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

So good morning, everyone. Welcome to our 2022 results conference call. First, let me introduce our management. First, our CEO, Khun Somchai.

Good morning.

And next, our Deputy CEO, the new member who recently joined us, Khun Mark Chong.

Good morning, everybody.

And let me briefly introduce him to you. Khun Mark joined Singtel since 1997 and was posted as AIS COO during 2010 to 2013, and he took a position of international CEO and group CTO before coming back to join us as Deputy CEO. He now leads the company operations with responsibility for all operating units. And next, we have our Chief Consumer Business, Khun Pratthana.

[Foreign Language]

Our CFO, Khun Tee.

Good morning.

Our Head, Investor Relations and Compliance, Khun Nattiya.

Good morning.

And myself, Somruetai, will be briefing you the result and running this session. This session will begin with a short brief and then going directly into Q&A. [Operator Instructions] And let me start with the presentation. We had quite an exciting year. We start off with a positive sign of COVID recovery, but it was slower than expected, and the incoming tourists only initially benefit those sectors relating to tourism. The macroeconomic factors kicked in with heightened inflation towards the middle of the year. This impacted energy price and consumer purchasing power, which is a key concern to consumer and company at large. Nonetheless, we ended the fourth quarter with a high season and start to see positive signs on revenue uplift despite continued pressure from inflation. Next, during the first to third quarter, the competition remained intense in the mobile landscape as a low-priced package with unlimited data was offered throughout the year. For AIS, we took a cautious step based on our superior network quality to uplift the ARPU with price restructuring plan. In the end of the third quarter, we started to remove the free calls from our initial prepaid unlimited plan. And in the fourth quarter, we all stopped selling unlimited price, fixed speed price package by introducing CapMax to these packages. And with our efforts to minimize selling the low-price plan and the high season in the last quarter, we started to see positive signs in ARPU stabilization in the fourth quarter. And next on our 5G update, we also continuously promote the 5G ecosystem by bringing in more affordable 5G device, and this resulted in a substantial growth of 5G users to 6.8 million subscribers, which now comprise of about 15% of the total subscriber. This grew from 2.2 million 5G subscribers as of last year, which made up only 5% of total subscribers. The ARPU uplift remains close to 15%. On Fibre side, the competitive landscape was also intense with the price competition for package selling at about THB 299. However, AIS Fibre grew with a net add of 400,000 new users and reached 2.2 subscribers at the end of the year. We showed a strong growth in revenue of 19% year-on-year. From our efforts in expanding our service coverage to more suburbs areas through introducing FMC strategy with superior service and network quality, together with the efforts to reduce the churn rate. And next, our enterprise continues to grow strongly year-on-year, powered by strong strategic partnership, and we introduced our flagship products and platform. The revenue contribution is about 4% of core service revenue compared to about 3% last year. We launched 5G next-gen platform and AIS Cloud X last year to introduce data sovereignty for corporates. With a good foundation built in the previous year, in 2022, we started to commercialize our products in the 4 key sectors: manufacturing; transportation and logistics; property; and retail. And lastly, cost was the key concern in 2022 from inflation, which heightened utility costs. And as a result, our network OpEx increased almost 5% year-on-year. We continuously ensure that we execute cost optimization to soften this impact and ensure that we maximize the value delivering to the stakeholder. As a result, our core service revenue growth of 1.6% year-on-year from strong performance in fixed broadband and Enterprise Nonmobile business. The mobile business was hit from inflation that erode purchasing power in price-sensitive customers. The EBITDA slightly declined. In line with our last year's guidance as a response to higher operating costs in utilities and normalized marketing expense, we delivered a strong EBITDA margin of 48%. The net profit was at THB 26 billion. This declined about 3.4% year-on-year from last year due to a challenging cost environment. We benefit from strengthening Thai baht towards the end of the fourth quarter, resulting in a less foreign exchange loss this year. And going forward, in 2023, the macroeconomic outlook remains fragile with the global recession and geopolitical risks. And at the same time, inflation rates in higher utility costs and lower consumer purchasing power are expected to persist. However, a positive sign is seen with a full border opening from China early this year and signify promising growth. It is our aspiration to transform towards a Cognitive Tech-Co with our 3 key foundations in autonomous network, IT intelligence and data analytics. So our guidance is included of acquisition of 3BB impact are as follows: core service revenue to grow at [indiscernible] amid the risks and uncertainty. We will continuously grow the business with profitability aim in mind in both mobile and broadband markets. Our focus is on executing FMC strategy in the right customer segment, showcasing our strength in network quality and coverage. We will also continuously expand the broadband business in the underserved area. Our value-based differentiation of partnership, privileges, ecosystem, together with the digital offering, is aimed to deliver personalized and real-time offerings. For the enterprise, we will grow leading by 5G and smart solutions with CCIID products and our flagship platform and Cloud X in the focus industry. As for the EBITDA, it is expected to expand at mid-single-digit growth. The foundation of cognitive Tech-Co is in the optimization of process and cost to serve. We will continuously -- continuing to enhance autonomous network and IT process and system to deliver higher efficiency in operations with optimal capital allocation and to deliver distinctive customer experience. The CapEx would be about THB 27 billion to THB 30 billion, and is planned to spend with growth opportunities with optimal disciplined -- optimization discipline. This is in order to sustain the network leadership, expand AIS fiber towards untapped areas and grew enterprise and digital service with high growth potential. The optimization will be executed by reducing low-value traffic, shifting traffic towards 5G network and ensuring efficiency in network deployment. And this is the end of our guidance. And I would like to briefly talk about our next upcoming event. We'll have an Analyst Meeting on the 15th of February at 1:30 p.m. Bangkok time. This is an in-person session for a participant in Thailand. It will be at Pearl Bangkok, open for registration at 1 p.m., and we will be sending out a registration link today to confirm participating in this event. We have an online to arranged only for overseas participants, and we will only be sending this link after we receive your confirmation. And this is the end of our short brief, and we'll start the Q&A now.

[Operator Instructions] And our first question is from Khun Wasu of Maybank.

Thank you for your presentation. I have 4 questions in total. The first one is about the competition in the prepaid market. So if I heard correctly, [indiscernible], you mentioned during the presentation that by the end of the fourth quarter, AIS stopped selling fixed speed unlimited data plans to prepaid customers completely. Is that so? And if that's the case, how did the competitor respond to this action? So that's the first question. The second question is about the current 5G population coverage by AIS because I have noticed that the coverage is still the same as the previous quarter at 85%. So my question is, do you plan to expand 5G coverage in 2023 given that the past 2 quarters, the coverage is about the same? That's the second question. The third question is about the network CapEx budget shown on Slide #10. Your CapEx budget is THB 27 billion to THB 30 billion, but that does not include the Triple T broadband CapEx. And my question is, would the CapEx budget have to be higher if we include Triple T broadband? My final question is on the NT deal. Is there any update on the NT deal, including the 700-megahertz spectrum purchase from the NT and the network lease to the NT by AIS? Those are my questions.

Wasu, this is Pratthana. Let me address your first question regarding the competition in prepaid. We have pulled off the unlimited low plan on prepaid by putting CapMax call giving a quota for those low-speed plan. The competition in December have not been made any move until the late January, of which they have made some move as well for both DTAC and True. So in the very low plan of 150s, the True and DTAC have put the cap as well.

I think on 5G coverage, we're still expanding, but maybe the focus now is more, I think, filling the gaps rather than expanding very fast on population coverage. So I think there are still certain areas, certain segments that we kind of didn't focus on during the past 2 years because of COVID. So now we are filling in those gaps. As for the CapEx budget, if we include 3BB, typically, if you see from that CapEx, the budget per year, probably about THB 2 billion -- THB 2 billion to THB 3 billion coming to us, then that requires a small addition. And with the synergies we expected, I don't think the number will change much from the number we show you.

On the NT 700, the first deal now NT already sent to the NESD. They are in the -- closer to get the approval for NESD. I heard from the NT that 1st March NESD will consider this agenda. After that, if approved, it will go to the cabinet. I think after NESD approved, should not have any problem in the Cabinet, just in the process.

Maybe 1 follow-up question for me. So the data quota has been applied to THB 150 package. So what's the data quota?

It's 30 gigabyte. That's THB 150. I think if you observe the market for 2 NDA tap, I think you would see the same right now.

So the THB 150 has 30 gigabyte of quota. How about THB 200? Is there any quota applied?

It is THB 100 plan in the market. And the -- just to be exact, the THB 150 in the market have maximum speed of 4 megabit per second at 30 gigabyte.

Okay. And my understanding is that THB 200 plan has 15 megabit per second speed. Is that still unlimited data?

It's still 15 megabit per second. If I'm not mistaken, the quota is 50 gigabyte.

And next, we have Weerapat from CLSA.

[Foreign Language] I have 3 questions. The first question is about the target. In this year, the company target mid-single-digit growth for EBITDA from cost optimization. Can you elaborate what cost item that AIS can optimize? And my second question is that can you update on the progress of Triple T Broadband acquisition? Will it be delayed to second quarter? And my last question is about AIS plan for debenture issuance. Can you share with us the purpose of using funds from the debentures of THB 100 million and the timeline to issue the debentures. That's all for me.

On your first question, I think we have a lot of plan to reduce our cost by regionalize our process. Like I told you that we try to move forward to Cognitive Tech-Co. This means we do anything in our infrastructure or the network side on our automated network. If we can implement it a success, we can sell a lot of operation work in the IT -- in the network side also. And also, we try to launch a mobile-first expert for our customer to indicate to our channel. This means we can reduce a lot of cost in the normal operation in the call center and also retail or something. This is the many, many projects in our pipeline to reduce our cost. On the 3BB, why we have to set the target to move to second quarter because this depend on NBTC Board member. We invested based on the -- bring that NBTC Board member used the case with us through [indiscernible]. They may set the subcommittee -- mini subcommittee to verify our cast something. We've -- I told my team, if the NBTC Board member think our cases really different from the 2 NDA tap because we are very clear to send all the information to them if they don't set up to many subcommittee to consider. On the first quarter, still we have the chance to subset. However, on the conservative side, I try to guide that or the party to understand because it's not our control. It depends on NBTC Board member.

On the debenture, I think basically, we just need to get the guideline from the quarter from the shareholder in case that we need to issue more bonds to fund. Two things. One, on the acquisition of 3BB, I think that in some time in time, it may slightly be delayed a little bit. So sometime towards second quarter that we expect to complete. So after that, then there could be some issuance on bond. And because of, I think, getting the bank loan, we're also subject to the [ single lane ] limit. So we want to have more flexibility in terms of issuing bonds. That's why we ask for this amount of kind of quota from the shareholders.

And I have 1 follow-up question. So this -- the last question is related to the recent news about to set up infrastructure fund. So I'm not sure whether we can conclude that by asking the shareholders to approve for THB 100 billion corporate debenture issuance. So this -- are there possibility for the company to issue infrastructure fund?

I think infra fund or TowerCo, we have been studying it for quite some time. As I think I answered many times, we need to compare pros and cons because each of the funding option has different pros and cons. I think we will still keep looking at that. When the time is right and we have the right use of proceeds, then that could be one of the option. But as mentioned, I think, right now, more or less, we use bank loans and potentially bonds as the main options.

We have Khun Pisut from Kasikorn.

Yes. Can you hear me?

Yes, yes, we can hear you.

Okay. This is Pisut from Kasikorn Securities. May I have 3 questions. First, you have 2022 dividend per share of THB 7.69 was equal to 2021 dividend per share. But in terms of the dividend payout ratio, based on my calculation, it was 88%, was at 85% in 2021. What number between THB 7.69 and 88% do you want us to forecast for your future dividend? That was my first question. My second question is, do you prepaid revenue base. On my calculation, you recovered nicely from the previous quarter and certainly won back some prepaid revenue market share from your competitors. Just wondering that could this be the positive effect from your new prepaid pricing strategy. Or what has changed in the prepaid competitive dynamics in fourth quarter last year? For example, like you mentioned, our operators no longer offer the unlimited voice minutes on the THB 150 prepaid unlimited data package. Will this favorable situation be able to continue throughout this year? And my last question is, you said in the MD&A that you expect the mobile revenue to grow this year. Could you please tell a bit more about the magnitude of growth rate that you are looking for? And what factors should be considered a major contribution for the mobile revenue growth in 2023, either lower inflation and improving economy or using price competition in your view. And if -- another thing is that if the NBTC may be regarding the price cap lead to the merge core to lower the unit prices per half 3% to 5% on average, will this also affect your pricing strategy and also your target to grow the mobile revenue this year?

I think on your first question, on dividend policy, we always confirm that we will pay not less than 70% of our net profit because this will not change yet. However, the little will happen when we saw all the impact in this year to serve the shareholders, I cannot tell much than this. For the mobile revenue, why we think it should we have the growth in this year because of [indiscernible] when the economy is open, I think to list we can sell a lot of some to our list in NPS and also electronic [indiscernible] economic this year should be better than last year. For the NBTC, that order to and DTAC merger have the price cap reduce something 15%, something like. I think this is the same or maybe not impact the total high cap. You see in the past, the order to have some charging only in second thing. Wo -- I think not only AF, DTAC who may have only 1 package that offer to the customer that less than the existing package 15%, something like that, because a lot of pipeline in the market cannot immediately change automatically. So I don't think even to when DTAC may not update, so cannot relate to FaaS also.

Let me address Khun Pisut's second question regarding prepaid last year. When we look at slightly recover, the major factor came from slightly recovery of the economies. So in the larger area, people have a little bit more money to spend. So that's the first one. The second one is we are very focused on network quality. That served as a fundamental service. So that we'll be able to continue on serving customer with the right price point. So that's a second factor that helped us improve an overall prepaid revenue and subscribers.

May I have 1 follow-up question? It is about what's your view on the competitive intensity in the next 6 to 12 months through the ARPU development after the market consolidation for both mobile and fixed broadband market? Shall we expect to see the ARPU start to recover or to grow again after market consolidation is taking place for both the mobile and fixed broadband?

It's very difficult to tell, depending on what the competitors would like to do. But for us, we are very much focused on the quality for both mobile and broadband to serve the customer. In this sense means that I don't think we would play a price to gain customer, but making sure that we deliver the best product for customer, I think, depending on the competitors what they want to do.

If I may supplement, I think certainly, we hope there will be price stability in the market. We do believe that the current prices do not reflect the actual value of the service we deliver. So we think that there's room for further upshift in prices. But as Khun Pratthana just said, it depends on the market situation and how competitive the market is.

Next, we have Ranjan from JPM.

Two questions from my side. If I -- my first question is on the tower assets. Can you please remind us how many towers you have at AIS? And how many towers you deem as nonstrategic, which can be monetized? Second question is on CapEx. The CapEx guidance is for CapEx to decline on a year-on-year basis. Should we assume that AIS is now past peak CapEx and you can see a further downtrend?

Thank you, Ranjan, for your question. Probably on the towers, it's early days to talk about them. Actually, we don't -- we are not too sure whether information comes from the CFO has said that we continuously study such options, but basically, there's no definitive plans to announce anything right now. On your second question on CapEx decline. I think the earlier question about us having covered Thailand with 85% population coverage that's likely to remain as the holding position for a while, depending on how fast the take-up of 5G is. The coming together of AIS and 3BB, in fact, I think will yield us some CapEx savings, or at least we expect to see some CapEx savings from that. Yes.

So if I can just circle back to the first question. Can you just give us a -- if you're just able to give us a factual number on how many towers are there with AIS?

No, I think the issue with that is there's big towers and small towers. And I think the combination of those, if you try to gauge what's the value we can get, it's going to be quite detailed because I think different operators work on different ratio of big tower and small towers. And lately, we have small towers, plus the, what they call the small cell site and all that. So it could be confusing if we just give you overall number. In terms of strategic, I think when we look at strategic, then it is not a big portion. So there's something -- if we need to, then there's something that we can still monetize.

Next, we have Hussaini from UBS.

I hope you can hear me. Several questions from me. First is on that AIS has rolled back the unlimited packages, but I see that it is still 30 to 50 GB data allocation. So my question is that how much data this unlimited users were using before? And just trying to gauge like how it can help because 30 to 50 GB data allocation is still quite, quite chunky. That's question number one. Second question is on the 3BB ARPUs, which are significantly higher than our debt of AIS on the fixed broadband side as well as debt of True Corp. So the question is that even when market had THB 300 fixed broadband plans, how you expect to hold those kind of ARPUs at 3BB level? And finally, just a housekeeping question. Is it possible to quantify the one-offs in the fourth quarter numbers?

Thank you. First one, regarding the customer usage, let me readdress one more time when we talk about unlimited low speeds, the price plan itself have the cap speed at the beginning, namely THB 150 at 4 megabit per second by itself is a cap speed. When we put in the 30 gig quotas, meaning if customers use up to 30 gig, so they get throttled down below. The average consumption, I think we are now somewhere around 22 gigabyte to 26 gigabytes in average. So our range of customers who are used high and low. So literally, we're putting a cap, taking out the truly unlimited, will definitely help improve the network qualities significantly.

Thank you, Hussaini, on your second and third questions. On the second question, on the differential in ARPU between 3BB and AIS. You are right, I think there's a differential. Right now, I think the initiatives are to raise the ARPU of AIS fixed broadband. I think you would note in the market that we have removed the low-price plan. I think over a period of time, we hope to give more value into fixed broadband service using additional value-added services to raise the ARPU of AIS fixed broadband. At the same time, we want to deliver value to 3BB customers as they -- as and when the merger is approved to prevent the downdraft on 3BB ARPU.

Your last question on quantifying the one-off item. In the fourth quarter, we have a onetime item in the admin costs. In terms of the amount, it's around THB 300 million. That's written in the MD&A in the -- described the fourth quarter. Thank you.

Next, we have on Khun Piyush from HSBC.

Three questions, please. Firstly, could you also talk a little bit about the competitive landscape in the postpaid segment and the outlook of the postpaid side in mobile business. Secondly, on 5G, it's been multiple years now. So could you share us some learnings on how you are seeing the user behavior on 5G versus 4G? How is the cost per gigabyte trending for 5G versus 4G? And what percentage of your data traffic is now on 5G? Like are you planning to refarm spectrum from 4G to 5G? Or what would be the tipping point when we will start doing that? And lastly, in CapEx, what is the split on nonmobile? And with rising free cash flows now, what would be the factors, which will influence your decision to raise dividend payout ratio? Like what needs to be seen consistently for that?

For the first question regarding postpaid landscape. Basically, postpaid has been centered around getting in [indiscernible] formally -- sorry about that -- for monthly subscriptions of the great package of 5G. So there are competition on 5G, of which that we have pursued very hard to make sure that we have best 5G product continue on. So that's the first prong. The second one is on the handset bundling, of which it's come with iPhones, Android, bundling with the price plan of 5G. The third prong come with the FMC. For example, like you can get postpaid and fiber at the same time. That's a small portion. But on the other way around growing from fiber plus mobile of the postpaid. Right now, if you look at the late quarter 4 coming to quarter 1 this year, the level of package, the minimum level growing from THB 399. And right now, in January, you can see it landed at THB 499 up. So it has been put together a good value for customers. So I see very good improvement, so far, on postpaid competition on values.

So just to clarify, you are saying there has been a price up in postpaid segment?

Growing postpaid segment continue on. For AIS, we have been growing postpaid, as you've seen from the slide, continue on people upgrade from pre to post. People also subscribe additional postpaid plan for their families and additional usage on nonvoice data as well. It's been continued on growing very nicely. That's the first one. The second one regarding 5G user behavior. The clear key learning is 5G give customers the better experience, faster speed. Essentially somehow, the application service still around for consumers, the very same application service, like video, social media, maybe higher resolutions of video, not yet come to the previous thought about multimedia virtual realities and new reality yet. It has not yet to come. It probably takes a bit longer time on consumer size. But on the enterprise side, 5G start to get strong tractions about improving efficiencies, getting the new operating model as a part of Industry 4.0. We don't have the Chief Enterprise here, but I just speak on his behalf. That has been getting a strong traction as a fundamental need of connectivity for the new industry. When we talk about the resource management, definitely, 5G have a better cost structure per gigabyte than 4G in a significant way. The way to manage frequencies depending on usage. The current technology we have in terms of network has been able to swing from 4G to 5G at any time we wish for in terms of spectrum. It's no longer a big thing like frequency refarming anymore. It's just a blink of commands to shift it out even more than that is dynamic allocation of the frequencies.

But can you quantify like what was the cost per gigabyte reduction which you are witnessing, if possible?