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

Good afternoon, all participants. Welcome to AIS First Quarter Results Conference Call. First of all, let me introduce the management with us today. First, our CEO, Khun Somchai.

Good evening.

Our President, Khun Hui Weng Cheong.

Welcome. Good evening, everybody.

CFO, Khun Tee.

Hello.

And myself, Nattiya. Before we begin, just a few reminder. If you haven't already done so, please change your Zoom user name to be your name followed by your corporate name, so we'll be able to identify when you ask the question. We will begin with a short brief in the first Q performance and the situation. And the Q&A session to follow, we will start with the Zoom application first and then followed by the dial-in participants. So let's begin with some short brief of the first quarter. Overall, we see the results of first quarter continue to have the impact from both the pandemic and low pricing environment. However, we started to see some recovery in terms of Q-on-Q revenue rebound. Our mobile business, there seem to be some demand coming in the first quarter. Particularly, we believe that that's from government stimulus program that helps encourage some of the consumer spending and therefore, drive the customer adoption in using the mobile data. Pricing environment in the mobile business remained relatively stable. If you recall, there was some price increase in the late third quarter last year and continue to sustain. We were able to continue to sustain those new price. However, there are also some -- continue to be some low-price plan, such as the 1 to 2 megabit per sec, which attracts the low spender, and that results in the relatively low ARPU in terms of new acquisition. We believe that the situation around these unlimited price plan, data plan, will continue in the market as the economic recovery delay and there's also a low consumer spending. In terms of fixed broadband business, we are quite pleased with the growth. We believe we'll continue to gain more market share in this business. There has been increase in demand as well in the first quarter, as customers are moving back to work from home and study from home. Despite that the price plan remained fairly low, around THB 399, we have been quite satisfied with the quality of our acquisition, and we have seen both churn rate and the bad debt coming down. For Enterprise Business, non-mobile enterprise continued to deliver a double-digit growth, particularly in the cloud and ICT service. Throughout this year, the focus is on building a collaboration with key partners to either trial some smart industrial solutions use case and building the cloud service. In terms of 5G penetration, we are on track to reach the 1 million year-end target and continue to observe some ARPU uplift in the early adopter segment. So overall, in terms of our performance, the core service revenue dropped slightly 2% year-on-year, but that's already narrow from the past 3 quarters where the drop were around 7% to 8%, and we saw a Q-on-Q some minor recovery of about 1%. That's driven by both the recovery in terms of both mobile and also the growth in the fixed broadband. We continue to manage the cost despite that we also have to invest in the 5G network for leadership. So as a result, the overall cost of service increased by about 4%, but the SG&A dropped by about 12% and managed to have stabilized in terms of EBITDA and almost at the NPAT level. The Q-on-Q drop in terms of NPAT was due to some FX loss and also the tax benefit of last quarter. And lastly, just touch upon the guidance a little bit. We still maintain all 3 key items of the guidance with core service revenue growing a low single digit, same as the EBITDA and the CapEx spending of around THB 25 billion to THB 30 billion. That's excluding the spectrum payment. So with the slow economic recovery, we still continue to expect some small recovery given our strong network position and also try to stabilize pricing where possible. Cost optimization definitely will continue to be the key focus as the demand side is weak. So there's always room for us to optimize where we see possible. But the key point is well, we want to ensure that anything that we invest for medium and long-term leadership will continue to do so in order for us to win fair share in the market. So that's all for the brief. Now we will begin the Q&A session.

We will attend the question from the Zoom application first. [Operator Instructions] Okay. So first question from Khun Pisut, Kasikorn Securities. Please unmute yourself.

This is Pisut from Kasikorn Securities. I have just 2 questions. My first question is about 5G. What will stop you from raising the 5G adoption target of 1 million? As you reported already 70% of your target in the first quarter, and there are 3 quarters to come, so you should be able to achieve the 1 million target quite easily. And related to that question, how many customers holding 5G devices that you have in your network, which I guess should be higher than 700,000? And of your 700,000 5G customers, how many are they using 5G devices? That's my first set of the question.

Yes, thank you for the questions. Yes, you are right that currently, we already hit 720,000 5G subs. The target, although, we said is 1 million, we aim to be higher. So currently, we are thinking of even maybe between 1.5 million to 2 million. Regards to the 5G devices, currently, there are about -- at the end of March, we have 1.08 million 5G handsets in our network.

Okay. And my -- the last one of the my first set of question is that of your 700,000 5G customers, all of them are using your 5G devices or some of them may be using the 4G devices but subscribing for the 5G packages. Am I correct? Or all of them are using the 5G devices?

Yes, you're correct. Some of them are using 5G devices. All the rest are using 4G devices. But the point is that quite a number of them are keen on the 5G handset pricing because it gives them more value and more air time. And so it's a more value-added package for them. So we do see quite a number of customers upgrading from the 4G pack to 5G pack and resulting in the ARPU uplift of between 10% to 15%.

Okay. And my follow-up question on that. I saw you start to pricing down the 5G plans, not sure I am correct or not. But indeed in past you were starting plan for the 5G was at TWD 599. Now it's come down to TWD 499. Is there a chance you're still expecting the 10% to 15% ARPU uplift?

We are still maintaining our 5G pricing. So the starting one for postpaid TWD 699. We have not reduced our pricing. For the on-top package, we are still having the TWD 199 for 5 gigabyte and TWD 399 for 15 gigabytes for 30 days. However, currently, we are also experimenting for existing customers who did not pick up the 5G plan. Maybe we give them, for example, 5 gigabytes to use on the 1-day or 7-day or 30-day plan with a normal -- nominal price increase. That's just to test the market to see whether the customers, who have been using the previous plan, will find it attractive to take once we give them a slight increase for them to try out.

Okay. The next one is that I noticed that your VOU was in the first quarter -- actually in the many quarters past was actually lower than DTAC. And in the first quarter, even you have a certain number of 5G customers, who typically using quite -- data hungry type of customers. Why is that happening? And can we expect to see your VOU to surpass or to excess DTAC in the coming quarters?

Our current blended VOU is about 18 gig, of which for pre is about 16 gig and for post is about 22.6 gig. That is on the blended for postpaid. But for the 5G plan itself, we do see about -- if I can recall, it's about 28 gig or 38 gig.

My last question. Since you've got limited revenue impact from the second COVID outbreak, what about your revenue impact from the third wave you have seen in April?

I think April will probably not be quite a good proxy by itself because in April, in general, there is a very long holiday. So in general, there's also a low demand in the April. We are continuing to observing those factors. There seems to be some sign of low spending as we see.

Okay. And my follow-up question on this is if you compare month-on-month, it's difficult to compare, I do agree. But if when you compare the year-on-year when the peak -- I guess, the last April was the peak since the start of the COVID. So we should expect to see some decent growth of the revenue in the few months. Am I correct?

If you compare to the first wave of last year, then yes, it's still a better situation now compared to last year.

So next question from Khun Wasu from CGS CIMB.

I have just 1 question regarding your...

Khun Wasu, we can't hear you quite clear. Can you speak a bit louder?

Is this better?

Yes, much better. Thank you.

Okay. I have just 1 question about net addition of subscribers. Since AIS had like a impressive quarter in terms of the net addition of subscribers, 1.3 million. And also DTAC had around 200,000 net adds, so the 2 operators combined had around 1.5 million net addition of subscribers. And I think in the industry that is already over penetrated, how could the 2 operators have such a strong momentum in the net addition of subscribers. From what I've observed, the 2 operators, AIS and DTAC, both operators have seen higher net addition of subscribers Q-on-Q. Could you please explain the trend what's happening here? And what should we expect in the coming quarters?

I think let me try to explain you in -- the market situation in Thailand. Normally, our penetration, I think, more than 90% to 100% already on our population. However, every month in the market, the new SIM still deployed in the market, I think around 3 million to 4 million subscriber is new. This is the market in Thailand. However, I think based on the situation in the fourth quarter maybe churn is less than the past that may had been up in the new net app is more growth. I think the situation depend on the customer behavior that maybe they don't -- cannot move-in allowed as the past as usual. So this is the thing that we have to monitor in the second quarter or so.

Maybe one follow-up question. In the net addition of new subscribers, especially in the prepaid segment, I suppose that the majority of them is the second SIM card for the people that already have their main SIM cards. Is that correct?

It could -- sorry, this we have -- it could be because the total Thailand SIM is already about 90 million. So there could be a proportion of customers holding 2 or more SIMs, especially with the current data era, where a number of them are holding more than 1 or 2 handsets. So having more than one SIM is quite common now with customers. And just to also give some highlight on the first quarter for prepaid, we do see a huge increase in the net add. Also because of the government assistance program, so we will see customers coming in to take up data SIMs also. And also from existing customers who maybe have been dominant, they are also coming on. And that's how we do see the increase. Second part is also we are having some promotion program targeting at some of the customers. So that also resulted in the increase in the uptake. And lastly is we also do see a higher-than-usual uptick of our SIM2FLY customers. So that accounts for the reasons for the increase in the prepaid uptick in the first quarter.

How about if we focus on the domestic market and exclude the SIM2FLY market? What is the most popular package in the prepaid segment? Is it the 2-megabit per second? Or is it still 4-megabit per second?

It ranges from 2 to 4 . And then we also have seen some pickup on the 6. And recently, we also do see in certain provinces, among the operators, there are some competitive pricing even lower than the standard price. But that's also because of the current economic situation. So trying to also provide value for money for the lower-end segment of the base.

Okay. So is it reasonable to assume that once the COVID has passed and once the government subsidy program is no longer there, the net addition of prepaid subscribers should be lower than what we have seen in the first quarter? Is that reasonable?

Could be.

The next question from Prem, Macquarie.

Just one question for me. With this recent announcement about InTouch being acquired by Gulf, from an AIS perspective, what do you think a change in shareholders at that level means for you operationally? Do you feel that it could smooth over regulatory interactions or even your go-to-market strategies with customers? Is there a customer perception issue which could involve as a result of a new shareholder. The thoughts on this would be most appreciated.

Thank you, Prem, for your question. However, this situation may not be answered by the management. It's not in our scope to answer this at this point in time. So sorry to everyone, but we shall refrain from answering any question regarding the shareholders.

Okay. All right. And just -- sorry, if I missed this early on, but the competitive environment, it seems to me like it seems to be settling down somewhat. Would you agree with that? Or do you think it is just as intense and could get worse from here.

I think from our point of view, if -- we've been trying to observe the situation since the COVID of last year. Actually, before the COVID, we were trying to increase the price. However, due to the COVID, that continue to be a number of unlimited price plan coming into the market. From what we observe from time to time, there seems to be aggression in certain area in certain period of time, and then may be withdrawn. Some period of time, we maybe able to increase price in some segments. So I think In general, it doesn't get much worse, but it also doesn't have sign for a clear improvement. Next question from Ranjan, JPMorgan.

I have a question on corporate governance. How many independent board members do you have? And how many -- and the shareholders, how many board members to that point? And if -- depending on how the shareholding changes, can the number of independent Board Director -- board members change. Is that something that you can answer?

I think our Independent Director is between 4 to 5 persons on our Board, in total of 11 Board member, around 4 to 5.

I think your question is more maybe towards the InTouch level. I think if anything, that will be changed, we have that level first. And I think at our level, at AIS, I think we still going to operate as usual. Unless -- i think we may need to wait until the whole transaction is over and see whether the policy will be changed.

I had an indirect way of asking that can a shareholder appoint majority of the Board? Or is there something that restricts them from doing so?

I think that's the normal practice. It's within the scope for the shareholder to nominate depending on the shareholding structure. Next question from Maria, Maybank.

I just want to -- I just would like to understand why SIM2FLY was strong in the first quarter because generally, mobility has been quite affected.

For the first quarter, we do see an increase in the SIM2FLY largely for usage within Myanmar.

[Operator Instructions] So Khun Pisut from Kasikorn Securities.

Yes. Just 2 follow-up questions on the cost side. First one, your network OpEx in the quarter lost to THB 5 billion level, but will this be going up or stabilizing for the rest of the year? And my second question is regarding your general and admin expenses that came down from below THB 4 billion level. You mentioned in your MD&A that it's about the staff cost. Could you please explain a little bit more on this one? And what is going to be the trend going forward?

I think maybe on 2 fronts. As you know, this year, we'll stress that we'll have to manage cost very effectively given the headwind on revenue. However, on the network side, because we still expand the 5G network, and we want to maintain a good service quality to all our consumers. Thus far, you may see some of the increase in network OpEx. And also, the other part is a lot of time we changed in the past few years, we still change some of the model from CapEx to OpEx. So that trend also somehow increased the network OpEx a bit more. Whether going forward, it should be stabilizing, I don't see any big jump in our OpEx apart from the expansion on network itself. So on SG&A, I think in this past 1.5 years, I think we are quite strict on the human resources, both in terms of the headcount and the hiring. But we still expand the team in areas why we feel the need to expand, but we restrict some of the headcounts in the area where we feel that we can increase productivity with other means. On G&A, there's also, as mentioned, I think the -- so far, I think the touch wood, the bad debt ratio is still better than we had expected, given the situation. We haven't seen a higher bad debt ratio even in the COVID situation, both from the first wave and second wave. However, I think that trend need to be monitored in the third wave. Yes, I think that's the trend on the cost side.

So just to be clear, in terms of admin year-on-year drop, mainly, it's because of lower bad debt, and we see that both in terms of our -- mainly in our broadband business with good quality subscriber coming in. Another reason in the general admin is also we see a lower expense, because more customers have moved to the -- from -- have moved to the online service. And therefore, some collection expense have been reduced because of that using more electronic service with us. So we believe this we will -- we would be able to continue to drive the digital adoption in terms of service with our customer. But the point you mentioned about the staff cost, that was the Q-on-Q, because normally in fourth Q, there would be some booking of certain staff costs and also we book -- we reserve some bonus throughout the year and then in the first quarter after we pay out the bonus, we will reverse or -- some of the bonus that we booked earlier. So that was the reason for the lower staff cost Q-on-Q.

Okay. One follow-up question. Just first, you just launched the Virtual Mall project, which is pretty interested for me. Could you please explain a little bit more about this project, i.e., revenue model or revenue target?

I think for the revenue model, we do in the 2 objectives. First, we try to show up on the 5G leadership to do all the new things like AR/VR shopping mall area. For the customer who have the VR, can see -- our network can serve this kind of thing really, really good in terms of the application that they can use. This is a first objective. The second objective is it not only show up the 5G leadership, it also mean corporation between AIS and partner who have some problem in the market today. We coordinate not only in the big mall like the Mall Group and also the TV Direct that's also big in the market. We also opened for the SME, a lot of small merchant, in the market to park in our mall. That means we can help the SME society to do this thing also. This is the opportunity to do the V-Mall.

Next question from Maria, Maybank.

Khun Tee, can you please elaborate a bit more about the change from CapEx to OpEx and in what particular area is this happening?

I think in general, there are certain items and so we need to buy or we need to pay upfront. Some of it could be software, some of it hardware, then we change it to subscription model. I think that's basically the general idea. In many cases, it can give us either higher productivity with the same cost or it could lower overall cost from changing to the subscription model. But it's not applied to every single item. So it's only to some of the items that we feel we get the benefit.

So this network OpEx increase is temporary, because this is like the initial first time that you are moving into subscription model?

Yes. It is a bit of both actually, because as mentioned, our -- we still keep expanding the network but only some of the items we do change the model. I think the majority we still purchase on own. However, I think there are some items that we feel either because of the frequency of update or whatever that's required. A lot of time, we may start to look at some other subscription model.

Is this significant relative to revenues or as a portion of network OpEx?

Sorry, we can't hear you very well. Can you repeat the question again?

Is this amount significant relative to revenue or as a portion of network OpEx?

No, not yet. I think the majority is still the CapEx model.

The next question from Piyush, HSBC.

Two questions. In fixed broadband, can you talk about the competitive dynamics and outlook for ARPU? Secondly, on 5G, can you share how is the adoption by enterprises? Any particular 5G use cases, which is showing good promise on the enterprise side? Any color over there will be helpful.

For the 5G, there's still some competition out there, especially with operators having to continue to retain customers at the end of the 12-month expiry. And for the pricing, although there's some movement up, we do see positive movement in the sense that previously quite a number on the TWD 299 plan. And so for us, we are moving up to the TWD 399 with additional services such as Mesh WiFi and all those. But on a whole, there's still a competitive market out there, especially for customer retention. For the 5G enterprise, we have been working on several projects with partners, mainly in smart factory, smart transportation and smart logistics. We have so both vertical solutions as well horizontal solutions such as AI, AR, VR, robotics and vision and analytics. So these projects, we are working with partners and doing some trials at the moment.

Next question from Khun Phatipak from Krungsri.

I got a few questions. First question, I think, is going to be on competition and your ARPU. As you can see your ARPU, even the blended ARPU is continued to flow even in the first quarter. Can you explain more about the competitive landscape at the moment? Is it still fierce comparing to the first -- sorry, comparing to third and fourth quarter of last year? And my second question is on how much the percentage of the fixed fee in your postpaid subscriber in the first quarter? And my last question is on your new package fee avenue? What do you expect from this platform? I think it could be your game changing on 5G on the consumer side.

I believe your first question is regarding the mobile competition. So as we mentioned, we believe that this unlimited price plan will still be there in the market. It had been introduced in the market for quite some time. I think last year was another year where operators have been moving this price plan from below the line to above the line, basically. It's now been offering across the board to general consumer. So related to that, in terms of the percentage to the postpaid sub, it's between 20% to 30% of the subscriber on this type of plan. Not all of them we consider to be low ARPU. Some of them have a higher level of ARPU such as above THB 700 or THB 1,000 where they can have unlimited plans, but they do offer a good value and ability for us to cross-sell to other products and services. But I think the key ones that we have concern really are the very low plans like the 1 to 2 megabit per sec. Even at 4 megabit per sec, at this point in time where the applications that customers use are mostly doable with the general 4G, the 4-megabit speed, you can do the YouTube easily. So that's the main key point of how we can monetize the mobile data better than this. I think from time to time, where possible, we try to seek a way to increase price, which we have done so. Around end of third quarter of last year, we already did. So at least we're quite happy that at certain level price plan, it can sustain at a higher level. But given the overall economic situation as it is, it will remain challenging for us to move anything up further. So we hope that passing this economic recovery, we can uplift the price a little bit better. The market for 5G will also continue to drive toward more mass market. We're still working on bringing in some mid-tier 5G devices that will price below THB 10,000. So hopefully, some of those will help us in monetizing better in terms of data usage.

As an example, how we are monetizing or increasing ARPU, for example, the net unlimited price plan or the 20 meg unlimited price plan. We are offering also additional voice minutes to this data-only price plan. So with that, we can actually increase the ARPU. And we find that customers are more attuned to having some voice inside some of these data unlimited plan. So we do see good tick up. For example, like the 20 meg, previously it was, I think TWD 449, now we're increasing it to TWD 499 with additional airtime minutes included in. On your question on the percentage of fixed fee for -- in Q1 for postpaid, as of the last quarter, we have about 31% on the fixed speed. For this quarter, we see increasing to 35% of our total base. Regards to new customers every month, more than 60%, in fact, about 70% are picking the unlimited fixed speed plan.

So for the avenue to monetization, I think like I told you that it will be -- the objective of to be the 5G leadership if we can bring up the customer to be the 5G, I think the ARPU will lift up for sure in this thing, but we don't forecast that one application, we can increase a lot of revenue. But more important thing is try to migrate the customer to the 5G with AIS [indiscernible] and maybe we can get the new customer from the competitor also. And more than that on the, helping the partner revenue share or the partner merchant may be another new sort of revenue, but we still not forecast much in terms of revenue, but in terms of the 5G leadership is the more important.

Can I have a following question? Actually on your percentage of fixed speed on the postpaid subscription, you say right now, it's range around 20% to 30% of postpaid sub. But can I have the number that the price below your average postpaid ARPU rather than above percentage of your ARPU average?

Sorry, I don't think we have that data to share with you. But I think the key point here is you continue to see subscriber moving from prepaid into postpaid. And with the situation around unlimited plans, that always means that any additional sub onto postpaid, it always comes at relatively low ARPU. Majority of subscriber, as we moved into the lower tier of prepaid, it's hard to come in at the high level of price plan. And at the same time, because of the unlimited plans offer in the market, it opens up the opportunity for the existing subscriber to also trade down their plans or even if they stay on the same plan, the ability for us to monetize when they spend higher is lower for us. So I think that's the main point we like to address.

Can I have one more question? Can I ask about postpaid subscription? I like the trend is improving over the past 2 or 3 quarters on your postpaid sub. Can you explain the reason why your postpaid sub is quite -- I mean, net add is quite strong? Can you explain why the net add on the postpaid sub is going quite well compared to your competition? Can you tell me the percentage of pre to post on your postpaid sub. Yes, that's my question.

I think we have been trying to do a number of things. First of all, I think eventually, we see that customer perception towards our network and product has improved. We continue to observe quite good trend in terms of share of gross add on our number. We have been also working with the channel, with the distributor with several models to ensure that we offer the bundled handset at a good price with the good option for a customer to do financing. So that also help us to capture the market right in time when we -- when the 5G device coming in. I think when iPhone 12 came into fourth quarter, also because we have managed quite well in terms of distributing the iPhone and the package together with -- what I mentioned around channel that we work with. So that helped us to acquire quite a decent acquisition in terms of postpaid.

For the pre to post, we have also been quite active in approaching our prepaid customers to move them to postpaid. Things like when we look at the ARPU range and the utilization, so we're trying to fit them into the postpaid plan and we offer -- we contact them directly to offer them to pre to post migration. On the handset bundling offer, we also do have special offers for our prepaid customers to migrate to postpaid, either SIM-only or SIM bundled with the handset. Overall, our pre to post -- or the total gross for post is about 30% to 40%.

And next question from Maria, Maybank. I believe you have keyed your question into the chat. So let me just read out your question here. How many 5G base station were installed in the first quarter? So I think we have around 5,700 base station of 5G at the end of first quarter. Next follow-up question from Khun Pisut of Kasikorn Securities.

Sorry for so many questions. My last question is that should there be any concern over your quarter-on-quarter decline in prepaid revenue, considering quite a strong number of prepaid net in the quarter?

I think in general, that there shouldn't be any big concern. As mentioned, I think the industry is going through a pre to post migration. So in general, the population of prepaid subscribers will reduce. You may see a bit more kind of drastic drop in ARPU because of the overall economic situation. So that's why I think a year-on-year or Q-on-Q drop may seem large in certain period. But overall, if you look at, I think, the whole industry, hopefully, when we go to 5G, we're supposed to be able to uplift some of the ARPU, given the increase in the quality of the service across the quarter. And as mentioned, I think all 3 operators should be looking at maybe increasing the range of services that we can provide through 5G, both for the consumer as well as the enterprise space. So that will make the overall industry growth growing again. I think a lot of people asked about how the competition is doing. I think in theory, as long as the market doesn't grow, the competition will still going to be intense. However, if we -- all operators can help to make market grow, I think that's the best way to reduce the tension in the market. And as I think many people asked about whether the competition is increasing or not, I think so far this year, I want to recap that it hasn't been increasing and partly because of the economic situation, then it reduced a lot of, I would say, high risk acquisition. If you recall, a lot of time, there are many aggressive subsidy programs in the market. But given the situation now, I think all the operators kind of pull back from those kind of actions. And that actually helped make the industry stronger even though we still compete on the price plan. But I think that is something that we think can be tolerated. So hopefully, once we can get over this COVID-19, then we can focus more on creating more value for the customers and hopefully, that will uplift our revenue potential.

Okay. We're now attending the question from the dial-in participants. [Operator Instructions] If there is no further question, thank you, everyone, for joining us, and see you again in the next quarter. Have a good evening.