Now, on the payment, discussed in support kanina 'yan. So we have two. The payment vertical of the group is the payment gateway, which is Bayad Center, which is the biggest biller in the country with about PHP 400 billion of gross transaction value. And it turns out, MultiSys has its own payment gateway. So the marching orders is to merge the two, to become the biggest payment gateway, and to expand that business to the trillion-something level, right? And then Maya is our biggest wallet. But it turns out, Beep is also a digital wallet the moment on all of our Light Rail system. But they're moving into the transportation sector, the PUVs principally, jeepneys, taxis, buses, even wait, Angkas ba 'yon? Angkas and Grab, right? If they can use the phone, QR code on the phone.

Of course, we'd have to install readers on each of those vehicles. So that's the vision. In fact, we have a subsidiary, Tollways' subsidiary, called Byahe that are doing two things. One is the migration from fossil fuel to e-vehicles. And number two is the payment system, digital wallet, on their e-vehicles. That's also part of the job of DigiCo.

Operator (participant)

Very good. Any other questions? Last chance. So if there are no other further questions, we will now turn the floor over back to Mr. Pangilinan for his closing remarks. I don't see if I have anything more to add. I spoke too much.

Manuel V. Pangilinan (Chairman and CEO)

Anyway, Happy Easter, isn't it? Three weeks or something? End of March. So do your penance. On that happy note, and that concludes today's briefing.

Operator (participant)

As always, should you have any further questions or clarifications, please feel free to reach out to PLDT Investor Relations.

Thank you for your participation. Join us for some refreshments outside. Thank you.