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

Good morning, everyone. Welcome to our First Quarter of 2023 Result Conference Call. First, let me introduce the management. Our CEO; Khun Somchai.

Good morning.

Our Deputy CEO, Khun Mark Chong.

Good morning, everyone.

Our Chief Consumer Business, Khun Pratthana.

[Foreign Language]

Our Head, Investor Relations and Compliance, Khun Nattiya.

Good morning, Khaawp.

Myself, Somruetai, will be briefing you the result and running this session. The session will begin with a short brief and then going directly into a Q&A. At this time, you may also reserve to ask the question through the chat box. Please type your name and corporate name. Now let me begin with the highlights. The first quarter of this year showed a further recovery of the economy, driven by continuous return of foreign tourists and international travelings. However, the global economy indicated a risk of recession, causing the consumer and businesses to be more vigilant to the spendings. It is our core strategy that we place our forecasts on customer experience and profitability. The positive signs in our operations continue since last quarter of 2022 when we started restructuring the price packages. In the first quarter, we continued restructuring price plans across our businesses, while ensuring the quality and values are beyond the customer expectations. On the mobile side, the revenue rebounded year-on-year from better economic condition, an improvement in customer purchasing power and a recovery of tourist related usage. The competitive environment was improved as well with market price alignments occurring in March. Even though we will see a minor drop in ARPU, a lower net add in this quarter, we are still on track with our plans on price restructuring efforts and pricing discipline in focus segments. This will require time to yield further results. AIS will continue prioritizing customer experience while continuously enhancing network and service quality to further deliver the revenue growth. In the broadband business, we still see there is genuine demand and space to grow, and we want to sell quality products with the right price reflecting the value to uplift the ARPU. It is our aspiration to create digital experience for Thais and fulfill the needs of customers to enhance home Internet usage. We constantly increase the subscribers at around 100,000 subscribers per quarter. While we see the revenue growth rate is lower in this quarter, it is due to a base effect in both subscribers and revenue. This quarter, we introduced 2 key products, the FTTR, or gigabit level speeds fiber-to-every-room on the same network. And the first-in-Thailand Wifi 6E, a WiFi standard technology on a new 6 gigahertz spectrum. As a result of superior quality and our continuous introduction of new products to enhance the value for the customers, we maintain a solid growth and a stable ARPU Q-on-Q. On the non-mobile enterprise, continuously grow year-on-year, driven by vertical solutions created from our collaborations with ecosystem and partnerships. The profitability focus applies to AIS business as well and we focus on customer segments that can generate better margins. We also expand to bring ecosystem solutions to SMEs to provide better efficiency for the customers' operations. And lastly, we continue our cost optimization initiatives to soften the utility cost impact and in the face of economic uncertainties to ensure efficient operation and deliver the return to our stakeholders. As a result, the core service revenue improved year-on-year from a rebound in mobile business, while FBB and enterprise business maintained a growth momentum. It declined Q-on-Q from seasonality effect. For the rest of the year, we'll focus on building value in the product and service to uplift the ARPU, focusing on superior service and network quality and in customer segments that generate profitable revenue. Even though the EBITDA grew only 1% year-on-year, our operating profit grew at 4.2%, and consequently, the NPAT increased year-on-year following better operating profit with a gain in FX, but decreased Q-on-Q due to a lower FX gain. And lastly, our guidance remain unchanged, and this is still excluding 3BB impact. We believe a good momentum in revenue and a result of cost optimization initiatives to soften the cost pressures will kick in towards the subsequent quarters of the year and will help us deliver this performance. And this is the end of the short brief and we'll start the Q&A session now. Please be reminded that you may reserve your name to ask the question through the chat box. Please type your name and corporate name.

First, we have Khun Pisut from Kasikorn.

May I have 4 questions? First, your first quarter core profit and EBITDA growth rate were below your full-year growth target. However, you keep your guidance unchanged. My questions were, what were your unexpected factor to make your first quarter performance below your KPIs? And what could be key factors to accelerate growth rate in the following quarters to achieve your guidance? My second question is about your 700 megahertz deal with NT. Could you please explain the structure of the deal in detail? Also what will be the net impact to your P&L from the deal? When will you start to recognize the net impact and how much value creation do you expect from this deal? My third question is regarding the NBTC remedy measures. Specifically, the mobile price cap on True, which should be effective soon, if I am not mistaken. Pretty sure that you may follow this quite closely as this will affect the price dynamic for the certain market segment. From your assessment, should we be concerned about the implementations of the price cap that may delay the price fixing situation or price restructuring that you are expecting in the market? And my last question is about your proposed acquisition of 3BB and JASIF. Is your second quarter deal completion time line still valid? Given 3BB liquidity issue, is it possible for you to renegotiate for the acquisition price? Is it possible for the NBTC to issue the set of remedy measure over Advanced from the acquisition? And should we be concerned about any regulatory risks from the new government that seem to pro consumer than the previous government? That's all from me.

Number one, on the guidance KPI, I think based on our forecast and our budgeting, you will see 2 things. First, our product, and if it's seasonal. First quarter, it starting up high and will go up, especially will high in the quarter 4. This is a seasonal revenue forecast. Another thing is when we don't adjust our guidance based on revenue and EBITDA, because we have the [indiscernible] in terms of not much unlimited pan. However, they just start a softening since Q4 in the last year. Mainly our existing subscriber still hold -- the existing promotion program. So in [indiscernible] time by time, I still have the high hope that if the economy is better and the new election time, the trend of the revenue and EBITDA should be according to our guidance. That's why we still don't change our guidance today.

Second question on the 700 megahertz NT, at this point, even though the cabinet had approved NT business plan, but further detail is still needed to work between AIS and NT. So we have yet to be able to share the detailed structure of the deal and the impact to the P&L. So I think we still need to wait for more agreement between us and NT on the deal. However, what we can share is that within the deal, there will be 2 parts. There is a part where NT will be renting equipment from AIS and there is another part where AIS will be able to utilize the spectrum from NT. In terms of the value creation, we see that within this deal, it will help us AIS to support our network leadership, help us to better expand the 700 megahertz into the nationwide coverage. So I think when we are ready with the deals, we can provide you with further detail.

On the third questions on NBTC measures that True and DTAC may be implemented, the actual impact is remain to be seen, but I don't think it's going to be a very big impact. The most important thing happening in the market is unlimited. That's the most important one that destroy the values. That has not been governed in this particular remedy because it's extremely low. So with that continue on withdrawing of unlimited plan, low plan, it will continue on helping the industry to grow healthily.

On the 3BB acquisition, I used to update that all the deal from NBTC approval should be finished in the second quarter, that mean end of June. However, based on the NBTC board member, they have the resolution to set up for subcommittee to verify our proposal also. It doesn't mean verify our proposal in term of the approved or not approved. They need to verify only economy impact on the customer side, something like that, to create a measurement to control [indiscernible]. So on the approval, I think there should be no problem, but they have the timeframe. They start setting up subcommittee since early April. They have the timeframe 90 day. However, if they do it quickly, within not over 60 day, the timeframe still be in the June, but if they still hold on until 90 day, may be postpone another one month, something like this, this is dependent on the Board of NBTC. My team still follow with NBTC today. However, on your question on the new [indiscernible] will impact this deal or not, I think it should not because our deal is well very, very clear in terms of we acquire and ask for the approval and our deal is not like True and DTAC deal because it's not related to the resources like the frequency and also our deal still have another big player like the NT player and also the [indiscernible]. The new entrant can come every time. No obligation for the other new one to do so. And the question on will you [indiscernible] with the JAS or not in this deal, this is the business deal. So I cannot answer you in the public.

Next we have Khun Wasu from Maybank.

So I have just one question on the prepaid ARPU trend. So what I'm seeing is that in the fourth quarter of last year, the prepaid ARPU was flat Q-on-Q, but then it dropped 2% Q-on-Q in the first quarter despite a rising tourist arrivals and declining inflation rate in Thailand. So I think the macro backdrop is quite positive, and my question is why did the prepaid ARPU drop in the first quarter? And what is the prepaid ARPU outlook from the second quarter onwards?

Let me take that question. On the prepaid ARPU, from our viewpoint, it's going to be stabilized rather than dropping. The mix of customer segmentation and validities of sims, so that might cause a little bit of disturbance on the percentage. And overall, we have kind of seen a positive outlook on prepaid spending and ARPU according to economy as well as the tourism.

Okay. So from the second quarter onwards, the trend should be more positive than the first quarter in terms of the Q-on-Q trend? Is that a fair assumption?

It's a fair assumption.

We have Hussaini from UBS.

Several questions from me. First is that, what are your observations post competitor consolidation? Have you seen any changes in the network capacity coverage of your competitor? And is it having any implications on mobile competition, either positive or negative? And the second is that with the view that mobile competition is on an improving trend, what do you see or where do you see industry service revenue growth potential? Can it go to or can it hit mid to high single digit with all this rational competition? And finally, on your network OpEx, which has stabilized on a sequential or on a quarter-on-quarter basis, is it the new run rate or do we still see some pressure from the higher energy prices?

With regards to I think the network performance of our competitors post the merger, I think it's best to check with them. I don't think we are in a position to comment on the capacity in their network. On the view of whether the industry service revenues will improve to the growth of high single digit, I think right now we are looking at more 3% to 5% from our perspective, and since we are one half of the industry, I think you will expect probably service revenues to hover around that at least for this year. Subsequent to this, I think it depends on how market dynamics move in subsequent years and whether there are new innovative products that come onto the market. Third, on network OpEx, whether stabilizing, yes, we don't think there'll be a lot of changes, but in terms of tariffs of electricity, I think the government has announced a slight drop in electricity tariffs. So we do expect some positive upside down there, but consumption wise, I think it'll be largely what it is. Yes.

Just if I can have one follow-up, any update on tower monetization?

Our tower monetization remains the same. So we keep all the study and assessment in-house. There is no further announcement from us at this point.

Now Khun Piyush, HSBC, please.

2 questions. Firstly in mobile, what is leading to some bit of higher churn rate? Quarter-on-quarter, sequentially it has increased. And if you can explain what is driving a decrease in prepaid subscriber base because I would have thought, given rising tourism, tourist sim card sales will increase and prepaid subscribers should increase. So what is driving that? That is first question. Secondly, can you elaborate on the price restructuring efforts, which have been undertaken on both mobile and fiber broadband? And how has been the mobile ARPU trends going in month of March and month of April? Are you seeing mobile ARPUs kind of inching up month-on-month?

Let me address those 2 questions. On the mobile, the net adds of prepaid and churn rate is highly related to 2 factors. The first one is inactive customer who are not using it has been kind of eliminated from the base as well along the way with the enforcement or additional enforcement of PI. But some of those immediately, we terminate them. So you see some disturbance in number a little bit here and there, but overall trends, we see it very stable in term of churns as well as we see a positive trend in term of spending and ARPU, if I may. The second one regarding the price restructuring, when we address the restructuring, we restructured the super low non-generated values unlimited, eliminating out from the offering. We also believe that we need to focus, especially on the segment whereby we can serve and continue on generate values for the industry and the company. So that's the restructuring kicking in for the past at least 2 quarter, inclusive of the recent quarter, as we had the earlier con. call last time.

If I may ask, so if the restructuring has been happening for the last 2 quarters, when should we start seeing the impact of that in terms of ARPU upliftment? Like, are these like existing customers are on a long-dated unlimited packs and that's why it will take more time? Like if you can give some color when it will start happening? And also how is the mobile ARPU trend month-on-month, like in month of March, month of April? Any color on the exit ARPUs for the quarter?

Each customer batches have different cycle. For example, like the postpaid, the plan has been committed to the postpaid customer for 12 months. It's all depended on group of customer, as CEO mentioned earlier. So we slowly would see later on when we end our promotions and then the new promotion kicks in or the new tariff plan kicks in for that existing customer base. But you start to see the market for the new customer when we have the new plan coming out. And you won't easily see the unlimited plan anymore for the low, so called, fixed speed unlimited plan. That one has been disappeared. So I think that's the thing. The ARPU per month, I don't think we reveal that, but we have a very clear aim to make sure that we continue on improve with the values, I'd like to say.

Khun Arthur from Citi, please.

Several questions, please. Firstly, on fixed broadband, is it possible to share your views on how big this market could go to? It is a fairly mature market in Thailand. Yet it's still growing far faster than Indonesia or Philippines. How big a market do you think this can go to and where do you see ARPUs as trending? Second question I had is related to a previous question. I understand you don't provide ARPU guidance, but are you able to provide any color with regard to how prices have changed within the last 3 to 6 months? Have there been any price tweaks on these unlimited plans in 1Q versus 2Q this year? And lastly, you mentioned that the unlimited plans have been a problem in the past and so are covered by the remedy measures. How big a segment of the user base is actually exposed to these unlimited plans?

I'll take the fixed broadband questions. Currently the penetration of households in Thailand is roughly about 55%. So if we look at other countries where, I think, infrastructure is pretty good, and Thailand is actually a maturing country, so easily it can go up to 80%. So there is a fair amount of growth, we think, left in the fixed broadband industry, 80%, 85%, depends, and also the conversion from older technologies such as DOCSIS, copper onto fiber. So we believe there is upside. As to how prices have changed in the fixed broadband, what you note in the last 2 quarters is the disappearance of very low competitive price plans such as THB299, which are actually hovering very close to cost. Really as we expand the network to reach further outside of cities, such prices are unsustainable, which is why you see an up-drift in pricing in the market.

For the second question regarding prepaid, so I add a little bit colors on prepaid and postpaid. For prepaid, give you examples of past year, people saw and was available, for example, a THB150 of unlimited data at 4 megabits per second plus unlimited voice. That's one example. The second example is THB200 per month for 8 megabit per second unlimited data plus unlimited voice. That was last year. Toward the end of the year, we see this unlimited voice disappear intentionally from us that we don't think it is viable to provide such plans. So we did exit from unlimited voice, as well as this year, for the first quarter, of that unlimited data then we have a cap of the volume. So that's the prepaid example that I depicted over the course of 12 months. For postpaid, the low plan such as THB200 to THB299, it was available, for example, like 10 or 20 megabit per second unlimited data. That has also been capped as the volume. So I hope to give you some colors as to how things work.

Since there seems to be a lot of questions around the competition, the improvement in the ARPU, so may I add a bit here that, when we talk about price restructuring, actually it started from late of third quarter last year. The price improvement was quite managed in such a way that it's gradual changes. So last year, like Khun Pratthana mentioned, we did remove first the unlimited voice, and then subsequent quarters, we started to put in the price cap. We also see that competitors had followed in some of the plans that we have, but they might continue to maintain to be aggressive in certain areas, but we hold tight on the direction of price restructuring ongoing. One other thing is that when we restructure the price in Thai market, because each month, we continue to sell a large amount of new sim into the market. So when we restructure the price, it means that we sell new customer at the new price, but we cannot force the existing customer to go on to the new price. What we can do is, number one, when the existing customer ended their existing promotion, we will offer them the new price or they will have to roll over on to whatever available in the market. So if we can keep the price in the market at a new level, that will be kind of a subsequent quarter improvement in terms of the trend. Secondly, what we can do to the existing subscriber is the CVM or basically using our call center to call out and address certain segment group based on the data analytic models to the segment that we believe that they have the ability that we can upsell or cross-sell in order to improve the level of ARPU. So all in all, what we are saying is that we will continue on the track of price restructuring. It will take a bit sometimes, but we continue to address both in the new subscriber segment and also the existing segment.

If I just can clarify, how big a segment would be exposed to these unlimited plans?

So probably close to about 25% roughly.

That is of subscriber base or revenues?

Customer base.

Next we have Khun Thitithep from KKPS.