NOW may be NEVER as CNVRG backer cashes out stake

Now Corporation (NOW) is a company engaged in the business of technology, media, and telecommunication. As of March 31, 2020, its significant stockholders were Velarde, Inc. a Filipino corporation with direct 21.28% stake and Top Mega Enterprises Limited a corporation with Chinese nationality with a 20.39% stake.  But as of June 30, 2020 Velarde, Inc.’s direct shareholdings were whittled down to just 9.3189%.

Now Corporation’s revenue comes primarily from broadband service contracts.  It has a total revenue of just 89 Million Pesos for the six-month period ending June 30, 2020 resulting in an earnings per share of 0.0046.  Assets of NOW as of June 30, 2020 totals to just only 2.2 Billion Pesos. 

NOW counts as an asset its 19% equity investment in NOW Telecom Company, Inc. NOW Teleco is valued in the balance sheet of NOW as of June 30, 2020 at 1.5 Billion Pesos. NOW Telecom has been touted by NOW as the fourth telecommunications player (fourth telco).

NOW despite meager earnings potential is valued at 4.53 times its book value for a market capitalization of 8.93 Billion Pesos.  NOW’s valuation has been driven by its 19% interest in NOW Telecom which it touted as the fourth telco.

It is true that there are only four entities authorized by NTC to operate mobile networks or specifically having a cellular mobile telephone system (CMTS) license: PLDT group, Globe group, DITO, and NOW Telecom. But to roll-out a fifth-generation network needs massive capital and technical expertise.

NOW has disclosed that it is working with SK Telecom for the technical roadmap planning, network conceptualization and design, and the establishment of 5G standalone network. But the Memorandum of Understanding (not an agreement) as reported does not provide for capital infusion for a network roll-out.  SK Telecom may assist in sketching the network but SK Telecom funding the network roll-out is not clear.

Who else is interested in building a fourth telco?  Big domestic conglomerates other than the Ayalas have invested but bowed out of the telecom industry and foreign telecoms are backing out. 

Domestic telco networks have foreign telco players as backers for capital and technical expertise.  In PLDT (TEL) Manny Pangilinan and First Pacific has NTT of Japan as a partner while in Globe Telecom (GLO) the Ayalas has SingTel of Singapore as partner.  In Dito Telecommunity, Dennis Uy has China Telecom.

The once mighty Lopez group had several attempts to build a network but failed.  The Lopez group had Express Telecom, but it failed for failure to innovate.  Express Telecom was grabbed from the then debt-laden  Lopez group by tycoon Roberto Ongpin through ISM (now DITO). The Lopez group also had Bayantel, but it went into debt trouble and was eventually sold to Globe Telecom.  The final attempt of the Lopez group to put a network was through Multimedia Telephony which they renamed ABS-CBN Convergence utilizing the capital of ABS-CBN.  But that also went nowhere.

JG Summit Holdings (JGS) of the Gokongweis also had Digitel but they sold it out to PLDT and are now content with owning a small significant interest in PLDT.

Tycoon Roberto Ongpin through ISM (now DITO) tried to assemble telco assets to form a network but also backed out and sold the assets to PLDT and San Miguel of Ramon Ang.

Ramon Ang and San Miguel also planned a massive foray into telco but did not push through.  At first Ramon Ang tried to lure Qatar Telecom to be its partner but backed out.  It then touted Telstra of Australia as San Miguel’s partner in a telecom venture but also ended with nothing. San Miguel eventually sold its telco assets to PLDT and Globe.

Presently Warburg Pincus which backed CNVRG in its expansion is selling CNVRG shares at the IPO raising funds that virtually recouped its investment in CNVRG.

Bottomline is that NOW should present now how the fourth telco will be funded and who will be the financial backer of NOW Telecom.  Time is ticking.  As time passes by without clear funding and backer of fourth telco the confidence of the market on NOW diminishes. It should be now or never.

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

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