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

So good afternoon. Welcome, everyone, back to half year analyst meeting 2021. You can select your language at the bottom of the screen at the Globe icon. We have 3 options. You want to listen to our original sound select off and you can select English and select Thai for interpretation. So first, I'd like to introduce executives from AIS who are here with us to present the performance and strategies. First, Khun Somchai Lertsutiwong, who is our Chief Executive Officer; then Khun Tanapong Ittisakulchai who is our Chief Enterprise Business Officer; Khun Pratthana Leelapanang who is our Chief Consumer Business Officer, then Khun Tee Seeumpornroj who is our Chief Financial Officer. Hello. Good afternoon. So after the presentation from the executives, we'll proceed to the Q&A session. [Operator Instructions] First, I'd like to give the floor to Khun Somchai Lertsutiwong to deliver the plan.

So a very good afternoon to analysts. So I'm not going to spend a lot of time because I want to leave some time to Khun Tanapong and Khun Pratthana to actually inform you about the enterprise and consumer business. So on my first slide, in our long term in AIS, we are -- how we are going to grow forward. So we're not going to discuss a lot about the past performance because you may already know, but I want you to know about the direction and how are we going to go about in our long-term value. So we are the leader in mobile. We need to optimize our core business because we have the connection to 42 million to 43 million consumers and also now we have -- are growing continuously in digitization. So we are going to maintain this, and we'll work more effectively. Then the second pillar that we are ready to grow is actually bring new growth engine. So the 6 and 7 years, we have been investing in broadband and turning around enterprise. It's now growing into the fixed broadband. Aside from the mobile connecting with people, the fixed broadband can also connect to their families. And in terms of enterprise, we are continuing to grow in [indiscernible] ICT. And the third pillar in long term, we are going to continue to invest in new digital service that we've been doing for the past 5 or 6 years. So this year and next year, we are going to expand our investment more in this area because the digitalization has been growing extensively since COVID. So let's go into details. For Mobile business, we are going to maintain resilience. So despite the profit because of the poor buying power, but I think we are going to have to maintain and deliver cash flow and retain our financial strength, and we will continue to hone or optimize our 5G leadership. So currently now, we have 1 million subscribers. And by the end of this year, we're going to grow to 2 million. And I do believe that people are using -- use digitization. We are going to enhance this and invest in mobile business. So in terms of the business in fixed broadband or FBB, so even if we've just invested for about 6 years comparing to other competitors, I believe that next year, we are going to reach the #3 position in the market because we now have 12% market share. And since we are actually newly installed, we are growing 1/3 shares annually. And with this fast pace rate, we are going to easily reach #3 next year. What actually differentiate us aside from the AIS Fibre, which is very robust, we also deliver service excellence. And also this year, a fixed broadband with price wall, I think we are going to deliver positive EBIT. For enterprise business, when we are really growing in enterprise, as I said earlier that the enterprise market, 70% of enterprise in Thailand, they use mobile of AIS and all the enterprise, they need ICT and SN is just expanding. And just a couple of years ago, and this year, we are about THB 3.5 billion in profit. So this actually a very big market. Particularly in the ICT market, we are at about THB 300 billion. And we are just here in [indiscernible] So we have a lot of marketing opportunity. So we want to focus on what we are good at. And I think in the end, we're going to go in enterprise market with our partners. And you hear from Khun Tanapong later, and we are actually differentiated from other SI as well. First, we do have our own infrastructure, which is the fundamental digital service. And also, we have 5G technology that's really going to enhance our enterprise solution in the future. In the next slide, which is about our digital platform business, as I said, that we have digital service. We have -- we talked about mobile money and videos. So we are at about THB 2.2 billion in our revenue. And this year, we are going to invest more aggressively towards next year and the half -- next 6 months, I think you're going to hear more what we're doing because what we have done constructively that within organization, we have dedicated digital organization. The AIS Board have actually delivered sub-board so we -- in order for us to be more agile and work. And next year, we're going to see we are growing more than THB 2 billion this year. So all of this is actually an overview. I think let's bring into my last slide that whatever we're going to do in the 3 pillars, what we are doing is that we want to focus on actually delivering the excellent performance. So despite the fact that the service revenue since 2017 is growing and there was a recession from last year and this year because of COVID because the buying power is actually decreasing even if the usage has increased or even the investment in case, but we don't really have a very fierce competition. Otherwise, we won't be able to sell. But despite this fact, the service revenue is at the negative from last year to this year. But what we are trying to maintain is that the profit and the cash flow, we want to try to balance that. And we should be able to answer to our investors and shareholders. So this is actually our commitment. So I'll just be brief right here. So I think because I want to give the opportunity for Khun Tanapong and Khun Pratthana on what kind of plans we have. Please Khun Tanapong.

So for enterprise business, it's actually our growth engine. So from our mission, we want to promote a digital business and driving digital transformation using technology and digital service that we all have. So we won't happen because we need strong strategic partnership. All of this is the technology that we need to leverage the global players on how we can move forward. The next is we need to enhance the AIS capabilities, ICT capabilities for them to be able to deliver end-to-end service delivery. So from the main strategies and the priorities in the next 3 years, first, I think we want to try to secure our leadership in telecom business and continue to deliver new solutions in telecom, whether it's enterprise mobilities, solutions and 5Gs as well as developing additional solutions to ensure that our customers will grow with us to the future. Secondly is our ICT business, as Khun Somchai has mentioned earlier. So the 4 pillars that we're focusing on is, first is cloud, cybersecurity, IT solution and IoT smart solution. And all of this is actually the main growth engine. So we're going to -- I'm going to go in depth, and I'll see -- I'll also tell you about the momentum of growth. The third thing is the 5G solutions. So with the current 5G technology is not only benefiting the consumer business, but it's also benefiting enterprise business. So we need to build business solutions. So I'm not hearing from the source language. So there has been some Internet interruptions. Please hold. So I'm going to talk about the cloud. It's really growing exponentially, particularly in -- during COVID, it's a great accelerator to build more demand and the customers are actually seeing how they want to migrate to cloud with the current new normal situation. So cloud is a big market and it's growing extensively to 15%. So we have now hybrid cloud. The main players are AWS and Microsoft. So that's about 30%. The local cloud is actually distributed to local players. We are at the third brand. But in terms of data center in Thailand, AIS and CSL, we are actually the third in Thailand. So the strategy to grow is we want to partner with global solutions. And you can see that we are partnering with Microsoft and where I'm going to discuss further what's the synergy and what are the benefits. Secondly, we also want to leverage best-in-class and integrating 5G in doing the edge computing. And thirdly, we want to drive the digital skills capabilities to continue to support our customers. So in 3 years, we are aspiring to double our business. And also, we want to be #1 of data center provider in Thailand. So from the previous slide, as you can see that we want to try to work with our partner to build that ecosystem. Sorry, there is an interruption from the source language. So please hold. And we want to move forward in 5G. So I ask currently now, we are partnering with AWS, Microsoft and other key players. The past -- and management service is actually providing the value-added service for customers and building on the existing capabilities. And what's really important is on the right, which is on the cybersecurity or providing security services, which is the area that our customers are really concerned about, particularly in the digital transformation because they want to move forward securely. So I'd like to give you some of the data points about our strategic partnership with Microsoft. So we have synergized with Microsoft a couple of years. So we are working with global cloud player to provide the best connectivity to our customers. But currently now we are actually partnering to expand our partnership in order to bring the best-in-class solution in terms of platform to our customers and enterprises. So we are experiencing interruptions from the source language. So please excuse us until we have a stable connection. So please hold until we have more stable connection. So for network partnership, so we are actually developing edge node for a better experience for our customers. So in the future, we are talking about edge computing [indiscernible] Microsoft. So in terms of partnership, we also collaborate with other partners in order to -- for the purpose of knowledge transfer and also for the development of new technology with Microsoft and AIS as well. Next slide, please. So all the 3 parts that I have mentioned earlier about networking, solution partner, advanced specializations. So for the purpose of an update, this is -- over the past 6 months, it's not just Microsoft that we have partnered with, but we also partnered with Wizard and also VMware as well for the purpose of developing the entertainment service provision to facilitate clients to work in their work-from-home period and also for the -- our team on VMware is our partners that we work with for this purpose, and we adopted cloud technology of AIS and also the provision of services on cloud system. So next slide is about cybersecurity. This particular area is the mega trend, and we can see like the very speedy growth over -- 14% over the last period. And now people have more awareness in terms of their personal data protection and cyber attack, and these are all the things that create a demand in Thailand. And we can see that the solution on cybersecurity is there are a number of players in this particular aspect, and we want to be the global player. We want to create the global solution for our clients and also focus on the PDPA solution as well. And we created the [indiscernible] for security service to provide service to clients who want to outcast cybersecurity. And in another 3 years, we want to be the one-stop shopping in terms of cybersecurity business solution, providing businesses -- providing business -- cybersecurity service for our clients. In order to create the key players or partners, to work with us and in the provision of services, we have a number of solutions that are covered in all -- covering all categories, whether it is the cloud endpoint applications, compliance and also others. And our customers are now -- can be assured that we are able to provide them with all solutions they need. Also for Internet of Things or IoT, this is also the mega trend technology at present as well, not only the IoT itself, but also the solution that needs to be further developed for the purpose of ensuring our customers will have access to technology that can really improve cost efficiency and also to create data as an insight. This is the -- we have over 60% of end-to-end market share in Thailand. And also, the strategy is to create the smart solution through partnership and SI capability in order to capture the demand for vertical solution as well. We want to be -- in the next 3 years, we want to be the platform provider for manufacturing [indiscernible] And also, we have been awarded 3 consecutive years for IoT service providers, and this is the guarantee that we are moving towards the right direction and that we are -- we have the solution for MOM, whether it is in terms of IoT devices and also other device as well. And in terms of network, we have 3G to 5G fiber connectivity. And for platforms, we have IoT platforms and solutions. The current ones that we have at the moment, as you can see from advertisements and news that we are continuing to provide new solutions to our clients. And also, we try to create the ecosystem, which we believe that is the enabling ecosystem that will enable our customers to have better experience. Also, I would like to give you by way of example, the property and real estate aspect because the real estate and property aspect also developed and also embraced the IoT technology as well, whether in terms of creating the platform for smart village or smart building. And we collaborated with SC Asset in order to transform property developer into technology provider, offering a number of solutions to new clients. Also ICT and managed service in Thailand, this is also a really big group. It may be the single digit, as you can see, but it is a very large market. And after COVID-19, we can see that there is a more drive in this aspect. Also, we have about 5 market share, which we consider as a very great opportunity for us to penetrate and also to get into the market in the ICT market. And we want to create this, strengthen our data center to provide better service. We want to grow IT service in medium and large enterprises and also, we want to create the off-the-shelf products and packages. We want to make sure that in the next 3 years, we will have the solution that can provide this service to all groups of customers. And from the benefit that we have mentioned and that we have worked with CSL, we are able to adopt solutions in a speedy manner. We can provide comprehensive services and also consulting services, architect and building solutions as well. And we've developed so many solutions in order to be the data center, whether it is in terms of public cloud, security and so on and so forth. This shows that we are ready to be -- to move towards the direction that we have set and deliver what we have promised as well. B2B 5G ecosystem, this is what we believe that this will create a great impact in this year and also the years to come. This is the collaboration between the IoT technology that we have and also edge computing. This will enable us to overcome complicated obstacles and also to provide a complicated service to our customers as well and also for us to create solutions using 5G technology. We already provide cloud service, and we can see now that the 5G ecosystem, now we have almost everything that we need and this can provide confidence to our customers that we can really grow our business in terms of 5G technology. Next slide. Over the last 2 to 3 years and also in the future, what we want to do is that we want to develop AIS partnership framework. AIS partnership framework, what does it mean? It means that this is the platform that we created in order for us to work with other partners, whether in terms of digital, technology. On the left-hand side, you can see cloud data center, cybersecurity, IoT, ICT, enterprise mobility in 5G. And over the last 2 weeks, we also launched the pilot project with Mitsubishi collaborating 5G technology with IoT. So we want to have more flexibility and agility in our production line. And also, we want to develop the no-touch working system as well, which will not be possible if we do not apply technology to the challenges that we face in today's life. And now we can see that we have partners in our business circle that are -- comes from so many business sectors. For example, Toyota comes from the mobility segment and also they can provide us with the details of how to operate the vehicle, for example, and how can we collaborate or integrate the 5G technology or other technology into that particular aspect. Also, we have other partners from insurance business, for example, Thaivivat. These are just examples that we -- that can show that we are collaborating with so many people in order to have this partnership framework. And that is the end of my part. And I would like to invite Pratthana to provide us more on -- shine a light on 5G digital platform strategy. Thank you so much.

Thank you all analysts and also -- good afternoon, all analysts and also investors. I think you can hear me clearly. I would just start my presentation. In terms of consumers, there are 3 parts that I would like to present to you. The first one is 5G. The second one is the service to drive consumption of 5G and data. And thirdly, the -- our program or work plan to build or create this ecosystem to add more value to AIS services in terms of retention and also to create the accommodating environment that we need to support SMEs and also customers all over the country. So for 5G since AIS is the leader in providing network services from the 1st of October of last year, now 5G technology of AIS is in the major cities of all 77 provinces. This is the sample that you can see that if we want to indicate in terms of the quality and speed of our data service, we can see that AIS 5G has provided higher speed, 75% higher speed of -- comparing to other service providers. And this reiterates on our intention and determination to provide the best service to our customers. As of now, from all 75 provinces, main provinces, we can see that in Bangkok and Greater Bangkok, the coverage is about 80 -- 90% in Bangkok and vicinity. But if we look at EEC, which is the -- we have about 95% coverage of this particular area. But if we look at the nation as a whole, it will be 25% of population coverage. And towards the end of this year, according to our work plan, we intend to expand to cover more than 70% of the population in the -- at the end of this year. Next slide, please. As of now, the 5G technology of AIS, we have subscribers or the existing customers that have upgraded to 5G plan of more than 1 million customers. And last year, what we intended is that we want to have about 100 -- 1 million customers in this year, but we have already exceeded that. So with that and also the launch of mobile phones and also expansion of networks, the goal that we have set, we have set the new goal to be the 2 million by the end of this year. And by upgrading our customers to 5G plan that will also affect the ARPU, the pre and post changes that will lead to the uplift of ARPU at 12% to 18% per month and also 17% increase in terms of volume of use and towards the second half of the year, we are expanding 5G services to also cover more -- higher, wider variety of customers as well. And we can see that whether it is in terms of the family plan or share plan, we are trying to expand that to cover more population or more client base. Next slide, please. For the structure of the 5G, as you all know, that this has to be supported by mobile phones. So towards the next half of this year, we have been working tirelessly with mobile operator. And we can see that there is a high, medium and low tier. And you can see that in the mid-tier, it's about THB 8,000 to THB 9,000. And also towards the end of this year, we think that we can see as low as THB 6,000 per mobile phone. And this is the one that we are about to launch. For this, we have a standalone mode, which is of a very high quality, and we can launch this at lower than THB 6,000. We also have CPUs and also other technologies embedded in this particular model as well, and we will also provide a headset for -- compatible to 5G to ensure that our customers can have access to this particular model at a lower price. For the handset that I have mentioned -- the other factor is the application services. Almost a year earlier, we have introduced the VR, or virtual reality, application service that has content about -- at a minimum of 100 contents, and we have been working with our partners in Order to create this new content to drive the demand to use this high-speed technology. How does VR related to 5G technology? To use -- to optimize the use of VR, the customers will need 5G in order to operate the VR. And also another application is the AR. AR is similar to VR, which is augmented reality. And to operate this, you would need a very high-speed internet. Also, another example that is very important is, apart from AR/VR in games, we also work with our partners in other sectors, we introduced AR/VR in another form, which is a collaboration between AIS and also our partners. We have launched this a number of months ago. Please [indiscernible] the sound as well. Okay. This is the sample video of the avenue or the online portal in the 3D, 3-dimensional form in the virtual reality that we work with department stores, SMEs in order to display their products and services, which can be experienced by clients. And this is aligned with our perspective and our vision that we want to create the accessibility to AIS consumers to have access to all these products and services and also to use the brand-based approach. And this is our attempt to create this accessibility and this can be scaled up leading to more partnership with more partners as well. And we work with more than 100 partners in order to create this particular platform, and we expect a more than double expansion of this particular model as well. Also, as I have mentioned, this is -- our partners create TV -- include TV Direct, the mall Emporium and so on and so forth. And these are SMEs, more than 200 SMEs that are working with us, and we believe that the capacity of the avenue will be even higher and can be scaled up as well. Also, apart from AR/VR and the avenue and other model of technology, we also start this new video service. We work with Disney+ Hotstar. So I know that most of you may have questions on Disney+ Hotstar, but this -- I just want to show you by this advertisement that we -- Disney+ Hotstar and AIS is the only place where clients can still subscribe to Disney+ Hotstar at the rate of THB 49 per month. This is just an example to give you the idea. Also Disney+ Hotstar that has collaborated with AIS over the last month, we have launched -- I think it has been a month from our first launch. So the outcome is better than what we have anticipated, and so we have more than 1 million clients using or subscribing to Disney+ Hotstar. And most recently, in terms of content is the broadcasting of Olympics, and this is -- we earned a Gold Medal from this particular event as well. So this is the content that we use in order to drive demand and engagement in 5G as well. So we can see that Olympics -- as for Olympics, AIS broadcasted all events through more -- through 16 channels, more than 4,800 hours. And this creates a high range of engagement as well. And so for video service, if we look from -- I think MAU is more than 4 million as of now -- as of July 2021. And our strategy is in terms -- for the premium, we work with our partners in order to bring in the premium content, whether Disney+ Hotstar, beIN SPORTS [indiscernible] view TV and in terms of expanding engagement for B2C. One of the examples that I have mentioned is the broadcasting of the Olympics Tokyo 2021 and also towards the end of this month, we will also broadcast the Paralympics as well. And please keep an eye on us in order to stay updated about the service that we can provide. Also lastly, is the value that we think -- we believe that we can create for our customers. So you can see this particular -- I believe that most of you have already seen this ad. So this is just to say that over the 43 million customers for AIS and AIS fibers. We also -- not only that AIS is providing the data or network service, but we are also trying to bring to our customers the privileges and awards and to create this particular ecosystem for our clients. We have the determination to expand the outlet that will create the value for our customers, for our clients through AIS points. As you may have heard over the last month that -- in the amid the COVID-19 pandemic, we have been working on this productively in order to work with SMEs in order to expand their sales. For retail businesses, we try to use the point-based system in order to attract customers, and we believe that we can move forward to more than 100,000 shops in this in the next few months. Also, we want to create or strengthen our network of 5G and the compatibility with devices or handsets as well and we want to also make the AIS Fibre more robust as well. And we want to have this comprehensive service between AIS and AIS Fibre and the point-based system awards and privileges, and this will create the integrated value through enhanced experience. So maybe Khun Tee, our CFO, can join us, so we can proceed to the Q&A session.

So we are now in Q&A session. And we have our executives with us. First set of questions are from the Khun Pisut from Kasikom Securities.

So I have about 4 or 5 questions. First question is about enterprise segment. So this market is actually quite fragmented and it's a lot of layers and ecosystem, and quite aggressive. And there's actually quite aggressive goals in this couple of years. So my question to your executives so where do you see the pain point in this segment? And how we can use our infrastructure to gain market share on the accounts or gain revenues over the competitors? And also since it's actually new, can we say that we don't need additional CapEx because you have invested sensibly in 4G and 5G. And my question is on your customers. From customer side, if there is an income of THB 1 million, so what is the proportion of their income that they need to spend on these digital solutions or are we offering CapEx to OpEx? Can you elaborate on that more, please?

So I think I can give you a big picture. Like I said that there is a great opportunity in enterprise. So 70% of corporates using our mobile. So they're never -- they're definitely going to use our ICT and CCII. So your question on the pain point. So AIS is actually -- have SI and ICT providers. They are going to deliver their solutions. They don't have infrastructure, and infrastructure is very important. The pain point AIS is we have actually just embarked on this business. So the existing sales and relationship that we have in corporates, we need to actually develop our know-how on ICT, which is actually a very big market with about like THB 300 billion. We have only captured 1%, but we can't do everything because ICT is not easing. So we are going to begin to be selective. What is related to our infrastructure and the solutions that we work with our partners like Microsoft, and we can initiate that and engage that. So first, we need to be -- on deliver a selective solution that we have experts in, and we work together with our partners. So to gain market share or not, if we are able to build that ecosystem with our partners, it's actually a win-win cooperation, win-win situation. So SI offering this ICT, they actually are our clients. So since we -- if they -- we can actually be the sub and if they are prime. But if we are a prime, we can actually offer the total solution. So our pain point is that we need to be selective on solutions that we are experts in. We want to grow from mobile expert to ICT and CCI that we have selected. Your second question on -- about the investment. So we are investing in 5G and fixed broadband. It's correct because it's an infrastructure that we can expand on because these project base, the cost of investment is actually developing people and working on cloud. So for example, if we decide to provide a data center or managed services, we need to maybe establish a new data center. There might be additional investment, but the scale of segment is relatively small comparing to our investment in fixed broadband or mobile. So I think in essence, I don't think we have a problem. If we go back to -- to your question about the percentage. So Khun [indiscernible] maybe you can say the ICT on corporate, there's such and such percent that need to invest in, how we really have an opportunity to capture this. And I think the target that sent to come back, I think, 20% to 30%. We -- I want to focus the newer service. So I think we are actually very lucky because we have strength in mobile. It's going to grow, but it's not going to grow extensively. We have entered the new market, which is fixed broadband and CCI is something that's going to leverage a lot on our strength and that differentiates us from our competitors. And I think we are going to actually have to build upon our human resources and enhance the capacity, and we have our model to develop this ecosystem in forms of partnering. Khun please add.

I think you've covered everything. Just let me add a little bit on partnership. It's -- this is something that's really differentiated us and leveraging the global players in the market, and they are very, very efficient. So what we need to invest on is actually to enhance the capabilities domestically. So we have a strong base. We have the infrastructure and the gap that we see now is actually merging the IT and OT. AIS can actually be that platform to build great solutions. So IT spending in the past may be buying servers. So that's a certain size, right? But the new solutions is about expanding. So addressable market, not just spending on the IT but leveraging technology to disrupt the business of the enterprise. So that's actually expanding our business as well.

So thank you so much. I think I have a couple of more questions. One question is, I see the number of 5G on B2C. So the population coverage right now is 25, going to 70. So adoption is about 2%. It's going to grow 4% to 5%. There's a little bit of mismatch here. So it's like you're investing ahead that's ahead of the demand. So the question is after this year, so after you're acquiring 70, so the adoption is locking in the CapEx, but how is our CapEx budget going to be?

I think I can answer it this way. So since we are investing in 5G, I keep -- the reason that we are actually investing based on the increased data consumption and in order to expand 4G, we need to invest on 5G in new technology. So once everything is switched on to 5G, it's going to save us instead of investing in old equipment. However, we want -- we are actually expanding, investing more on demand. As I said earlier, first, we are market leader, right, in the market. And we want to bring in the data leadership as well. We are not going up -- to position ourselves as followers, we want to be above our competitors in order to -- this is our future planning. And I believe that as mentioned by Khun Pratthana. If the handset can adapt, everything is going to come automatically. And now we have strength in our financials, we can invest ahead. We are looking in the long term, and I think we can cope with the situation. So I think we are doing this to maintain our existing customers instead of -- and it's important for us to invest in new technology. And I think we need to invest ahead to anticipate the growth. And if the headset is here, technology is here, we are going to be a very strong leader in the future. Additionally, I think it leads to the question about the decrease in CapEx investment comparing to the number of users. So I think today, we have chosen to expand ahead of the curve to be the leader and bring people to migrate from 4G to 5G. As Khun Pratthana said earlier, the handset value are becoming cheaper. And I think we want to try to cover big cities, and we want to enable 5G in right speed in all big cities. And the rest -- I think we'll need to figure out the usage as well because the quantity of usage of 5G and the equipment and handset, I think it may shift our investment formula. But if you ask me today, if we want to increase or if I don't know -- and I think we still want to invest more aggressively. And remember, the 4G in the 2 years behind, I think in the future, I think we need to invest more on coverage and capacity. I think 5G, as I said earlier, there is a lot of equipment. So we don't have to actually be aggressive on the capacity investment.

So in connection to that, I don't know if I got the numbers right, but the payment for the licenses from this year, it's about THB 14,000 to THB 15,000 and also the investment in 5G in front road. So the cash flow to firm after the rental, I think it's going to increase about THB 4 billion to THB 6 billion next year. So how are you planning to utilize this particular capital?

Khun Tee, do you have information here?