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Chelsea Logistics (C) emits a warning sign to TEL & GLO holders, offers a glimpse of 3rd-telco’s rapid expansion

Chelsea Logistics and Infrastructure Holdings Corp. (C) claims Dito Telecommunity Corporation (Dito), the third-telco, as an associate with a 25% ownership share. Chelsea Logistics is 70% owned by Udenna Corporation.

On May 10, 2019, the Company subscribed to 40,833,333 common shares and 22,916,666 preferred voting shares or equivalent to 25% interest of Dito’s authorized capital stock for a total amount of P4.1 billion. Out of the subscribed shares, P3.6 billion worth of shares remains unpaid.  The unpaid subscription of Dito shares is included in the trade and other payables of Chelsea Logistics as of June 30, 2020.

Chelsea owning a significant 25% interest in Dito is required to recognize its equity share in the net income or loss of Dito Telecommunity, the third telco. As of June 30, 2020 Chelsea racked up equity share in net losses of 538 Million Pesos from Dito, the third telco.  That would mean Dito, the third telco,  had accumulated losses of around 2.2 Billion Pesos.  That is very understandable, considering that Dito Telecommunity is still in an infrastructure and network build-up/roll-out phase.  Dito Telecommunity has not yet commenced commercial operations so understandably it has no revenues yet and all expenses.

The most important piece of information we can glean from the Chelsea Logistics 1H20 financial results is the pace of Dito Telecommunity’s (third telco) network and infrastructure roll-out.  As of the end of December 31, 2019, Dito had a total non-current assets of 12.6 Billion Pesos.  In just a matter of six (6) months total non-current assets ballooned to 37.4 Billion Pesos.  That would be a growth of 3x in a span of 6 months. Dito is expanding fast.

Don’t be deceived that Dito has only 37.4 Billion Pesos of non-current assets as against the hundreds of billions of pesos of the duopoly.  Dito is a brand-new network so it is spared from investing in expensive legacy technologies that populate the balance sheet of established telcos. The duopoly has to invest heavily every time a new technology emerges, saddling its balance sheet with costs from old technologies.

The 37.4 Billion is already a lot considering that Dito is employing and deploying effective but cost efficient technologies from China.  With a low cost-base, it will not be a surprise that Dito will be able to offer lower prices to the customers.  Dito will definitely take a significant share of the pie.

Chelsea emits a warning sign to the TEL and GLO holders.

Disclaimer and Disclosure: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent view point. Accuretti Systems Inc. in the course of day to day trading may have own, or is considering buying or disposing, the shares of the companies mentioned in this commentary.

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