NEWS of Converge ICT Solutions, Inc.’s planned inclusion in the 30-member benchmark Philippine Stock Exchange index (PSEi) and the release of its second-quarter earnings report, made the firm the second most actively traded stock last week.

A total of P4.97-billion worth of 180.32 million Converge shares were traded between Aug. 9 and 13, data from the local bourse showed.

Converge shares finished at P27.35 apiece on Friday, up 2.6% from P26.65 a week ago and its highest closing price since the company’s initial public offering (IPO) on Oct. 26, 2020. Since the start of the year, the stock’s closing price has gone up by 81.4%.

“Converge’s price movement was attributable to two things: the index rebalancing and its [second-quarter] earnings results. Its early inclusion to the index took the market by surprise, therefore boosting Converge’s share price as investors bought it up prior to the effective date of its inclusion to the index,” Regina Capital Development Corp. Equity Analyst Anna Corenne M. Agravio said in an e-mail.

“This rebalancing-fueled rally was also further boosted by Converge’s upbeat earnings reports — which exceeded analyst estimates,” she added.

COL Financial Group, Inc. Research Analyst Adrian Alexander N. Yu shared the same assessment in a separate e-mail: “Following the announcement of [Converge’s] inclusion, its shares rose by 14.4% [last Friday] from P23.9 per share prior to its surprise inclusion,” he said.

The Philippine Stock Exchange announced earlier this month the inclusion of Converge and AC Energy Corp. in the PSEi following its regular review of the 30-member benchmark index and sectoral indices, replacing DMCI Holdings, Inc. and Emperador, Inc. These changes took effect today. 

Moreover, Converge reported last Thursday its earnings results for the second quarter wherein its attributable net income more than doubled to P1.70 billion during the period from P685.10 million in the same three months last year. This brought its attributable net income to P3.25 billion in the first half from P1.26 billion in 2020’s comparable six months.

Total revenues for the quarter climbed 80% to P6.2 billion, Converge said in its quarterly report. For the first-half, total revenues reached P11.78 billion from last year’s P6.49 billion.

“Over the past few quarters, Converge has been able to sustain its aggressive subscriber acquisition, adding an average of 40,000 to 50,000 net subscribers per month. Moreover, with their growing scale, they have been able to improve operating leverage and bring down costs such as bandwidth and leased-line expenses,” COL Financial’s Mr. Yu said.

“Both the topline growth and margin expansion have been driving their robust bottom line results and greatly contributed to the strong financial performance of the company,” he added.

Mr. Yu forecasts the company’s revenues and net income for this year to reach around P24.9 billion compared with the previous year’s P15.65 billion as the firm continues to add more users to its fiber network. Meanwhile, he estimates net income to reach P6.3 billion this year from P3.4 billion last year.

“Despite already seeing rapid growth in the previous quarters, management believes that there is still room for growth in the underserved and underpenetrated fiber broadband market of the Philippines. On top of their strong topline growth, margins are expected to remain elevated as Converge benefits from economies of scale,” he said.

For Regina Capital’s Ms. Agravio: “Converge’s earnings performance has been outperforming the industry average since it is still aggressively expanding its operations across the country. On top of this, the pandemic has also boosted the demand for its services,” she said.

“Revenues and net income will likely sustain their double-digit growth for the full year,” she added.

Ms. Agravio said for this week, the stock may experience a “post-rebalancing correction” but that any downturn “will likely be minimal.”

“In the midterm, Converge will likely sustain its uptrend, which it hasn’t broken out of since its IPO,” Ms. Agravio added.

She pegged the stock’s support and resistance levels at P25 and P29, respectively.

For COL Financial’s Mr. Yu, there should be “minimal resistance from a technical perspective” given the stock closed near its all-time high of P27.35 per share, but noted the stock reached an intraday high of P29.05 per share prior to being sold down during last Friday’s close.

“With regards to support, we believe that strong support should be found in the P23-24 per share area as Converge was recently trading within the band prior to its surprise inclusion in the PSEi index,” he noted. — Nadine Mae A. Bo