Dennis Uy’s CNVRG Looks Oversold: Falling ARPU and Heavy Capex Cloud a Profitable, Cash-Generative Fiber Business

The market has stopped treating Converge as a fast-growing broadband compounder and started pricing it like a maturing telco. That de-rating is understandable—but with strong fibre assets, high margins, positive operating cash flow and manageable leverage, the sell-off may have gone too far.

There are two ways to lose money in a growth stock. One is for the company to fail. The other is for the story to change.

Converge ICT Solutions has not failed. Far from it. The company remains one of the Philippines’ most important fixed-broadband infrastructure owners, with a nationwide fibre network, strong operating cash generation, high margins, modest leverage and a fast-growing enterprise arm. Yet its share price has behaved as if something more terminal has happened. The reason is subtler: CNVRG has stopped looking like a pristine “fast-growing pure-play fibre broadband compounder” and has started looking like a maturing broadband operator wrestling with falling ARPU, heavier capital expenditure, rising receivables risk and more debt.

That shift is real. But the sell-off may have gone too far.

The old story broke first

The market once loved Converge because the investment case was simple: fibre broadband penetration in the Philippines was low, Converge was growing fast, and its pure-play model looked cleaner than the legacy telco conglomerates. In 2025, the company still produced respectable numbers. Revenue rose 10.2% to ₱44.8bn, EBITDA rose 10.0% to ₱27.0bn, and net income increased 9.6% to ₱11.9bn. EBITDA margin remained high at 60.4%, while net income margin was 26.5%. 

But by the first quarter of 2026 the shine had dulled. Consolidated revenue grew only 4% year on year to ₱11.19bn. Residential revenue, still the core of the business, rose just 1% to ₱9.23bn. Net income was essentially flat at ₱3.02bn, barely changed from ₱3.019bn a year earlier.

For a utility-like stock, those figures might be acceptable. For a stock still being judged by the ghosts of its growth-stock past, they were disappointing.

The problem is not collapse, but compression

The bear case is easy to state. Converge is adding lower-yielding customers. Its residential blended ARPU fell 6.9%, from ₱1,165 at end-2024 to ₱1,085 at end-2025, as cheaper plans such as BIDA Fiber and Surf2Sawa became a larger part of the subscriber mix. The annual report also notes that residential ARPU declined quarter by quarter from ₱1,107 in 1Q2025 to ₱1,033 in 4Q2025.

That is the heart of the market’s worry. Subscriber growth without ARPU stability is less valuable than subscriber growth with pricing power. In a capital-intensive industry, lower revenue per user can mean lower returns on each peso of network investment.

Costs have also become less forgiving. In 2025, general and administrative expenses rose 14.2%, faster than revenue growth. Managed service fees rose 17.1%, promotions increased, repairs and maintenance more than doubled, and professional fees also rose sharply. In 1Q2026, G&A expenses rose 9% to ₱2.69bn, again outpacing revenue growth of 4%. 

This is how growth businesses mature: not with a dramatic crash, but with a slow tightening of the spread between revenue growth and cost growth.

Receivables are the uncomfortable footnote

The most worrying line item is not revenue. It is credit quality.

As of March 31, 2026, Converge reported gross trade receivables of ₱6.04bn, offset by allowance for doubtful accounts of ₱2.60bn, leaving net trade receivables of ₱3.44bn. Credit-impaired residential receivables reached ₱1.79bn, up from ₱1.44bn at end-2025, while credit-impaired enterprise receivables stood at ₱753.3m, almost fully provided for.

This does not mean the company is booking fake growth. But it does suggest that as Converge moves deeper into lower-cost and broader-market products, collection discipline and customer quality matter more than they did during the early land-grab years. The provision for impairment of trade and other receivables was ₱448m in 1Q2026, compared with ₱435m a year earlier. 

For traders, this is a sell signal if it worsens. For long-term investors, it is a valuation haircut.

Capex is heavy, but not irrational

The other worry is capital intensity. Total capital expenditure in 2025 was ₱20.12bn, up 112% from ₱9.50bn in 2024. Cash capex was ₱18.24bn, equivalent to 41% of revenue, versus 23% in 2024.

That looks alarming beside slowing growth. Yet not all capex is equal. Converge is still building assets that matter: fibre ports, backbone capacity, customer-premise equipment, subsea cable participation, data centres, software and other digital capabilities. The company also reported supplier commitments of ₱12.4bn as of March 31, 2026, showing that investment intensity has not vanished.

The bearish interpretation is that Converge must keep spending heavily merely to sustain slowing growth. The more balanced interpretation is that the company is moving from pure residential broadband expansion into a broader digital-infrastructure model. That transition is expensive, but potentially valuable.

Debt is rising, but still manageable

Leverage has moved in the wrong direction, but not yet to a dangerous place. Total debt rose from ₱24.10bn at end-2025 to ₱29.65bn at March 31, 2026, an increase of 23% in one quarter. Gross debt-to-EBITDA rose from 0.9x to 1.2x, while net debt-to-EBITDA increased from 0.5x to 0.6x.

Still, those numbers are not distressed. Debt service coverage was 3.1x, comfortably above the covenant requirement of 1.2x. Interest coverage was 13.3x, down from 17.4x but still strong.

In other words, debt is a reason for a lower multiple, not an obvious reason for panic.

The overlooked bull case: enterprise and infrastructure

The market may be too focused on the residential slowdown and not focused enough on the assets.

Converge owns one of the country’s broadest fibre infrastructures, with more than 890,000 kilometres of fibre network and more than eight million fibre ports deployed by end-2025. The company also said it had more than five million ports still available for utilisation, creating optionality for subscriber growth, leasing, enterprise connectivity and infrastructure monetisation. 

Enterprise is also becoming more important. In FY2025, enterprise revenue rose 20.3% to ₱7.4bn. In 1Q2026, enterprise revenue grew 16% to ₱1.96bn, even as residential growth slowed.

That matters because enterprise connectivity, cloud, colocation, wholesale bandwidth, data-centre services and international capacity are potentially higher-quality revenue streams than low-end residential broadband. Converge’s new data centres in Angeles and Caloocan added 15MW of data-centre capacity, supporting colocation and enterprise needs.

The residential business may be maturing, but Converge is not merely a residential broadband reseller. It is increasingly a national digital-infrastructure company.

Why the stock may be oversold

The sell-off has a rational origin. CNVRG deserved a de-rating once revenue growth slowed, ARPU fell, capex surged, receivables risk rose and debt increased. But a de-rating can overshoot.

At around the levels shown in charts — with the stock down roughly half over one year — the market appears to be pricing Converge as though the old growth story has ended and no credible new story has replaced it. That may be too harsh.

The company still has:

• High EBITDA margin, with FY2025 EBITDA margin at 60.4%.
• Positive operating cash flow, with FY2025 net cash from operations of ₱22.0bn and 1Q2026 operating cash flow of ₱5.32bn.
• Manageable leverage, with 1Q2026 net debt-to-EBITDA of only 0.6x and DSCR of 3.1x.
• A national fibre asset base, including more than 890,000 kilometres of network and millions of available ports.
• Growing enterprise opportunities, with enterprise revenue growing 20.3% in 2025 and 16% in 1Q2026.

That combination does not look like a broken company. It looks like a company being repriced from one narrative to another.

What would prove the market wrong

For CNVRG to recover, management does not need to recreate the hyper-growth years. It needs to convince investors that the maturing model can still compound value.

The market will want to see four things: ARPU stabilisation, receivables discipline, capex normalisation and continued enterprise growth. If residential revenue can stop decelerating, if impairment provisions stop creeping higher, and if enterprise revenue keeps growing in the mid-teens or better, the current bearish narrative may soften.

The most important number to watch may be ROIC. Converge reported ROIC of 15.6% in 1Q2026, down from 17.3% at end-2025. If ROIC stabilises in the mid-teens while leverage remains modest, the argument that Converge has become an overbuilt, low-return broadband utility weakens. 

A maturing compounder, not a corpse

The market is right that CNVRG is no longer the same story. Falling ARPU, heavy capex, receivables risk and higher debt deserve scrutiny. But the market may be wrong to treat maturity as decay.

The company remains profitable, cash-generative and strategically placed in a country whose digital-infrastructure needs are still expanding. Its residential business has slowed, but its enterprise business is growing. Its capex is heavy, but it is attached to real infrastructure. Its debt has risen, but leverage remains manageable.

The stock is oversold not because the bear case is imaginary, but because the bear case may now be too widely accepted. CNVRG has lost the premium of a flawless growth stock. It should not be priced as though it has lost the foundations of a durable infrastructure business.

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Disclaimer: This is for informational purposes and is not investment advice. Figures are taken from company disclosures and exchange data; valuation ratios include the author’s calculations based on cited inputs.