UPDATE 2-Inflation stalks Philippine telecoms, shares drop

(Writes through after Globe results, analyst briefing)

By Carmel Crimmins

MANILA, May 6 (Reuters) - Soaring inflation overshadowed first-quarter earnings from the Philippines' top two telecoms companies on Tuesday, sending shares in PLDT (TEL.PS) and smaller rival Globe (GLO.PS) sharply into the red.

PLDT, the country's largest listed firm, posted a better-than-expected 11 percent increase in core net profit but signalled that growth could flag as inflation bites.

"Our sustained growth in the first quarter indicates that the teeth of inflation and rising prices have yet to bite deeply into our business," Manuel Pangilinan, chairman of PLDT, said in a statement.

"Nonetheless, we realise that a global slowdown will undoubtedly take its toll on all businesses eventually."

Globe Telecom saw its core net profit drop 4 percent in the first quarter as rising food and fuel prices gobbled up consumer spending power, leaving service revenues flat from a year ago.

Shares in Globe dropped 2.26 percent while PLDT's stock fell 1.92 percent ,helping to drag the general index .PSI down 1.37 percent after data earlier on Tuesday showed annual inflation hitting a near 3-year peak of 8.3 percent in April. (Click on [ID:nMAN226800] for a story on the latest inflation data)

PLDT said it would postpone the listing of its outsourcing unit and call centre business, SPi Global Solutions, till possibly the second half of next year from this year due to weak market conditions and pending a turnaround in its loss-making medical transcription business.

In the meantime, rising inflation spells bad news for consumer purchasing power this year and could trigger a possible interest rate hike next month.

REST OF THE YEAR?

Analysts said PLDT's first-quarter growth was unsustainable.

"I think that the first-quarter results might be a bit misleading in the sense that PLDT probably won't grow as well for the rest of the year," said Prince Yeung, an analyst with AB Capital Securities in Manila.

"In the first two months of the year, inflation was not as bad as in March and April and we are expecting inflation to peak around August."

PLDT reiterated on Tuesday that core net profit will rise by 5 percent this year, more than halving from last year's 11 percent expansion as weaker economic growth hits sales.

Core net profit in the first quarter of 9.3 billion pesos was bolstered by a 6 percent increase in service revenues and strong growth in mobile phone subscribers, which continue to defy expectations of a slowdown.

PLDT added over 2 million mobile phone customers in the first four months of the year, putting it well on track for a forecast 7.2 million new subscribers for the year.

At the end of April, PLDT, which is partly owned by Hong Kong's First Pacific Co Ltd (0142.HK) and Japan's NTT Group (9432.T)(9437.T), had over 32 million mobile subscribers, representing a 55 percent share of the local mobile market.

Globe Telecom, owned by Ayala Corp (AC.PS) and Singapore Telecom STEL.SG had 21.3 million mobile phone subscribers at the end of the first quarter, adding just under a million in the first quarter.

Both companies are increasingly focusing on broadband and data businesses ahead of an expected cool-off in the mobile phone market in the medium-term.

But over the next two to three years, PLDT said it expects the country's mobile penetration rate to grow to up to 80 percent from around 60 percent now as second-hand phones and SIM cards are cheap, making going mobile cheaper.

Thailand has a mobile phone penetration rate of around 75 percent, with Malaysia around 84 percent and Indonesia at 35 percent.

Overall, PLDT's net profit rose 21 percent to 10.4 billion pesos, partly due to foreign exchange and derivative gains.

Analysts do not generally give specific quarterly forecasts for Philippine companies but expect PLDT's 2008 net profit to rise 8 percent to 38.8 billion pesos and Globe Telecom's to rise 16 percent to 15.38 billion pesos, according to Reuters Knowledge.

(Reporting by Carmel Crimmins; Editing by Kim Coghill)