Advanced Info Service Public Company Limited (ADVANC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Advanced Info Service FY 2019 Results Announcement Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to the management team of Advanced Info Service. Thank you. Please go ahead.

Good evening, everybody. Thanks for joining AIS Fiscal Year 2019 Results Conference Call. I am [indiscernible], Investor Relations Manager. I would like to introduce the management team joining us today. First of all, Khun Somchai, our CEO.

Hello.

Our President, Khun Hui Weng Cheong.

Hello, everyone.

Our CFO, Khun Tee.

Hi, everyone.

And Head of IR and Compliance, Khun Nattiya.

Good evening.

First of all, we will begin with short brief of our financial and operations performance. As AIS is under silent period, before spectrum is auctioned, therefore, we will not discuss any related view around 5G. Also, the financial guidance for fiscal year 2020 and outlook are not provided at this point. Pending the upcoming spectrum auction, we are expecting to provide guidance later on before the announcement of 1st Q 2020. For the result of 2019, our business still grew 5% and set new core service revenue record over THB 140 billion. This was driven by mobile business with 4% growth and followed by 29% growth in fixed broadband business. Postpaid, as the main driver for our mobile business, continued to add 900,000 subs as 4G users keep expanding. High growth in postpaid was from pre to post migration and handset discount campaign. Prepaid still under pressure with price competition as unlimited fixed speed package were relaunched again in second half 2019 -- sorry, second half 2019. The impact of prepaid unlimited plan, although caused some slowdown in postpaid new subscription as well as our effort to uplift price from the previous year's unlimited pack in postpaid. Overall data consumption still to grow 17% to 12.7 gigabyte per user, per month with 4G penetration rate reached 71%. For fixed broadband, we added a 300,000 subs in 2019 and achieved our base of 1 million subs. With fixed-mobile convergence strategy to cross-selling across our mobile subscription base, fixed broadband continued to contribute 4% of AIS core service revenue. After its fifth year of operation, AIS Fibre started to contribute positive net profit in 2019. For other service revenue, enterprise data service was the main driver to grow this segment. AIS Play also gained higher viewership and awareness and achieved 2 million active monthly users. Cost of service, net of TOT partnership grew 4%, driven by network expansion. However, cost of service to service revenue decreased from 49% to 48%. This was due to cost savings from lower rental on tower and 2G equipment. You could see details for cost saving of TOT partnership in Slide #7 for more details. For profitability, EBITDA grew 6% at EBITDA margin of 42.8%, which is in line with our guidance. Net profit margin -- net profit after tax grew 5%. Capital expenditure was around THB 20 billion, compared to guidance, between THB 20 billion to THB 25 billion. With the mentioned performance, the Board of Directors approved the full year dividend payment. So for the second half, the dividend payment will be THB 3.56 per share, to be paid on April 22. This is equivalent to approximately 70% payout ratio. On the next session, we would like to open the line for Q&A.

[Operator Instructions] Your question comes from the line of Pisut Ngamvijitvong from Kasikorn Securities.

I have 5 questions. The first one is about your P&L numbers. Could you please explain the item regarding the loss on PP&E disposal at THB 331 billion in fourth quarter, what was it for? And where was it booked in your income statement? That was my first question. My second question is on your -- on the prepaid competition, I just noticed that our telco launch, a new package for the February month, which is the smaller value package of THB 100 per month for 30-gigabyte value at 4 megabit per second downloading speed, which is quite generous. Can this imply the competition on prepaid segment get more intense in February versus in January and versus in the fourth quarter last year? And under your internal assessment view, this price plan hurt your prepaid ARPU in the first quarter and also in 2020? My third question is on your dividend. Your first half dividend payout was at 73.3%. But your second half dividend payout was at 67.4%. What is the reason for the lower payout? My fourth question is about your tower service agreement with TOT. Does Advanced get an exclusive right to use the entire space on the tower? What if TOT want to do some swap on the tower? What they need to do that they can use it freely or they have to pay something to do? And my last question is about your latest arbitration case that you lost against TOT. If Advanced finally win the case at the Supreme Administrative Court, will such a favorable ruling affect the ex-Prime Minister Thaksin Shinawatra case?

We'll take the -- probably the second question on the prepaid side first.

For the second question, on prepaid pricing plus THB 100 for 30 gigabyte, that's a fixed quarter price plan. Yes, although it is quite attractive, but we don't think it will help largely on the prepaid revenue. I think the more important impact currently would be the fixed speed, unlimited at 4 Mbps and 10 Mbps. And more recently, our competition has also included unlimited voice into this segment. So this will have a big impact on the prepaid area.

Okay. I'll take the rest of the question. The loss on PPA -- PPE disposals that you mentioned, this is based on some outdated, old equipment...

Some old network equipment.

Some old network equipment. We booked this under the SG&A. Secondly, on dividends, when we look at the payout ratio, we actually look at the full year EPS. So based on the full year EPS, we pay out according to the dividend policy, which is 70%. Tower service agreement, we do not have exclusive rights. So TOT will have the ability to be able to offer that to other operators. On your last question, I don't think we will be able to comment on the related case to others.

Our next question comes from the line of Arthur Pineda from Citigroup.

Two questions from me, please. Firstly, can you clarify on the cost items, significant run-up in the fourth quarter for both marketing and admin expenses, how should we view this spike? And are these costs expected to extend into the subsequent quarter? Second is on the revenue side, interconnection and TOT partner revenues -- partnership revenues dropped around 20% Q-on-Q, whereas your OpEx and TOT costs declined by just 2%. What's driving this mismatch? Was there any specific booking into the fourth quarter?

Okay. Arthur, on admin and marketing side. Marketing side, besides the normal seasonality, there's also the campaigns that we run in the fourth quarter and also the expansion of the point redemption that we offer to our customers. So that is unlikely to be on a recurring basis. It's the provision of the point retention expansion that we have for our customers. And on the admin side, there are also staff remuneration that we provided in the fourth quarter as well, that is also one-time. So it's unlikely to be on a recurring basis. For full year, I think we are still looking at the marketing expense in range of between 5% to 6%. And that's normally what we spend. On TOT -- on the network OpEx cost, if you recall, we now -- as we agree with TOT on the tower, we book this tower agreement on a broad basis, one at the top line and one at the cost line. So this was the difference from last quarter because in the previous quarters while we booked some backward revenue and cost, so in this particular quarter, you see kind of a normalized number. So the anomaly was actually happened in the third quarter.

Okay. So going forward, we should be looking at fourth quarter as the benchmark. Sorry, just a quick -- yes. So just on the staff remuneration that you mentioned on the fourth quarter. Is there a one-off booking that you've put in?

I think, basically, the fourth quarter, have a few kind of one-off items. One will be the promotion that we did when we entered into the 30th year of service. That campaign involved quite a bit of different kind of expenses, including some that went to consumers and some to our staff. So that will be -- yes, I think it's one-off. Apart from the uptick in the marketing spending, the normal market spending in the fourth quarter anyway.

Understood. And the staff remuneration that was booked in 3Q, right?

In the 4Q.

In the 4Q.

In the fourth quarter. How much was it?

Not that much. Yes, I don't have a number right now. But I think it's not significant. Yes.

Our next question comes from the line of Wasu Matt from CIMB.

I have 4 questions. #1 is your -- on your prepaid net adds of 350,000 net adds for the prepaid alone, that's quite impressive. Is it -- it seems like industry trend. Like how did you generate the net add of prepaid subs when you say that prepaid subscribers are continually migrating to postpaid subs. Is that because people buying new SIMs to take advantage of the unlimited data plan offering? So that's the first question. The second question is on the cumulative response because if I'm not mistaken, yesterday, DTAC launched unlimited data plan with the THB 150, same speed as before, 4 megabit per second. But now the plan is available to everyone, including DTAC's existing customers, like, I just would like to know like how are you planning to respond to DTAC's action? That's #2. My third question is on the new item in the balance sheet, the unrealized adjustment value of the spectrum license is worth around THB 3.3 billion. So what is that about? Because we haven't seen that before in the previous year. The fourth question is on the normalized EBITDA margin. Because normally, you would give like EBITDA margin before the rental revenue from TOT as well. Could you please give us the numbers for the fourth quarter and the full year of 2019 as well?

On the prepaid net add of our 300,000, yes, the fourth quarter pricing for prepaid has been very aggressive with unlimited fixed speed of 4 mega bps and 10 mega bps. So you'll see a huge uptick in the prepaid SIM for that -- during that period. Some of those also came from postpaid customers migrating over to prepaid, especially for the 10 mega bps with unlimited voice. And so although we do not do it for the whole quarter, we did it for the first 1 or 2 months in November and have taken that out from the market in December. For Q4, so we do see an uptick in the traveler's SIM and the SIM2Fly. So this is a seasonal period for those prepaid overseas SIMs. On the -- you mentioned the DTAC, THB 550 for 4 mega bps -- THB 150 for 4 Mbps to existing customers. I think they launched it in response to True, which actually did it in the early part of January to existing customers. We are looking at it. And I think we will be also launching something similar in the next few days, in fact, i.e., tomorrow, we'll be launching it.

On the EBITDA number, we do provide a normalized EBITDA number in the -- our MD&A on Page 5, so you may refer to that. Just follow-on to the other question that you have.

The unrealized adjustment of the spectrum value that's relating to when we get the 700 last year, and there was a condition to the payment terms of the 900. This one who adjust with the part of 700 ones when we get the spectrum of 700, so it is actually nothing new. It had been in the balance sheet since last 2 quarters.

Your next question comes from the line of Piyush Choudhary from HSBC.

A couple of questions. Firstly, on postpaid segment competition. Could you elaborate on how the competitive intensity is? And what's the outlook for postpaid ARPU, plus handset subsidies? Secondly, in your mobile revenue, how much of revenue is driven by inbound roaming or traveler SIM card? And how much is driven by outbound roaming? If you can throw light on that? And lastly, have there been any provisions made on the disputed claims by TOT of THB 31 billion?

I think for the postpaid segment, it has continued to be similar aggressiveness quarter-on-quarter. So there's no increase in aggressiveness. What we see in the fourth quarter, the order aggressiveness has been in the prepaid segment.

On your last question of the latest legal dispute provision, we do not provide any provision for that. We will go through the Central Admin Court anyway. So that's our normal legal procedure to go further. Lastly, your another question on the roaming revenue. Normally, the outbound roaming now is becoming very small. So -- and inbound also, they use a lot of our local SIMs. So the international roaming alone by itself is already less than 2%. But if we were to account for some of the local things of that, which increased quite a bit, we don't have the figures to disclose at this point.

Sure. And any outlook for the handset subsidies in 2020?

Handset subsidy. I think the intensity is still the same. So we are matching the market. So I guess that this will continue in this quarter.

Our next question comes from the line of Colin McCallum from Crédit Suisse.

Two questions from me. One on the prepaid competition issue. I remember that there were -- the prepaid packages had included some unlimited voice, I think, in -- around November time. And from memory, I think it was kind of taken off again in early December, which was a positive. I think in what you said earlier, that's come back on again, could you tell me when the unlimited voice element of the prepaid packages came back on? Was that within fourth quarter? Or that's a negative development that's just happened again in the first quarter of this year? That's the first question. Second question is on fixed broadband. Obviously, your revenue growth there is very strong. But you had said you're going to be quite careful there about entering into price competition, given the heavy low cost. ARPU has begun to creep down to the low 500s there. Is that becoming a concern, though, in terms of the amount of competitive intensity in that segment?

For the prepared competition, yes, you are correct that unlimited data with unlimited voice was introduced in November. It was withdrawn in December. But the number of our competition has reintroduced unlimited voice in January of this year. So I think we are looking at a situation that we might have to compete in the market from them. For the fixed broadband, yes, we have a quite strong growth. And largely, there was this THB 299, 100 Mbps, both ways, which actually have put down the ARPU. For this year, we will be concentrating on value for customers. And we'll be trying to move up the ARPU by giving more value to our customers.

Our next question comes from the line of Thitithep Nophaket from Phatra.

I have just one question. You bought the 700 megahertz last year, and the spectrum was supposed to be delivered to you in October. And then there was a news that there could be a few months of delay because of technical problem. Have the NBTC informed you when exactly the spectrum would be delivered?