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

Good morning, everyone. Welcome to the second quarter or half year of 2024 results conference call. First, let me introduce our management. We have Khun Somchai, our CEO.

Good morning, everyone.

Our Deputy CEO, Khun Mark.

Good morning, everyone.

Chief Consumer Business, Khun Pratthana.

[Foreign Language]

CEO Broadband, Khun Tee.

Good morning.

We have also our Acting Chief Enterprise, Khun Phupa.

[Foreign Language]

Our CFO, Khun Montri and we have also --

Good morning.

We also have our Head, Investor Relations and Compliance, Khun Nattiya.

Good morning.

Myself, Somruetai, will be briefing you this result and running this session. The session will begin with a short brief and then go directly into Q&A. At this time you may also reserve to ask the question through the chat box. Please type your name and corporate name. Let me begin with our presentation. So for the second quarter of 2024, we observed cautious recovery in overall Thai economy. This is evidenced from increased activity in the private sector and an increase in tourism and festivities. Nonetheless, the economic headwinds remain prominent, characterized by high household debt and fragile consumer purchasing power in the low-income segment. AIS reported 19% year-on-year growth in both core service revenue and EBITDA, driven by growth across all businesses and Triple T Broadband consolidation. Our continuous execution and efficiency improvements alongside quality focus to deliver profitable revenue led to a growth in profitability of 19% year-on-year to constantly deliver returns to shareholder. The mobile business maintained the growth, increasing 4.3% year-on-year and 1.4% Q-on-Q due to the rising consumer demand for data consumption and also from our efforts to offer volume-based tier pricing that matches customer demand. The ARPU sustained Q-on-Q, driven by a focus on high-quality acquisitions and benefiting from increasing tourist arrivals, which boosted prepaid revenue. However, postpaid ARPU remains under pressure from IoT SIMs. The device margin increased to 6% this quarter due to subsidy optimization and a higher mix of high-margin handsets. The 5G subscriber reached 10.6 million or 23% of total subscribers. We also have 5G coverage exceeding 95% of Thailand in this quarter. Broadband continued growing with quality acquisitions. We added almost 67,000 subscribers, bringing the broadband subscriber base close to 4.9 million. Our ARPU improved to THB 501, due to upselling value packages and cross-selling innovative services. The integration is progressing as planned, focusing on maintaining seamless service quality for customer experiences, while keeping efficiency and productivity in mind. Enterprise non-mobile service grew by 25% year-on-year, benefiting from Triple T Broadband consolidation and increased demand for EDS and cloud service. AIS Enterprise segment focus on core products like connectivity, 5G digital infrastructure and platforms in targeted industries. For first half performance, the Board approved the interim dividend of THB 4.87 per share or 85% payout ratio. This will be paid on the 3rd of September this year. And for the guidance, despite first half performance exceeding the guidance, AIS take a cautious view of the upcoming seasonality in the third quarter and uncertainty in the economic outlook and has decided to keep our guidance unchanged. The uncertainty factors include the revised lower growth estimates for Thai GDP, the rising household debt leading to a sluggish consumer sentiment, especially in the low-income segment, the cautious [ views ] for SMEs and other geopolitical factors affecting the Thai economy. Nonetheless, all efforts will be made to continue the momentum from the first half of the year. It involves service revenue, executing cost optimization and also as relating Triple T Broadband synergies. Let me advertise for our next event. Please be reminded that we will have Analyst Meeting tomorrow, 8th August, 1:30 p.m. Bangkok Time, in-person session [ participant ] in Thailand at Pearl Bangkok and Zoom call for overseas participants. The Zoom link will be sent today. And this is the end of the short brief.

We will start the Q&A session now. Please be reminded, please type your name and corporate name. First, we have Khun Pisut from Kasikorn.

Congrats on your robust [ lease ] out this quarter. This is Pisut from Kasikorn Securities. May I have 3 questions? My first question is about your operating guidance. In first half, your EBITDA as the percentage of core revenue was 69.5%, whereas your guidance imply that this later will come down to 66.6% for the second half based on my calculations. It seemed to me that your guidance indicates a lower core revenue growth and higher cash cost at the same time. It would be great if you can provide some color about just weaker numbers, what you have seen so far in the month of July and the first week of August that you can share? My second question is about the data consumption, it was at 30.5 gigabyte per subscriber per month in the second quarter or roughly about 1 gigabyte per day. From my understanding, the [ core ] factors could be the removal of heavy usage from unlimited fixed speed. At the same time, the push factor should be the organic growth of data consumption by consumers. As you have migrated a large part of prepaid subscribers using unlimited fixed speed packages over the past 3 to 4 quarters, my question is, do you think the current data consumption of 1 gigabyte per day per subscriber would be hitting that -- already hit the limit of data usage at this moment, at least until there would be a new bandwidth [ hungry ] use cases other than [ VTO ]? And how much data consumption could organically grow in the next 1 to 3 years? My last question is about your spectrum bandwidth sufficiency. The latest update from the NBTC in the press -- local press is that there will be at least 3 spectrum bands available for [ grab ] early next year, which are 850 megahertz, 2100 megahertz and 2300 megahertz. My questions are what [ CIO ] would be better for you, either the auction of 2,100 megahertz from NT only, or the one from NT and the advance auctions from the ones you and True are currently using? And number two, for the sake of spectrum bandwidth holding -- spectrum holding currently between you and True, this is possible that a fraction of 2300 megahertz spectrum would justify your financial returns with the strategic decisions that you may make?

Let me answer you in the third question first on the spectrum. I always committed to the investor committee that when we have the opportunity to acquire the spectrum, we will look for all -- that opportunity. It depends on the term and condition that NBTC will announce at that time because we really need all the spectrum to [ plan ] our [ business ] because our spectrum is more important resource. And also, we have to compare and that time on the pricing, and also on the competitor movement also. When your question, I think, I guess [ value ] is less more in 2.1 and [ 2.3 ]. It still depends on the NBTC liquidation at that time. If they come up in the -- at one auction, it should be better to [indiscernible] out and move our spectrum plan in the [ quantity ], not spot-by-spot like last time. That means AIS and True are so committed to be the auction in acquiring the total spectrum that they have, but still depend on their decision.

Allow me to take on the first question on the guidance, Khun Pisut. Thanks for your questions. I think on the EBITDA growth, we delivered first half 21% growth. We still keep -- guidance may remain at 14% to 16% growth, but we believe that we will deliver above -- on the upper [ bound ] of the guidance. The gap [ thus ] means we need to do something more on the second half because of the cautious view on the economy and also geopolitical situations. So I think we also need to spend more on the second half. If you look at the first half, we also indicate that we spend less on the marketing activities. I think we -- that's where we also need to keep spend more to maintain the momentum of the market as well. So that's the answer.

Allow me to take the second question regarding data consumptions. When Khun Pisut mentioned about 36.5 gigabyte per month, that's in average causing by multiple factors. Very heavy users normally use could be more than 100 [ gig ], it's possible. A typical users like us maybe use about 20 gig to 25 gig per month. [ Light ] user may use much less. So it's a lot to do with the group and applications [ apply ]. The unlimited data in the past causing huge artificial high average, so that has been tapered out. It helped to maintain a reasonable amount of average down into a reasonable level. And also, people who use that for broadband replacement is also not available. So that [ just ] changes for the past year, 1.5 years. Moving forward for the future, when country grow more fiber broadband to home, the average will come down because the one who use mobile to replace broadband will rather go for fiber broadband to home. But they will be growing as well for typical users because the better phones they have, the higher data usage they do. So what we believe is they will be growing a small amount in average into the future.

We have Khun Weerapat from CGS.

I have 2 set of questions. The first one, you mentioned about rising SG&A during second quarter. How much did the company book provision for obsolete equipment in the second quarter? Is it one-off item or recurring? And is it related to Triple T Broadband? And my second question, as AIS mentioned that first half budget was underspent, what will be key drivers to second half expense? Will they be mainly marketing spend on network OpEx?

Allow me to take on this question. The second quarter, when we look at the performance we achieved, the KPI of the organization, so we put the bonus accruals into the second quarter, basically including the first quarter's portion as well. So majority of the incremental SG&A is on the staff cost. Impairment is only small and it's BAU, not the one-off items and nothing related to Triple T Broadband. That's what I can answer. On the second half, we also need to put a lot of focus on the staff performance and also the bonus accruals still need to continue to put more -- once we achieved the third and fourth quarter result. So I think that's a majority of the items. When we -- when I mentioned with -- on what we need to spend more on the second half, majority is on the marketing side to deliver the result accordingly. So I think that's the answer.

Wasu, Maybank.

I have 2 questions. The first one is about your net adds for the mobile and fixed broadband businesses. And the question is, how did you significantly outperform your competitor in terms of the prepaid net adds and fixed broadband net adds? So that's the first question. The second question is about the company's leverage ratio. So advances net debt-to-EBITDA is around 2.5x at the end of the first quarter. What is the management's goal for the net debt-to-EBITDA going forward? Are you already comfortable with the current level? Or do you want the ratio to continue declining?

Allow me to answer the first part of the first question regarding the net add of mobile. On prepaid, it's quite natural that we acquire customer as we used to [ at ] very best focus on qualities. But when you compare the industry is how each individual operator recognized [ or ] [ counting ] active customer, they could be using different definitions. And along with NBTC rules or who hold the number of mobile and for how many days, that they need to read PI, I think they probably have different impact to each operator [ company ].

Yes. On the net add for broadband, I think we still try to maintain the momentum of the market. I think broadband is still a growing market. So with the large network footprint that we combine with 3BB, then I think we still focus on selling to new subscribers, but also put a focus on quality subscribers. And that's why we can manage down the churn. And in the end, I think we get the net add. I think in the past, sometimes operator put too much focus on accessing new subscribers, and that can cause the churn to go up. Secondly, I think we also try to focus more on deliver good service. So I think the people will -- when they think about selecting the operator, then hopefully, they pick us more than our competitor.

On the net debt-to-EBITDA, we monitor at 2.5x, as [ you ] mentioned. And if you ask me whether I'm happy with the net debt-to-EBITDA now, I think we're quite happy and it's organically coming down from 2.9 end of last year basically from the EBITDA growth. So I think we still monitor the net debt-to-EBITDA at 2.5. If there's no any beyond 2.5, I don't need to take any action on that.

Just one follow-up question on the leverage ratio. Do you have any comment on the Fitch Ratings -- rating warning negative on advance?

There's no -- nothing concern on -- at this moment. Yes, we will be clearer once the VTO took place. So I think there's nothing for us to worry about at this stage.

We have Khun Pete from DBS.

I have 3 questions. The first one, management said in the past that you have sufficient spectrum for the usage for now. But if we compare your spectrum to True, True have a larger amount of spectrum. Do you think it is important that you match True or you pay more attention to the usage? That's the first question. Second question is that you would -- your shareholder -- your top shareholder would soon change from Intouch to the new [ cloud ]. And then Gulf made it clear in the Analyst Meeting that the new [ cloud ] would not be a dividend pay, but rather a growth company. Do you think that under the new [ cloud ] [indiscernible] structure you would change your investment policy, especially for the non-mobile like [ DC ], cloud? Should we expect you to become more aggressive in those field? And then the third question, in your MD&A you did say that the real enterprise revenue, the non-mobile enterprise revenue, if you take now the 3BB consolidation is flat because the top [ grade ] holding of investment because of the weak macro. Should that be a concern, because I thought it's supposed to be a fast-growing area or it's just a noise for one quarter? May I have your view on that?

Well, for your first question, Pete, I answer the same on the spectrum acquiring. I think today, AIS and through [ merger ] to meet that, the spectrum is compatible, even they are maybe over and have more than us in some areas, but not significant in this matter. That's why when we talk about [ 700 ], we all know that we have [ 15% ], they have [ 20% ] even together. So that's why we have the NT cooperation in this matter. So today, I think sequentially it should be [ comparable ]. When the NBTC go to the auction, we will think in terms of the pricing at the top environment also, like -- it done like last time that we already [ let ] off our [ frequency ] to [ launch ] the business in the period of [ 1800 ] something. Now I think it's [ compatible ]. If the price, it should be good, we can acquire more. If the price is very, very over, we should not seriously to have more spectrum [ I think ]. On the new [ cloud ], I think after the [indiscernible] merger, I think our [ policy is ] still not [ plan ] to -- clearly to [ SP ] sale. Today, I -- [ AIS ] very independent from the [ Gulf ] and Singtel. We have our own [ business ] [indiscernible]. However, on the thing that we do [ LiDAR ] -- the [ SA ] [ LiDAR ] cloud. These are on our direction in our [ pipeline ], no new order for the shareholder, both Singtel and [ Gulf ]. I think this is the trend for the telco or mobile operator in the long run because our service today is like community when we expand to enterprise, to cloud, to the data center. These are the new [ thing ] of [ rather ] ICT [ with tech ], that's all the normal thing that telco should do in the near future.

Your question around non-mobile enterprise revenue. Actually, this quarter is growing quarter-on-quarter in the mid-single-digit. And this is a comparable basis, even if we include -- because last quarter is a full consolidation of 3BB already. Majority of the growth are coming from the EDS, that's the main part. Cloud is following that. Moreover, other type of solution services, those types are more affected with the overall economy. Next, Ranjan from JPM, please.

A couple of questions from my side. Firstly, if I come back to guidance, the current top line or the top end of the guidance implies that revenues will remain flat on the second half versus first half, while your OpEx is going to increase by 7%. If you have higher OpEx to pursue like no incremental revenues, why would that be? I mean, why don't you just cut down the expenses to pursue higher earnings? And this -- the corollary out of that question is like why aren't we able to see a higher revenue growth in Thailand? Are we really saying that like if we increase ARPU of 1% to 2%, which is like THB 2 to THB 4 a month, the Thai consumers will not be able to pay for that? And the last question is on AIS Cloud. I think you've had a new arrangement with Oracle, if you can share more details around that?

Allow me to take on the first question on the guidance. As I mentioned on the EBITDA guidance, I think similar we will deliver [ upper bound ] or above [ upper bound ], but there's no point to revise a little bit of the guidance upwards. So we keep -- it remains -- but from -- we can see from the momentum that the cost service revenue growth will be beyond the guidance or just touch a little bit on the [ upper bound ]. So I think that's the reason why guidance remain similar to the EBITDA guidance.

For the second questions about partnership with Oracle, we see the requirement and needs of the market to use the cloud more. We decided to bring the hyperscaler world-class services from Oracle to Thailand and manage by AIS. So we want to take that opportunity to expand our cloud services more in Thailand.

Okay. So Oracle, you're just reselling their business, is it?

Can you say that again, please?

For the Oracle partnership are you basically reselling their cloud service, [ or you're ] adding something on top?

Maybe I take this question. It's a special Oracle program called Alloy where we quite label their cloud. So they provide the cloud. We provide the facilities. They provide training. I think the important point to note there is it's a world-class cloud facility. Data will be resident in Thailand, and it is operated by Thai company for Thailand, yes.

So if you can just [ take through ] who owns the infrastructure? Like are you buying the IT equipment from them?

It's a commercial -- well, the owning of the infrastructure actually is AIS. Yes.

So you can see us as a white label of Oracle Cloud. Yes.

Got it. I'm sorry, if I just come back to my question on the Thai consumer. I mean, I would have assumed that it is possible in this kind of market environment to raise ARPUs by 2% or so. But the company doesn't seem to be indicating that it's possible. So I'm just trying to understand like is it that difficult to increase ARPU by 2%, which is effectively like a higher monthly spending of THB 4 for consumer?

I would like to address this one. First half economies are probably land about 1.9% GDP growth. The sentiment seems to get a bit better, but not at best. The second half, we have a very high hope that we will have stimulations from the government as well as the tourism, but the future remain unclear. We will try our best to bring the best service to consumer with the right price, managing the propositions and compositions that they're offering. We will continue on to push up the offering, but that remains to be seen. So I don't think we can say it so clear that we can up the price by THB 2, [ THB 3 ], THB 4. Yes.

Maybe just to jump in a bit here. I think we basically -- on the broadband side, we have been pushing up the ARPU quite a bit. I don't think we can do that forever. I think there need to be a little break for the market to accept and also get used to. I think that's the same thing that's going to happen on mobile side as well. I think we had a good one in the first half with the -- I think, the hope of a better economy. But right now, I think we're not too sure how the economy will turn in the second half. I mean that's why we take a little bit more conservative view as usual. So I think that's probably where everyone is a little bit confused why we can't revise up. But I think in the end, because we look at some risk that may happen in the second half, that's why we take the same stance as now.

Okay. Just one observation. I mean, your ARPU used to be like THB 240 to THB 250 earlier, right? [ So ] you thought that consumers are able to pay that much at least. But I'll stop here.

We have Khun Arthur from Citi.

Just 2 questions, please. Going back to the question posted earlier, have you actually seen any changes in terms of revenue momentum into the months of July and August on a year-on-year basis? I know that you're concerned about macro, but are we actually seeing it impact momentum so far? Second question I had is with regard to leverage. Any idea in terms of long-term leverage ratios that you'd want to pursue? I know you're at 2.5x now. Is that the ideal ratio that you'd want? Or do you need to reduce this further?

Let me answer the second question first. The 2.5 is the sweet spot that we monitor and then we still continue to use that 2.5. We do not have any plan to aggressively lower our leverage ratio. So that's the answer, Arthur.

In June, July, the momentum still to maintain. Despite the fact there's also uncertainty in the markets, we still keep our finger crossed.

Yes. So I think that's why everyone is a bit confused with regard to the guidance. Because [ if ] -- your momentum is actually remaining strong into July, August. And initially, the view was low single-digit revenue growth in mobile, but you're hitting mid-single. So I'm just saying that it's probably where the confusion lies.

We have follow-up questions from Khun Pisut from Kasikorn.

May I have 2 follow-up questions. The first one, I think you may [ used ] to answer this question before, but I just want to understand better about the profit contribution from 3BB and 3BBIF. If -- looking at your profit growth, it seems to me that the acquisitions added to your net profit almost immediately, if you look at the first quarter and second quarter core profit growth from the previous year. My understanding in the past was that you may have to bear some losses from these acquisitions for a few quarters before the synergy value can be kicked in. It would be helpful if you could tell me what I'm missing? My last question is about the tax loss carry forward, that you have quite a bunch of it. Could you please update about the way to utilize this item in the near future?

I think the second one is quite easy for me to answer. We still keep an eye on this, towards the profitability that we can make on Triple T Broadband company. So we have plans, and we also to discuss with the tax expert about this. There's no urgency on this matter at this juncture, but we keep an eye on this, and we'll keep Triple T Broadband profitable to -- in order to utilize the tax loss carry forward, Khun Pisut.

Okay. I think we [ charged ] you twice, Pisut, for having a follow-up questions. On the first one, profit contribution from 3BB and 3BBIF, in the beginning, I think we -- as mentioned, we project that we'll try to manage the impact to be minimal. I understand that 3BB coming from a loss-making last year. When we look at this, we also look at acquisition costs as well, [ factoring ] everything. That's why we still feel from late last year that this year probably we try to maintain minimum loss if possible, and then we try to convert to a profit contribution sometime next year. In reality, I think we were able to do 2 things. One, we managed the synergy to come faster than what we planned. I think it shows in the result of both the ARPU going up, lower churn on both sides, plus the synergy on operation. That's why I think if you look at the net-net in the past, we haven't really extend the bridge loan into a long-term yet. So the cost of acquisition is still quite low at the moment. So in net-net, yes, we did have a small gain from the operation.

We have Khun [indiscernible]

Okay. So I have about 4 questions. First one is about [indiscernible] subscriber. Can you give us more color on the subscriber that increasing? Is that from the tourists or is that on the Thai? That is the first question. And the second one is about the volume of use since the data show that -- we're using the data [Audio Gap] information, the [ week ] increasing, but you changed the definition for --

We can't hear you [indiscernible]. Can you repeat the second question again?

Can you give us more explanation on the definition? And from my knowledge, I see that the forecast of the [ volume ] per subscriber in the future would be around 75 gigabyte per person in 2030. Do you think that this is possible to be and what will drive the data like that? And the third question is about your guidance. I want to know a little bit more that you're concerned about the economy or you're concerned about the competition? This may be the 3 questions right now.

For the first question regarding prepaid customer, it comes from both domestic as well as the tourists, but tourists will be a bit more short-term because it add-in and get deducted out 1 month or 2 later. I would be saying that half-half. But once again, I think the industry have, for the past 2 quarters gone through the strengthen of the regulations of the prepaid identification. So I think the definition from us remain the same. But for the markets like True and the DTAC, they may need to adjust it. So I think that probably it will look a bit different from one operator to the others. That's the first one. For the second one regarding the volume of use, the voice kind of broken earlier, I presume that your question is currently, we have a certain amount of average volume of use per sub. Would it be possible from the forecast that by 2030 the volume of use per sub could go up to 75 gig? I think it's possible. The question is which network are they going to use. Are they going to use via mobile 5G alone or is a mixture of 5G and broadband in combined, because the amount of data flow into the device will continue to grow, let's say, 5% to 10% depending on contents. The higher resolution content will follow through as a higher bit rate and the amount, even though, we all have the same time, 24 hours to use it, and there will be always on application. But I think the growing part will be quite small, let's say, 5% to 10%, as mentioned year-on-year. But we believe that it will be average out from the mobile network through the fiber network as well. The more we have fibers, the average on mobile will get probably less.

Let me take on the guidance questions. On the portion that we take into considerations majority from the macroeconomic overviews, competition also take part of it, but is -- we focus less on that. In the duopoly market, the competitions always happen, especially during the low season and also the peak season in Q4. So we don't [ undermine ] that competition as well.

Okay. Can I have a follow-up questions from the answers?

Yes.

Okay. I would like to know more about VOU that you say, but I have a little bit more question about on per [ gigabit ]. I have seen that from the prepaid side, the ARPU per [ gigabit ] is growing right now. But in postpaid side, it still be quite the same. Do you think that the trend of postpaid will change to be like the prepaid side?

Yes.

And can I add one more question about SG&A also from your earlier answer that you might increase the marketing expense. But if I take our G&A from both True and [ Advanced ], I can see that the first half the expense is quite the same. So I just think that if the competitor didn't spend much on the marketing, why do you want to spend more on the marketing?

Okay. Regarding the ARPU per gigabyte, I presume, not gigabits, it is more revenue per gigabyte. I kind of presume that way. For prepaid, you've seen the improvement along as we address it a lot earlier than this quarter, we continue on to repair the price plan in the market. We cut down the unreasonable, unsustainable one, especially in prepaid. So it helped improve the revenue per gigabyte for prepaid. For postpaid, the price plan rather constant so far, even though we optimize it, but it hasn't been much drastic change. So you see quite constant revenue per gigabyte for postpaid, that probably cost of that particular statistic. Your next question regarding the marketing. Q3 and Q4 likely to be a season for a new device as well as the year-end seasonality that we plan for. The marketing part, we'll not go direct to [ fight ] with customer but to take care of our own customer to ensure that we continue on, retain them and improve our both ARPU and retention rates, especially the satisfaction rate. So I think that's a main key that we are aiming for. So we have budgets to the amount of marketing, and we think it's worthwhile to continue on improving the experience serving the customer.

So we don't have any more questions from the floor. Let me remind you of our event tomorrow again. We have Analyst Meeting at Pearl Bangkok at 1:30 PM, Bangkok Time. So see you guys there, and for the overseas participants, just the [ opening ] will be sent today. Thank you very much, and see you in the next quarter and -- or the Analyst Meeting. [indiscernible]