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

Good morning, everyone. I believe you are now all in the main room, Please remain on mute while we give you a short brief. So as usual, we’ll begin with the short brief for today. And then, we will go through the Q&A. First of all, let me introduce the management with us today, led by Khun Somchai, our CEO.

Hi, I’m Som pak. Sorry, I am mute.

[Foreign Language] And our President, Khun Hui Weng Cheong.

Good morning, everybody.

We also welcome our Chief Consumer Business Officer, Khun Pratthana.

[Foreign Language]

And our CFO, Khun Tee. Okay. [Operator Instructions] So let me begin with the short brief. Next slide, please. So let me begin with the short brief. First of all, in terms of the second quarter, I think we all have seen the economic impact from the new wave of the COVID that happened. I think from our side, we started to see contraction in terms of consumer spending as soon as in April. However, I think we still deliver quite flat in terms of service revenue, both year-on-year and Q-on-Q. Let's touch upon the competition a little bit in each of the market. Mobile business, in particular I think, as soon as we see the resurgence of this pandemic coming into the second quarter, we also observed rising price competition in terms of unlimited data plan again, particularly in the prepaid segment. So there have been lower plans at the entry-level, basically had moved back the plans to the pricing level of last year, and we continue to see those plans available up until today. In terms of fixed broadband business, we would say, more or less, competition is quite stable. There is some discount to the consumers, but mostly underground or provided in certain areas. The entry-level of the fixed broadband remains around THB 400. But the market overall should be receiving quite decent demand on the broadband because of the need for our consumer to study and work from home. 5G -- before 5G enterprise segment for us continue to grow quite well, especially the part that we call the non-mobile business, which continue to grow double digit. And we will continue to see this demand as the corporate is moving towards digitalization. 5G, as you see, we continue to expand in terms of the network coverage. At the end of second quarter, now we have about 25% population coverage. And we already record 1 million subscriber on 5G. And this is withheld by subscription, right? Customer needs to make clear that they want to subscribe due to 5G. So those are we count as the 5G subscriber and still continuing to observe the ARPU uplift between 10% to 15%. As we already meet the year-end targets, so now we move the year-end target of 5G subscriber to about 2 million. Third point is on the strategic partnership. We made 2 important partnerships this quarter. One is on the enterprise side, which is the Microsoft partnership and another one is on Disney, both of which we will have the opportunity to discuss with you much more in further detail next Monday during the Intouch analyst briefing. But basically, we believe that these 2 partnerships will help us enhance revenue and how we engage with our customers. We also announced the dividend, which is THB 3.45 per share to be paid on September 1 and that contributes the payout ratio of 75% of our impact. Next slide, let me touch upon the full year guidance, which we have revised. The core service revenue, as you see, the previous guidance was the low-single digit growth. But I think we all understand the situation around the ongoing COVID-19 that's happening in Thailand. And the number of new cases keeps rising. Second half of the year, definitely will be looking much more challenging than we originally planned. So we therefore revised down the service revenue to be quite flat compared to last year or it could be slightly declining depending on the situation. Mostly will be driven by the weakness in terms of mobile spending. But we believe the home broadband and the enterprise segments will continue to receive a strong demand. Because of the revenue revised down, the EBITDA growth is also revised down to be in line with. But we still guide the EBITDA to be flat. Basically, there will be cost measures that the company needs to further implement to ensure that we protect the bottom line much better. CapEx-wise is quite a range in itself, THB 25 billion to THB 30 billion. So we will ensure that we prioritize and make sure that we invest the 5G network for leadership in the area that requires capacity, especially areas where people now need to work and study from home. Fixed broadband is another area that we will definitely continue to invest as the high demand from consumers coming in and to ensure that customer has a positive experience. So that's all for the brief today. We now would like to open the line for Q&A.

[Operator Instructions] We have first question from Khun Pisut, Kasikorn Securities.

This is Pisut from Kasikorn Securities. I have many questions. The first one, you said you have 1 million 5G subscriber and target to have 2 million this year-end, implying 2% to 4% of total sub, but your 5G population coverage is at 25%. This a bit mismatch in near term, at least where the economic situation is quite discouraging. Is it possible for you to defer your 5G topic plan a bit in coming years? And my second question is also regarding 5G. Of 1 million 5G subscriber, what percentage they come from your competitors, okay? What will be your -- what will be the composition of 2 million 5G subscriber target will come from your competitor? My third question is regarding the Disney Plus. Please tell me a little bit about how popularity of the Disney Plus content in your network. Do you have any subscription target? And how have you recognized the revenue and cost from this kind of arrangement? And my fourth question, if my calculation is correct, it seems you are losing prepared revenue market share to DTAC. Could you please explain the prepaid competitive situation and how will you stop your market share loss? And supposedly, my last question, when you are talking about enterprise segment, could you please remind us about your revenue contribution target in 2, 3 years? I remember Khun Somchai talked about this a few years ago. Could you please remind us about that? And what kind of revenue model are they, i.e., project-based, projection based or subscription be or else?

Quite a long list. Let me address some of the keys stat that you're asking first and then any questions around Disney and prepaid market Khun Pratthana can help us on that. Firstly, on the 5G. Yes, as you pointed out, because we also have the target of 2 million, the population coverage as of now, even though it's at 25%, but by year-end, we expect that coverage to expand to more than 70%. So we will continue to expand into areas. But we'll still be focusing mostly on the urban area. Of the 5G subscriber, what portion is from our competitors? I'm not sure if I have the stat on that, I maybe get back to you later or else, if the management can share, that will be fine. Enterprise segment, what we had communicated earlier, I think CEO mentioned that we have the aspiration to grow the enterprise segment as a whole. When he addressed the enterprise segment, that would still include both mobile and non-mobile. And the aspiration is to grow this part to be 20% to 25% of the total revenue. As of today, the total enterprise revenue is around 10% of our revenue. And I think the part that we really intend to grow much stronger is the non-mobile business and mainly what we term CCAI, cloud, cybersecurity, IOT, ICT solution. The Microsoft partnership, which is mostly will be in the cloud solution will also help us grow much faster in short to medium term.

Just -- I just want to continue on some of the questions. So regarding the 5G coverage, yes, as Khun Nattiya mentioned, we plan to increase the population coverage of 5G to about more than 70% this year. This is done through optimizing the way we spend the CapEx. So previously, we have been looking at the 2,600 megahertz. This will continue because that's where capacity will be. But now we are also expanding based on the 700 megahertz. So with both the 2,600 and 700 megahertz, we expect to be able to cover about 70% of the population coverage using the same existing CapEx that we have through improving on the targeting areas where we see more usage and a better use of the CapEx and also through some negotiation with the -- our vendors on how we can actually optimize the CapEx. Now to get 2 million for this year is not difficult because of the increasing number of 5G handsets; they are less than THB 10,000. And in fact, we expect some handsets to be around THB 5,000. So this will help to improve or increase the take-up of the 5G. For us, our target is so to try and migrate 4G customers over to 5G, so that we can expand or refund the use of about 2,100 over to 5G, either later this year or next year to be able to optimize the use of the spectrum. For the 5G subs, today, a large number of the customers taking over the 5G are from our existing customers. I think almost about 85% to 90% are from existing customers and 15% to 10%, depending on which month, from non AIS customers. As we mentioned previously, it's also very important for us to try and migrate our existing customers over to 5G because these are our loyal customers. These are our high-value customers and it's actually better for us to make sure that a majority of our existing customer migrate over because they have a long relationship with us, a proper engagement with us. And this will be the customers that we want to keep. Obviously, getting customers from the competition is also part and parcel of what we are offering. And you have noticed that we have do the number of portability. We have actually special offers for customers from competition coming over to AIS. And on the enterprise, yes, Khun Nattiya mentioned, I think the target for us to 2 to 3 years is still 20% to 25% of the total AIS revenue. So we are looking at the growth of CCII. Currently, the year-on-year growth is about 28% to 30%, and we'll continue to want to move forward with this, especially now with the strategic partnership with micro server. So we see a lot more opportunities for us to move into the entire cloud value chain.

Maybe I'll add before Khun Pratthana later on jump in. On the 5G expansion, I know that you mentioned that whether it's the right time to invest, given the economic situation. But I think as we discussed earlier or in the previous call, we want to maintain the leadership in mobile market. And I think with the new kind of mid-to-low price handset coming in either later this year or early next year, we want to really be ready to convert the consumer from 4G to 5G. So I think we do expect that the mass adoption would come in the next 12 to 18 months. So that's why I think we still want to push in terms of coverage in the beginning. But the beginning, it's a small coverage game. So we feel that it's the right time. And even though it's a difficult time this year, hopefully next year things will get better and because we still have financial strength to do this. So I think we will continue to invest for long term. In the short term, we need to manage a lot of other operating costs to make sure that we -- as mentioned, we can still maintain flat EBITDA compared to last year. Second thing, I think you mentioned about one of the question on the DTAC gaming prepaid, and whether we are losing on prepaid market share. If you noticing, we're actually converting a lot of our prepaid customers to be a postpaid customer. So if we are just looking at I think postpaid versus prepaid, then it may distort the picture because we're still moving people from prepaid to postpaid, and that's still benefiting us in terms of overall average ARPU. But for sure, when we move then the prepaid portfolio kind of shrink compared to, I think, DTAC. Maybe they did a different strategy. I think if I'm not mistaken, the postpaid base hasn't grown that much. And I think it's mainly based on different focus. And when you ask about what's the percentage of people, other competitors, consumer moving to our 5G? I think in the beginning, you may not be able to expect a big percentage because I think all the 3 operators who look after the kind of most value customer and those are the first group of people that will move to 5G. But I think going forward, then we may be able to see a higher rate of porting to our own 5G network. And even you can address on Disney and the DTAC or the prepaid market.

Thank you, Khun Tee. Let me address the third question regarding this thing. There are 2 sub questions there. The first one is how the take-up of this data popularities, I mean I take it as the number of subscriber rather than the continued sides. So the takeout and adoption of Disney is much faster than what we original planned for. Allow me not to share the final numbers. It's also subject to the discussion with Disney, how to review the numbers, but this is much, much faster than what we original planned for. The second one is how we recognize our revenue and cost. The revenue will come in as a subscription revenue and the cost is direct associated with the subscription. So it's a revenue subscription and the cost of subscription. So there would be a very straightforward direct of this. We -- so far, up to now, as you see in the market is the monthly subscription and yearly subscriptions as you see. So I believe that we can add continue on value to AIS service and overall to bring in the greatest content to the markets for our customer.

Sorry, can you maybe add because I think the objective is try to model out the revenue as well as the profit that we could gain from this. I think just when we can. I think as of now, we are more or less around the same level as Netflix, if we can around I think around that number.

I try not to say another anyway. So I think that direct modeling would be clear because it's revenue and is a cost. Somehow, we have not reviewed the cost so it would not be straight forward for -- to put in in the model.

So we -- I think we do make money on retail subscriber.

Maybe that's the indications. The prepaid a bit in terms of market vibrance, as you heard and saw, so they -- at the very price-sensitive level of the grassroot markets, naming migrants and the up countries. There are price erosion and aggressiveness in price plan from DTAC and also from True. I think that one has been unlimited low plan during the -- in May and June and so over to July. So that piece, I think -- so we've been observing those vibrant. Somehow we do also defend in some particular selective area by not diluting the whole value to that. So I think, as Khun Tee mentioned, our strategy is to focus on serving customers, bringing them in to the postpaid as well as serving prepaid customer dependent market in a grassroot.

Just one additional point to make on the prepaid. It's also because of the -- in the first quarter, we have call a huge amount of customers, the migrant, the Myanmar, picking up our traveler SIM. So because of the way the data or being curtailed in Myanmar, so we saw a huge tick up of our SIM flying. So now in the second quarter, a number of them actually have terminated. So that also resulted in our net prepaid being a lot lower than our first quarter numbers.

Next question from [indiscernible].

I have 3 questions. The first one, you discussed that you have 1 million subscriber registering with the 5G package and how about the 5G device, how many 5G devices are in your system, if you can disclose the number? Number 2, please can you add more color on the enterprise segment on how big is the market, who is the main competitor? And then what is your market share? And the third one on the Disney plus, the full name is actually Disney Plus Hotstar, I believe. And I think the content is still slightly different from Disney+, which is available in the West or in U.S.A. For example, you don't have pay per view for the movie that is showing in the cinema like Black Widow. Do you plan to introduce that in the future? Meaning will the content that we have here would be gradually similar to that in the Westor it will continue to be different. Just 3 questions.

Let me just take the first 2 questions. On the number of 5G devices, as at the end of second quarter, we have about 1.2 million 5G devices, of which, as you mentioned, about slightly more than 1 million have taken up the 5G packages. For enterprise, it's difficult to say who is the main competitor because for enterprise we have several products. Obviously, when you look at the telco product, we are first #1 in terms of enterprise telco product, meaning the EDS, the mobile and air time. But for the cyber, cloud, cybersecurity, data center and the rest, then it depends because there are very many players in the market. But we can say that for cloud -- for local cloud, I'm not including the public hybrid cloud-like AWS or GA. For local club based on the where the usage that we have seen, I think we are currently the #1 for the local cloud. For data center, we are among the top 5 and for others. So it's a mixture. So for enterprise, we can't combine it to say one because there are so many products inside. So for certain, we are among the top 5, for certain, we could be #1.

Let me add on the enterprise why it's really to let up our portfolio revenue in the next 2, 3 years from 10% to 20% to 25%. We cost base on the ICT market. It will be when you announce in the ICT market. I think more than THB 300 billion revenue a year in this year earlier. However, based on our total revenue on enterprise, including the mobile sampling for the CCII just only really few, let's say, 1% to 2% of the CCII because as just entered into the ICT or CCII. So as -- mentioned. There are a lot of products in ICT. We will don't do all the things that we are not store, based on the mid-corporate enterprise, they are adding more than 70% is our mobile customer already. Now we just opened for the CCII area. They are really, very interest compared with the normal SI. Because normal SI, they are just only integrate with the suppliers and vendors, and also some telecom infrastructure like us provide to the big corporate. For the big corporate, if we are in the telecom infrastructure and Campo Vimo in the CCIT in the future, they are very, very willing to use our product as Selic. However, we are the new entrant and we just in the process, in the face of our paper, that's why we're coming up with very clear and clean on the future of the CCII as said, the cloud in the future that the cybersecurity in the future and IOT. This is a way we are very definite in the product and so that we think should be in the future. By doing this we cannot tell who is our competitor because we work together over some time as we work together with some SI as some partner also. This is all the things that I think have a lot of opportunity to grow our enterprise market.

Question regarding the Disney Plus Hotstar. Let me elaborate on this product. Disney Plus Hotstar represents the video streaming subscriptions from Disney, of which they are international content of Disney Plus the local or regional content, and that's why they add Disney Plus and then Hotstar in. So it's slightly different from original Disney Plus in the U.S. So you can be expecting there are more contents, not only from Disney, but also from local. You start to see the Korean, Thai, Japanese and many more from Asia. The current near-term plan is to fully subscriptions, not video-on-demand or pay per view yet. And the new contents like the Black Widow and some other news are upcoming in Disney Plus Hotstar as well as timely we plan to.

Right. Okay. So we should expect the pay per view shortly maybe?

No, I don't think so. I think in near term, we will not have pay per view. And you will be getting Black Widow, Cruella and some other new are upcoming at a very short time.

Okay. I have one follow-up question on the 5G device, if I may. My understanding is that usually the replacement cycle of the handset is 2 years to 3 years, right? So if it is a case, naturally, if it is 3 years, then it in the first year, the 5G device in the system should be 33% and then 66% and then 100%. And if you look at the number of 5G device in a more developed market like Korea, China, U.S.A., I think it's much higher than -- I think it is 20% of subscriber or more. What holdback Thai market? Why only 1.2 million device? Is it because of the consumer spending is speed? Or is it because of these lockdowns or people don't go out and buy a handset, or is it because of the usage in your view?

Maybe I answer this one. The price point of the handsets of 5G is still in the mid to high. If we look at the replacement cycle exactly as you mentioned, roughly it's about 2-year plus. The replacement of handset could be a 5G device or 4G device. Currently, the mass 4G device, good enough grade to use, probably be around THB 3,000 to THB 4,000 whereby the 5G device are upper tiers of THB 8,000 plus. We expect that the 5G device will have more affordable one. Later this month, you will see the new one are upcoming from us, which is below THB 6,000. That for example. So it's a range of price of 5G device that give their current penetrations. In Korea, some other countries whereby we're looking at the fully subsidized, whereby they subscribe to the plan and they get the device for free on the postpaid cycle, the penetration of 5G with highly subsidized will be much higher is the nature of the market and the way penetration of purchasing device versus the subsidies.

And maybe just to add. When it come up to a replacing cycle, it doesn't mean that every consumer will go for 5G. So a lot of people still replace that old phone with 4G coming up from 3G. So I think that's some of the assumption that you need to make into the model. And as you mentioned, I think we are at the very beginning of the 5G cycle. So people still using 4G as the main kind of device for the technology. So it may take if we are to more to push 5G into the mainstream. But as mentioned that's why we want to be ready and also try to lead for that adoption to happen as well.

Next question is from [indiscernible].

Can you hear me?

Yes.

I have one question. Please do expand about MOU with OMRON, how much benefit you will be get back? And how much your cost from this MOU?

This one is a joint partnership with OMRON because we're working with OMRON for the past few months on exploring and looking at how we can actually introduce 5G into the operational technology devices because they service a lot of the manufacturing industries with the products. So they're very keen to see how they can actually include 5G into it. So this one is MOU that both companies work together to explore and to help the OMRON to 5G digitize their production. So instead of them using the normal WiFi or other wireless technology, so they are going to putting in the 5G modem into it. So this is a joint venture between us and as Khun Somchai mentioned, for 5G as enterprise, we work with a lot with partners. So we are not going in alone. So when we handle new customers such as in the industry or factory, OMRON are also the supplier. So together we will be approaching the customers with a 5G enabled OMRON solution.

Also question from [indiscernible].

I have 2 questions. The first one for Khun Somchai. I would like to know what can we offer to a business operation in your view, definitely that you can mainly see from Caf? That's my first question. My second question for Weng Hui. I would like to ask the COVID-19 web impact on your recent revenue. In third quarter.