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

Good morning, everybody. Thanks for joining AIS Fiscal Year 2020 Results Conference Call. I am Wacharapong, Investor Relations Manager. We would like to introduce the management team joining us today: Khun Somchai Lertsutiwong, CEO; Khun Hui Weng Cheong, President.

Good morning, everyone.

Khun Tee Seeumpornroj, CFO.

Good morning.

And Khun Nattiya Poapongsakorn, Head of IR.

Good morning.

We will begin with short brief of our financial performance and then Q&A session with our management team. [Operator Instructions] For the next session will be a short brief on our financial performance by Khun Nattiya.

Good morning. And first of all, we -- before we go into the results this morning, we submitted the amendment of the financial statement just to declare that there's no significant change. It's just some wording in the auditor reports that has to be resubmitted. So now let's go into the fourth quarter performance. Overall, I think we see that the fourth quarter was quite stabilized performance quarter-on-quarter. And this, as you can see, both at the revenue line and also at the EBITDA -- at the NPAT, while the EBITDA actually slightly increasing about 1% Q-on-Q. If you look at the recurring NPAT, so we exclude the impact of the foreign exchange as well as some extra item, which basically is the tax benefit of around THB 246 million, so the NPAT was reported THB 6.9 billion, flat Q-on-Q, but still down around 7% year-on-year. Another thing to highlight in the fourth quarter was the strong sales of iPhone 12, and we had been well prepared to capture this high-end segment, where we also observed that the customer has well perceived our 5G network and packages. And we also see our 5G users reach to more than 230,000 versus the total number of 5G devices on our network is already over 370,000. And for this early adopter, we saw the ARPU of above THB 600, and this represents a 10% to 15% uplift from the previous plan. So overall, for full year performance, based on the pre-TFRS 16 for comparison, at the revenue, it's declined by 5%, and at the NPAT, it's declined by 9%. On to the guidance. General sense that we have in terms of the economy for this year despite there remains some uncertainties around the pandemic and also the vaccination, we expect to see some recovery in consumer demand, and also our revenue should gradually rebound. So that's why we guide to a low single-digit growth. We -- in the mobile business, we aim to use 5G as the lead and, in particular, to capture share in the early adopter and high-value segment. For fixed broadband, we also expect that we can continue to outpace the industry growth, given our quality products and services as well as the strategy to leverage from -- upon our mobile subscriber base. Enterprise, we also expect to continue to deliver a double-digit growth in terms of cloud, cybersecurity, ICT services. And this will be based upon our lead into the industrial estates with the 5G infrastructure that will enable us to capture fair share in the enterprise segment. Cost control will definitely continue to be the key focus. Automation, online channels, online services as well as some IT transformation this year will be some of the things that we'll be focusing on to help us deliver the growth that can flow through from the top line to the EBITDA level, and that's why we guide the EBITDA at -- also at a low single-digit growth. Lastly, on the CapEx, which is a range between THB 25 billion to THB 30 billion, now you may notice that we are guiding CapEx at a lower level compared to previous years, as previous year was the first year that we began rolling out the 5G network. This year, we want to focus on 5G leadership by delivering the real user experience rather than just spreading out of the corporate. So we want to ensure that where we invest, we see good demand, and we want customer to experience 5G as a new attractive product. Dividend, you already see our announcement the payout for full year is 75%. So that's reflecting our strong commitment to deliver shareholders return, while we continue to have a solid financial flexibility. So that's all for the brief. Now we'd like to open the floor for Q&A.

[Operator Instructions] For the first question from Khun Wasu, CIMB.

My first question is about the revenue guidance. Is there a chance of revising the revenue target upward, if this round of COVID outbreak in Thailand can be contained within the first quarter of the year? And the second question is on the postpaid ARPU. I have noticed that during the past 2 quarters, the postpaid ARPU decreases Q-on-Q have been more severe than the prepaid. Do you have any plan to slow down the postpaid ARPU? I understand that the 5G price premium should help as well. I'm just wondering if there any other plan to help slow down the decline in the postpaid ARPU.

Yes, I think on the guidance on revenue, I think it's still a little bit hard to foresee how COVID will end and how long lasting the impact would be on the Thai economy. Even though you can get it contained within Thailand, we still have to rely, to some extent, on the tourism sectors. And that I don't think we'll see a quick return of the tourists coming into Thailand. So although we're still hopeful that things will get better soon, but your question is whether we can revise upward, I think let's see the first quarter. And after that, we would consider how to revise the guidance, if need be. Regarding the second question on the postpaid ARPU quarter-on-quarter it drops more than the prepaid, largely because of the economic downturn in the fourth quarter, so we do see customers using less. And also because of the heightened aggressive competition in the tariff. So as we mentioned previously, those postpaid fixed fee and the fixed price unlimited price plan. So this has actually continued. And in some cases, we see that it's actually more aggressive to the extent that you even have THB 120 for 2 Mega-BPS. So new customer coming in largely falls below our average ARPU. So you will see overall decrease in the ARPU. Obviously, the 5G help us to achieve -- mitigate some of this. So as we had mentioned, the customers who took up the 5G plans, on average, has an upside in ARPU of about 10% to 15%. So moving forward, we'll still continue to gauge the competition and we need to react, especially in those provinces where we have a lower market share, and we need to see how we can actually regain the market share in some of these provinces. And I think I would say that we have done quite well in some of these provinces where we have actually taken a proactive approach in gaining back market share for some of these provinces.

Maybe 1 follow-up question for me. I have noticed that NT Mobile, the new mobile brand by National Telecom, have released a couple of aggressive price plans in the prepaid side. Like, for example, the one that I noticed online is the THB 70 prepaid plan for 4 megabit per second unlimited data plan. Do you see this NT launch as a threat in 2021?

It's still difficult to tell the plans of NT, right? So obviously, network quality, network experience is very important, not just the price itself. But we continue to monitor the market, and if necessary, we will need to respond.

For the next question from Ranjan, JPMorgan.

Two questions from my side. Firstly, on 5G, what are your expectations for number of customers by the end of this year? I know you said 1 million last year -- I mean, last year, you'd mentioned it could reach 1 million, but have your expectations changed? And can you maintain the premium ARPUs with the growth in 5G customers? So that's the first thing. Second is, there were some talks of auction of 3.5 gigahertz spectrum. Can you share with us what your expectations are on time line and valuation of the spectrum?

Let me take the first question. For us, our target for this year is still 1 million customers. When we look at the market itself, largely, it depends on the 5G ecosystems. So it's not just about coverage or experience, but also the number of customers having 5G handsets out there. I think this is one of the biggest challenges for the market. Although the number of 5G handsets have actually increased over the past quarter and some of the prices have also dropped, but the pick up is still not as huge as expected because the lower-end one has not been on to the market yet. So when we discuss with some of the Chinese vendors, so the lower-end one may happen in the Q2, Q3 of this year. So depending on the availability of the handsets, we need to readjust as we move along. As Weng Hui mentioned earlier in the brief, the expansion of 5G is not about just increasing the coverage, but the ecosystem is very important. For the premium one, we hope to continue maintaining the premium of the 5G pack. Again, it depends on the competition. And we noticed that the competition has also adjusted since the Q3, Q4 of last year, where previously, even the low-end pack includes 5G, and they have actually taken off, which I think is sensible direction to take. 5G, there are a lot of benefits, and it doesn't make sense to destroy the market. And I think for the early adopters who are willing to pay and get the benefit, we should maintain that way.

For the 3.5 gigahertz frequency auction, on my observation, I think it depends on the NBTC new Board member that was selected or not. Even today, the selection committee already selected 14 candidates, passed to the Senate to select it up by voting. However, there are a lot of news in Bangkok that many candidates who were not selected tried to go to the Central Admin Court. In parallel with thing, also have some new NBTC law will pass from the Parliament also. If the new NBTC law passes it, maybe the existing new NBTC Board member selection process will be in. This, we have to monitor and the time line, still cannot confirm much. The time frame that NBTC -- or the NBTC plan within this year, I am not sure based on -- or the new NBTC process, still have a lot of condition today.

The next question from Khun Pisut, Kasikorn Securities.

Hello. Can you hear me? Hello?

Hello. Khun Pisut?

This is Pisut. Sorry for that. Can I start now?

Yes, please.

I have 3 questions. The first one, you target core revenue to grow at the low single-digit this year. How about your growth rate target for mobile segment, specifically? The second question, you target EBITDA to expand at a low single-digit rate this year as well. If I assume 3%, your EBITDA will grow about THB 2.8 billion, I mean that [ if we do. ] Based on my own calculation, your incremental depreciation and amortization expense this year will be about THB 3 billion to THB 4 billion. This would lead to your earnings weakness. What can you do to cope up with such a pressure? And it would be great if you can share us about your asset that will be fully depreciated this year and impact to your D&A expenses. And my last question, your full year dividend per share of THB 6.29 represents 75% of your full year EPS post TFRS 16. But if applying the pre-TFRS 16, it accounts for 70%. Should the market be excited on your 75% dividend payout, which is higher than your payout policy and your 2019 payout of 70%?

I'll take the first question around the revenue guidance. Actually, mobile still contributes the very large part of our revenue. And you also see last year that the fixed broadband had continued to grow in a double-digit, but because mobile declined quite strongly, so overall revenue declined. With this year guidance that we expect a low single-digit growth at the top line, of course, we would expect mobile to perform a lot better, which means we might not be able to see the mobile to rebound so instantly within the first quarter or even first half of the year. But we're also hopeful that the consumer spending as well as some benefit of the 5G will flow through and help in terms of the mobile growth to stabilize or maybe slightly improving. All of this, I think, definitely would still rely a lot on the uncertainties around the vaccination. The EBITDA impact to the NPAT. I think, first of all, maybe addressing on the D&A. Yes, as you pointed out, we have the fully depreciated 3G asset, which is already 7 to 8 years ago. We have started to see some of these last year. And we expect to see more coming this year. Roughly, I think we expect somewhere around THB 500 million of D&A saving from the fully depreciated 3G this year. So that would be one of the help onto the bottom line. Apart from that, I think we definitely continue to optimize costs where we can. IT transformation is one of the themes that we embark upon on. And this will help us to be a lot more flexible in terms of operational process as well as a lot of -- a number of automations and online process that we do. So some of these, we expect to see savings in terms of our operating expense to compensate with the pressure on the spectrum acquisition.

Maybe just to reemphasize that your first question on whether the mobile segment can grow. I think we still believe it can grow. Although in the past maybe few quarters or few years, it's mainly because of competition that kind of slowed down the potential growth. With 5G coming as well as, I think, a potential for us to expand our services that we offer to customers, so with that, we -- hopefully, as a market leader, we can create new segment, create more value for customers. And hopefully, that will lead to a better kind of wallet share that we get from the customer spending. And in the end, that will grow the whole mobile industry. EBITDA, as Khun Nattiya mentioned, from your calculation, yes, for sure, it looks a bit like it's tricky to increase the net profit. But we have a few initiatives that we will push forward this year that will hopefully increase the profitability level. We don't want to share too specifically, but the cost control is one of the key things. Secondly, we also look at investment in the network itself in a different principle. In the past, we have 1 principle that we can abide by. But with a lot more frequencies at play, so now longer term, we have a few options to save investment going forward or optimize, would say, optimize investment. I think, lastly, on dividend, you -- what we mentioned, I think, as of going forward, then we have to pay the amount based on the post-IFRS 16 number. You shouldn't look at whether compared to the pre-16, what the percentage should be. I think when we look at how much we should pay, first of all, I think we're fully committed to make sure that we look at shareholders' return. We also would like to maximize shareholders' return. So with that, I think we want to increase a bit of the payout during this year -- in the past year because we were able to do so. We are comfortable with the financial status and also the profitability level that we can generate. There's still a few uncertainties. One is on COVID, when it's going to end and how the Thai economy will grow back. And second, I think this 3.5 spectrum auction hanging. So once we know how these 2 issues are going to end, then I think we'll come back and look at the payout ratio, whether we can do anything better for the shareholders. But for now, what I can tell you is we commit to make sure that we do the best thing for the companies as -- for the shareholders. That's why I think, in this year, we decided to up the payout to 75%.

Okay. I may have some follow-up questions. The first thing is regarding the news of possible 5G partnership between Advanced and National Telecom. What could be potential incremental revenue from this project and for how long as well as any nonfinancial benefit from the winning of this project? On another front, if True can win this project in the state, what could be possible financial and nonfinancial impact over Advanced?

I think this project is still unclear based on the news that was announced in the public. It's just -- it's still a proposal. We still don't know what NT brought into this thing in reality. However, when we coordinate with NT, most content is like we try and can do some network 5G sharing, that mean maybe save a cost on all party, that are the total concept of the project.

Okay. My last question is, what is your view on the competition in the provincial prepaid segment this year after DTAC has been lowering our 700 megahertz network aggressively, and 900 megahertz will come next. This will bring the new players into DTAC. Earlier, there have been only Advanced and True fighting each other before.

So your question is around the competition in the provincial area. Is that right, Khun Pisut?

Correct. Especially the prepaid segment in provincial areas.

Well, DTAC actually had been quite vocal in the prepaid market all around the country. I don't think we are expecting to see any significant change to that. Let's see how far in terms of the coverage or brand perception that DTAC will be presented.

So I think for the prepaid segment, it's not only the pricing, it's also the distribution and also the top-up channels and things like that. So I think we still have strength in those areas. So we still feel that we can manage the business, even though DTAC, as you mentioned, they want to come in, it's not going to be that easy. And I think the competition is there, no matter DTAC is there or not. So yes.

The next question from Khun Piyush, HSBC.

A few questions. Firstly, on 5G, could you tell us what is your population coverage as of 2020 and target for 2021 population coverage? And in this context, I want to discuss on CapEx guidance. Because your guidance is THB 25 billion to THB 30 billion lower than last year. So are we behind the peak absolute 5G CapEx? So that's the first question. Secondly, we saw subscriber growth returning in fourth quarter. Could you talk a little bit about which segments are we seeing that growth? Is it migrant segment? And any color on December month mobile service revenue versus full quarter? Like are you seeing month-on-month improvements?

Sorry, can you repeat the first question again? I think you asked about 5G, the coverage target. And I think the second part, CapEx down.

No. So on the CapEx, in 2020, you have done THB 35 billion, while guidance for next year is anywhere between THB 25 billion to THB 30 billion. So I just wanted to clarify, are we behind the peak 5G CapEx in absolute amount now?