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

Good morning, everyone. Welcome to our third quarter of 2023 results conference call. So first, let me introduce our management, our CEO, Khun Somchai.

Good morning.

Next, we have our Deputy CEO, Mark Chong.

Good morning, everybody.

Our Chief Consumer Business, Khun Pratthana. Also with us today online, our Chief Enterprise Business, Khun Tanapong, he's also here with us. Our CEO Broadband, Khun Tee, which recently takes up the role on the 5th of October of 2023.

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And for his successor as our new CFO, we have Khun Montri Khongkruephan. Let me briefly introduce you, Khun Montri joined AIS in 2021 as Head of Internal Audit and recently took the CFO role also on the 5th of October. Before joining AIS, Khun Montri has extensive experiences as advisory leader and an audit partner at Deloitte and also experience in retail sector.

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Also with us today on -- could we have Head of Investor Relations and Compliance, Khun Nattiya.

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Myself, Somruetai, will be briefing you the results and run this session. The session will begin with a short brief and going directly into Q&A. At this time, you may also reserve to ask the question through the chat box. Please type your name and your corporate name. So first, let me start with the presentation. Despite several economic headwinds, higher economy gradually recovered benefiting from easing inflation, improved tourism, and private consumption. We continue to focus on driving profitability and hence, emphasize on quality of subscriber acquisition to drive growth in core service revenue despite third quarter being a low season. Mobile business showed steady growth from our consistent focus on quality acquisition, which helps drive blended ARPU up both year-on-year and Q-on-Q. In addition, in this third quarter, we implemented strict control in the prepaid identification process, which led to a lower gross ad. Also in this quarter, we grew 5G subscribers towards 8.5 million with quality 5G coverage of 87%. Also to strengthen our 5G leadership, we entered into an agreement with NT to: number one, acquire 5 MHz bandwidth of 700 MHz, and number two, for NT to rent 5G network equipment and roaming service from AIS. The financial impact will be from fourth quarter onwards. On broadband side, AIS maintained double-digit growth, adding 52,000 new subscribers with continued focus on selling higher value-added packs, which help us achieve higher ARPU. On Triple T Broadband acquisition, NBTC announced the agenda to be considered on November 10. Enterprise business grew double-digit year-on-year and Q-on-Q with a clearer political solution situation and with some key projects closed in this quarter. We now have a solid foundation to drive long-term growth from core connectivity service, platform service, and selected vertical solutions. On profitability side, we delivered a strong year-on-year net profit as we maintain strong discipline to manage cost control and optimization. As a result, the performance for the third quarter shows an increase in core service revenue of 2.9% year-on-year, leading by strong broadband and enterprise business. EBITDA improved 7.2% year-on-year with a healthy margin of 51% from core service revenue growth, lower pressure in utility cost, and effective cost controls. With improved operating performance, our net profit grew 35% year-on-year and reaching around THB 8.2 billion. We reported onetime gain from Rabbit-LINE Pay divestment in this quarter recorded other income of THB 434 million. Excluding this onetime gain, the net profit would be THB 7.7 billion, an improvement of 28% year-on-year. Our guidance remains unchanged for 9 months of 2023. The core service revenue grew 2.3% year-on-year versus half year that we reported 2.1% growth. We expect the high season in the fourth quarter to drive towards the lower bound of the guidance. The EBITDA came strong at 4.2% year-on-year versus when half year, we reported at 2.7%. This is more or less in line with our guidance. Overall, our strategy in targeting profitability and strong operational excellence remain intact to deliver performance for the year. And this is the aim of the short brief.

We start the Q&A session now. Please be reminded that you may reserve to ask the question through the chat box, please type your name and also the corporate name. First question, we have Khun Pisut from Kasikorn.

Thanks for the opportunity. This is Pisut from Kasikorn Securities. May I have 3 questions. Can you hear me well?

Yes.

Yes. My first question regarding the ARPU, overall mobile ARPU will recover nicely for a few quarters, but your mobile subscriber was lower. So the mobile revenue was then stagnant. It would be great if you can share us your thought on the situations in the coming quarters. My second question is if looking deeper in the postpaid and prepaid performances. Prepaid revenue will remain softer this quarter, while postpaid net ad was negative despite a lower churn in the quarter. Could you please share your leading on this set of statistics and what do you expect the trajectory of these driving factors in the coming quarters? My last question is regarding the cost and benefit from acquiring 700 MHz spectrum and upcoming Triple T Broadband, if you can comment. In near term, would both acquisition deals and up with net additional profit or additional loss from your P&L in fourth quarter this year or first quarter next year? And in medium term, what would be financial contribution from both view that the company would be able to realize and in what magnitude to your earning base? Just a last figure would be appreciated. That's it for me.

Thank you. Let me to take the first 2 questions regarding the ARPUs now and toward Q4 as so as prepaid and postpaid situation towards the Q4 as well. In general, the market has continued on improve in competition conditions so we are very focused on acquiring quality customer as Somruetai has earlier mentioned about. So we see definitely much slower inflow of the gross ads by focusing on quality means that we are not focusing on the very price-sensitive and low plan. So that, as a result, have been impacted from much, much lower gross ad. Whereby the churn itself has been an ongoing from the previous quarter slowly coming down. It will eventually meet at some point soon on the gross and the churn. It will be a matter of a few months ahead. So that's how I can read it, but also depend on competition anyway. In Q3, there are a lot also to do with 2 more things. Number one is overall economic conditions that whereby consumer spending in mid- to low tier are not rising as we wish it could have been. So with that, the consumption of purchasing new device assets signed up for more spending has also been slowing down. We somehow see a kind of climbing back in October. So we hope that in Q4, the economic conditions as well as the sentiment in spending were kind of coming back. We have a source of good prospect towards the end of the year.

On the question number three, I will answer you will like this. As you or know that these 2 projects, NT and also acquiring 3BB, this is our true major strategic project in the long term. For Q1, we do this kind of 2 projects for our long-term revenue growth and also the profit growth. In the short term, we may have some effects in the bottom line however, it's not much based on the very good deal in this matter. If you do say in detail on the certain subject matter, if you remember, when we go to the off-hand at that time, we are trying to acquire 10 MHz from the auction to combine with our existing spectrum of 700 MHz. But when the competitive cap is up to THB 35 billion mark on the 10 MHz, we walk away -- that why we can't get that. When we have opportunity to take another THB 5 billion from the cap, this is also lower price than the last auction, I think, more than 2 years. This is our gain benefit. And also this new of 700 MHz, it also gained us a lot in terms of we try to be the leading in the mobile industry. Does that mean we have to deploy more 5G capacity nationwide -- have been the empty project, we can deploy our NT 700 with NT partner to utilize our network also. So it's like a win-win both AIS and NT who are willing to have the mobile service, but they cannot invest by themselves. If they're happy to invest by themselves, they may have spent more than, I think, THB 100 billion to the nationwide network. But when we work with us, really we really effective cost to do so. However, they still have some segmentation had to do based on their less positive. On the 3BB is also -- you all know that we are the #3 in the broadband market today. We have the high end to be the leader in this market. Since we optimic core, we may take another 5 years to make it have pitch when we have the opportunity in the 3BB a cash is also on the right time and lifetime or the deal, I think it should be our win-win. In summary, I cannot tell you exactly the number, but you all know in the detail and condition like the case that we try to negotiate, it should be made up in the long term more healthy in our basic.

Maybe to add a bit on 3BB, the complication will be on the scouting practice on the JASIF rental reduction. I think we'll wait to see how JASIF booked the rental reduction because it's a lot of complications around whether it one time or whether it's going to be adjusted towards the remaining contract. That will affect the accounting profit. But in terms of cash flow, we believe that in the first or at least first 18 months and we can turn it to be cash flow positive.

Maybe just to add financial just a financial indication on 700 MHz, the deal with NT has 2 parts, right? The spectrum portion that we buy from NT is pretty straightforward. So the value is THB 14 billion, of which you can use the normal amortization with a deferred interest. So that's on that part. On the rental agreement, we agreed to deliver 13,500 sites to NT within 2 years' time. So the rental will be gradually received as we deliver in phases within the first 2 years. So expectedly, within this year, that's not going to be much of the financial implication, but more so towards 2024 and the rental rate is THB 4,800 per site per month.

May I have one follow-up question. I think from the news, one commissioner of the NBTC has been turned about the big route of the spectrum auction probably in 2026. That may include 3.5, 2.1, 2.3, 850, if it's not a grab for the high speed their way, maybe including the 1,800 MHz that some of them unsold. May I get some thoughts from you that what's going to happen probably in 2026 or 2025, if the spectrum auctions take place, as we have the bad experience in the 4G auctions in 2015? What's your thought on the new spectrum auction? Thank you.

I think on the new auction or the NBTC board member already understand the past actually that are very bad. Now they try to also come up with the same time in the auction that needed plan to make the operator who provide this type of specific campaign were on the spectrum road map. Also, you can see we got up to 2.1, even 1,800 MHz, 2.3, it belong to NT, TOT and CAT, that AIS and detect through land from them. This when expired, we need to continue to use. I think it's a positive side that NBTC tried to come to auction. And I think when the auction cost will lower or my opportunity lower than lent from NT today for [indiscernible] and based on the past 6 experience, and it's not gain much in terms of the country of benefit. I think in this period, should not have really auction like the part because today, we are in the 2-pager market also. And NBTC today more understated, if not like a past NBTC board members that have the aim to show their performance by get more money to the government side. This is a very different myself of the NBTC Board member.

We have Khun Wasu from Maybank.

My first question is about the subscriber loss during the third quarter. So the question is that why did AIS lose even more subscribers during the third quarter when compared to the second quarter? And should we expect the acceleration in the subscriber loss to continue in the fourth quarter? So that's the first question about the subscriber trend. The second question is about the reason behind appointing Khun Tee as the CEO of the Broadband Business. So what are the reasons behind the appointment? And should we expect any change in the business direction after we have a new CEO for the broadband business? That's my second question. The third question is about the trend of the depreciation expense. My understanding is that some of your 3G assets have become fully depreciated, resulting in lower depreciation expenses Q-on-Q, should we expect the depreciation to drop further Q-on-Q in the coming quarters? And that's my third question. The next question is about the NBTC decision regarding the Triple T Broadband deal. Because I think after the market closed yesterday, there's a lawsuit against the NBTC regarding the approval of the True-DTAC merger. And would that lawsuit have any implications for the Triple T Broadband deal? Would there be any delays from the central admin court accepting the case related to the True-DTAC merger? Do you see any implication from that? So that's also the question as well. And lastly, the questions are about the Triple T Broadband itself. I think I heard Khun Tee mention about accounting issue related to Triple T Broadband and JASIF. I'm not sure if that's related to the late rental payment by Triple T Broadband to JASIF. If it is not, what is it about in terms of the accounting issue? And one more question about the cash flow. Since Khun Tee mentioned that you are aiming to turn Triple T Broadband into positive cash flow in the first 18 months. Is that cash flow from operations or free cash flow? Those are my questions.

I will answer you in the #2 and #4 for the Khun Tee, role CFO, he's done really well in the CFO role. This is our normal section plan in our company. I also plan my successor, it manifest in the company when Khun Montri can complete in the CFO role when we have the opportunity to do the new basic merging between, which we may be in the fixed-broadband side, this is one area that gives the opportunity to continue to do overall business in the fixed broadband. This is the thing. And also, we also plan Khun Montri as a successor of Khun Tee. So this is also the good opportunity for Khun Montri to take this role also. This is our normal section plan. On the #4, on the NBTC approval of the 3BB. I can tell you very clear in our 3BB and True-DTAC, it's mainly different in 2 things. First, our procedure to ask for NBTC, we are very clear to send a letter to NBTC board member to get the approval of our deal, not just only acknowledged at the True-DTAC cash. When we go to the close-end approval, there are a lot of process, a lot of take that NBTC board member have to do like set up the subcommittee to verify our deal and also waiting for the consultant fallen company, something like this. That's why they postponed to 5th of November to waiting for the consultant result. I think when through True-DTAC, they don't even see in detail of the consultant recommendation and get the [indiscernible], this deal done in the stock market. This is very different. The second thing, I think, of our deal is also really, really easy and different from True-DTAC because when we acquired 3BB, this deal is not less to cager market, like True-DTAC view because we have, I think, more than 10, 20, even 100 some more companies can do the fit more by this debt. But the major corporate may be 3 major payers, not to like 3BB [indiscernible] and also we have a NT. So it's not a duopoly market also. And our deal is not related to the frequency that is really important resource to do the business to factor, I think NBTC board member can consider our deal very clear, let's say, on the 5th of November, what the lesson which had because we ask for the approval very clear and very transparent process. I don't think the lawsuit True-DTAC because we are really different conditions. We will affect that on that lawsuit share.

Let me take the first one, Khun Wasu. Regarding the subscriber net negative for the last quarter as well as the prior quarter, especially for prepaid is causing by a clear focus on the acquisition of qualities. So rotational shown that we have seen significantly decline, so the market adjusts. So we believe that Q3 for us is the peak adjustment of the market behavior as well as the acquisitions to the quality will get impact to us. We only focus on quality and expect to improve the overall in quarter 4. So we do not plan to see more of the loss in the upcoming quarter.

Sorry, just to clarify on the 3BB, I try to kind of summarize, but I think it didn't come out right. So let me try again. What I try to explain is basically, I know that this will be wanting to know how to forecast the impact of this. It's actually come down to, I think, 3 things: one, accounting profit. Accounting profit, it will be a little bit complicated mainly because of the rental restructuring with JASIF. The 20% guarantee that got canceled together with the extension of the main contract. I think that's one of the reasons why we still cannot tell you how the net profit will be. It will depend on the auditor and JASIF how they book that. If you recall when they sell the asset, they book onetime gain -- so now, it could be a combination of onetime again, plus some adjustment over the longer contract period, and we would need to wait to see the impact from that so that we can forecast accounting profit. Second one, I think we look at more of the operation profit. Operating profit, we do believe, as you see from the number already operating -- they're actually making operating loss last year and this year. I think we believe with the 3G and everything, we can turn operating to be profit within 12 to 18 months. I think that's what we aim to have for ourselves. But in terms of cash flow once when they get the reduction of rental, I think cash flow to us when we manage it will be accretive. So it won't drain the cash flow from us. So that's what I'm trying to say, but maybe it didn't come out right the first time.

Your last question on D&A. There should be quite a bit of ongoing 3G fully amortization coming in fourth quarter as well as throughout the next year. However, in the fourth quarter, as you may see that against our CapEx guidance for 9 months is still quite low. So we expect a bit of the acceleration of the CapEx coming through in the fourth quarter. So some of that may also offsetting the impact of the fully amortized 3G.

My last follow-up question is about the revenue trend. And in this quarter, it's clear that the ARPU is rising Q-on-Q, but the subscriber loss is so big that the revenue ended up dropping Q-on-Q on the mobile side. I think some investors are concerned about subscriber loss offsetting the ARPU gains. Can we assume that this trend will stop in the fourth quarter in the way that the ARPU increase will have more weight than the subscriber loss resulting in revenue improvement Q-on-Q in the coming quarters? Is that reasonable to assume?

Yes. Thanks for your question. Maybe let me try to answer that. On the loss of subscribers in the last 2 quarters, as Khun Pratthana explained actually the 2 main contributing factors. One is, I think the state of the economy in Thailand, -- the economy was pretty soft so there was a loss of active customers. The second one is 0 ARPU customers leaving the base. As we focus more on quality, that translated into less 0 ARPU customers. If you recall, when True and DTAC merge, actually, they lost about 5 million subscribers -- that's a similar phenomenon. We don't deliberately push our customers, but when we raise prices, the 0 ARPU customers also left the system. So that explains the -- in fact, a big chunk of the loss when we deep dive into such numbers came from the 0 ARPU customers. On the ARPU rising, we do expect that to continue. Of course, it cannot continue indefinitely will reach to a certain level, we are comfortable with what the market can bear. And therefore, we are optimistic towards Q4. Q3 is typically AIS lowest quarter in the year. So Q4, we are optimistic loss in numbers not expected to get worse ARPU slight uplift, I would say. Thank you. I hope that answers your question.

Thank you. Next, we have Piyush, HSBC, please.