Good to Buy ABS-CBN (ABS) Stock after Gov’t Shutdown?

ABS-CBN Corp. is a Philippine media conglomerate principally engaged in television and radio broadcasting. In recent years, the company has expanded to related and complementary businesses in cable TV, international distribution, mobile services, magazine publishing, and even theme parks (KidZania).

But last July 10, 2020, the House Committee on Legislative Franchises voted overwhelmingly to deny the renewal of the broadcast franchise of ABS-CBN. The company’s 25-year congressional franchise ended on May 4, 2020 and with 70 members of the Committee voting to reject the franchise application (and only 11 members voting to approve the application, with two congressmen inhibiting and one abstaining), the fate of the company is doomed.

This means ABS-CBN Corp. is now permanently barred from engaging in any form of TV and radio broadcasting services. Simply put, the ABS-CBN TV channel that we all know and all shows appearing in that network and other TV and radio channels operating under ABS-CBN Corp. will permanently cease to exist.

Gov’t Rejects Franchise Approval of ABS-CBN

This means goodbye Cardo and Ang Probinsiyano, goodbye It’s Showtime, and goodbye to all ABS-CBN shows on TV and radio. The network may still operate via other platforms, though, such as YouTube, website, or online streaming because the franchise rejection simply shut down the TV and radio broadcasting operations of ABS-CBN.

The company’s stock, trading under the stock code ABS in the Philippine Stock Exchange (PSE), has been severely battered since the Congressional hearings resumed this year 2020. From a stock price high of PHP 23.50 back in February 2020, the stock closed last Friday, July 10, 2020 at a low of PHP 14.78 — a 37% drop from the peak in just five months.

Buy or Sell ABS-CBN Stock in the PSE?

Although already suffering from price drop, the stock closed on Friday, July 10, without the Congressional Committee announcing its decision yet. Given the development regarding the franchise application being denied, what will happen to the stock when it starts trading again?

Is ABS-CBN (ABS) still a good stock to buy even though Congress has ordered its shutdown? Here are equity research analyses from our partner stock reports subscription service PinoyInvestor.

Analysis by stock brokerage company AB Capital Securities:

“ABS-CBN disclosed that the denial of its franchise renewal bid significantly affects its Media, Networks, and Studio Entertainment (MNSE) operations, specifically the Company’s free-to-air business.

With respect to its long-term obligations, the Company is still in talks with creditor banks. ABS looks to focus on its core business activities, and implement cost control measures. As of end-September 2019, free-to-air advertising sales of ABS-CBN Corp. amounted to P15.9 Billion, or around 50% of ABS-CBN’s total revenues.

ABS-CBN’s Revenue and Net Income by Segment, as of 9-Month (9M) 2019

Over the same period, the Company’s liabilities totaled P48 Billion, of which P549 Million are short-term interest-bearing loans and P26.5 Billion are long-term interest-bearing loans. Its interest cover was 2.64x, and its debt-to-equity was 0.73x, both showing the Company has enough resources to pay for interest and total interest-bearing debt as of September last year. Even with ABS’ efforts to grow its other businesses or look for other ventures, it will be hard to match its previous ad revenues.”

Analysis by stock brokerage company AP Securities:

“ABS-CBN’s franchise renewal bid was unsuccessful as the lower House voted against it after-market hours last Friday. Take note that in 2019, ABS derived 53% of its topline revenues from advertisements. Absence of TV airtime revenues (where the company primarily source its revenues) will significantly affect the going concern of the company.

The transition to digital is ongoing (Kapamilya Channel, iWant TV) but it appears to be a tall order to offset lost revenues from ABS-CBN’s free-to-pay channel especially as it competes with other streaming services (such as Netflix, iflix, HBO, and possibly Disney Channel) that are now offering more competitive and lower-priced plans.

Trading will definitely be highly speculative this week as it is hard to pin down the value of ABS-CBN if it will evolve fully as a digital service provider. Until there is clarity on future operations, investors should remain cautious on trading the stock.

As of 2019, ABS-CBN Corp. had outstanding debt of PHP 27 Billion. Consider as well these major banks that have hefty exposure with the company:

• Bank of the Philippine Islands (BPI) – PHP 6.9 Billion
• Union Bank of the Philippines (UBP) – PHP 5.0 Billion)
• Banco de Oro (BDO) – PHP 2.8 Billion
• Rizal Commercial Banking Corp. (RCBC) – PHP 1.0 Billion
• Philam – PHP 1.0 Billion
• Security Bank (SECB) – PHP 873 Million

GMA7 to Benefit from ABS-CBN Shutdown?

A media research report by Kantar Media Philippines showed that a week after ABS-CBN went off the air, rival GMA Network Inc. (PSE stock code: GMA7) gained 30% more audience share and additional 40% advertisement minutes.

In 2018, GMA7 reported ad revenues of PHP 14 Billion vs. ABS-CBN’s PHP 20 Billion ad income. Even just getting 50% of ad revenues from ABS will almost double GMA7’s ad revenues to PHP 24 Billion. In this scenario, GMA7 will definitely benefit from the absence of its major TV network rival.”

NOTE: This report is published in partnership with PinoyInvestor.com. PinoyInvestor is a Philippine-based stock reports subscription service that provides detailed analysis and recommendations on how to profitably trade the Philippine Stock Exchange (PSE). Sign up here to get your free PSE stock reports!

For additional analyses and trading recommendations on the Philippine stock market, check out these useful references from our partner PinoyInvestor:

• PSE Daily Market Outlook
• Weekly Stock Picks and Model Stock Portfolios
• Fundamental Analysis with Stock Price Targets
• Technical Analysis with Stock Price Support and Resistance

Disclaimer: The report above is merely provided for information and should be construed solely as statements of opinion and not statements of fact. The information presented should not be seen and does not constitute as an offer or solicitation to buy any securities. Before making a decision to trade or to invest, you should perform due diligence and practice sound decision-making. Invest only in products and instruments that you understand.