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

Good morning, everyone. Welcome to our first quarter of 2025 results conference call. First, let me introduce our management. Our CEO, Khun Somchai.

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Our CFO, Khun Montri.

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Chief Consumer Business, Khun Pratthana.

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We have CEO Broadband, Khun Tee, joining online.

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Next, we have acting Chief Enterprise, Khun Phupa.

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This time, we also have Chief Retail Business, Khun Prapat, joining us.

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We also have Khun Nattiya and myself, Somruetai, who will be briefing this session. The session will begin with a short brief and then going directly into Q&A. Allow me to remind you that the special silent period since the Royal Gazette auction announcement on the 28th of April 2025 and will last until the auction concludes. We will not address any spectrum auction-related matters. [Operator Instructions] Now let me begin the session. The first quarter of 2025, the Thai economy saw positive momentum, supported by government stimulus, a lower BOT interest rate and rising tourist arrivals despite global volatility impacting overall sentiment. AIS delivered strong bottom line growth driven by profitability focus, strategy and efficient spending. In mobile, the revenue grew 4.3% year-on-year, supported by superior network quality and value uplifting strategy. The subscriber reflected our prepaid losses due to a tighter personal identification controls, while postpaid grew from improved churn management. Broadband growth of 10% year-on-year was driven by high-quality subscribers and value-added service bundles, which contributing to higher ARPU where we now reported THB 518. Enterprise services saw double-digit growth year-on-year in EDS and Cloud. This is fueled by rising demand for connectivity in Thailand and the CLMV region. The device sales continue growing year-on-year, supported by government stimulus through margins decline due to promotional campaigns under tax incentive scheme. Next, we exceeded guidance in both core service revenue and EBITDA, driven by strong business performance. Consequently, the net profit reached THB 10.584 billion, growing 25% year-on-year. Our financial position remains solid, supported by prudent financial management. The leverage ratio improved to 1.8x from 2.2x at the end of 2024, while the average cost of borrowing decreased to 3% in this quarter. While our 3-month performance exceeded guidance, it was against a low base in Q1 last year. We remain cautious and maintain our full year guidance. The key risks ahead include the macro factors such as the trade tariffs affecting GDP and FX and the local challenges like delayed government spending, seasonal slowdown in Q2 and Q3 and pressure on low-end segment from high household debt. And my last slide, AIS remained committed to sustainability, as reflected in the 3 sustainability awards received in March this year for our recent sustainability bond issuance and green loan in November 2024. And this is the end of the short brief, and we'll start the Q&A session now.

[Operator Instructions] First, we have Khun Pisut from KSX.

Hello? Can you hear me? First of all, thanks for the opportunity and congrats on your strong results. This is Pisut from Kasikorn Securities. May I have 3 questions? My first question is regarding your revenue and EBITDA guidance. What are your underlying economic assumptions for the guidance? For example, GDP growth, domestic consumption, et cetera. Considering stronger economic headwinds waiting for us in the second half, have you considered that in this guidance? Or you are waiting for -- to get the clear pictures before revising your guidance? My second question is about the revenue mix between the prepaid and postpaid services. Just noticed that prepaid revenue proportions climbed up from 43% last year to 45% this year. It would be helpful if you could share with us about the market dynamics, your strategy behind this and the financial implications, i.e., the profit margin? And what should we expect in the future on this one? And my last question is on your revenue momentum in April. What is the movement in the mobile and fixed broadband market so far? Has the revenue growth momentum carried over from the first quarter? And lastly, what about your plan on the EPL content? What would be the accounting impact on it? That's it for me.

May I take the first question on the economy? Since they revised the GDP down to 1.8%, we also take cautious views on the second and third quarter, which are the low season as well. That's why we still keep -- the guidance remain, Khun Pisut.

On the second question regarding the mix of prepaid and postpaid, as you have seen for the last few quarters, things went on according to the whole intention and plan to repair the price in the market, canceling the lower one, which is not profitable, not sustainable into more healthier one. The first segment we got impact on positively is prepaid. So that's why prepaid revenue are climbing back to the right level. And postpaid are now starting to see the positive trend as well on the coming back. So with those, I think this is the right level of it around 55-45 or 50-50 or whatever they are going to be. Right now in the markets, prepaid and postpaid in the middle segment look very similar. Customer can be prepaid and paying monthly as well or could be postpaid, slightly different in packages. So I think it's a choice of payment that customer may proceed or may like to. So that's the 2 questions you have. The third one, when we talk about momentum of revenue, let me address the first piece, which is mobile. So we are very cautious about the overall economical environment, meaning that whether customers have money and do they need to save money, so far in April, things still go on as in Q1. Somehow, the rest of the year is -- remain cautious for us. So that's revenue momentum. For the rest of revenue, maybe Khun Tee and the rest can also address.

Maybe just to chip in on the broadband, I think normally, April is a soft one for new subscribers. Anyway, it's a long holiday. We do see some softening on the broadband side, but overall revenues still grow as we still have a positive net add every month.

For the last question regarding English Premier League. We will, later on in June, review the information about the offering and the plan. At this point, we will not be able to address officially in terms of detail yet. Based on the structure that we partner with JAS, so it should be part and parcel of the whole plan in AIS. It shall not be disruption in the balance sheet or P&L.

Next, we have Khun Wasu from Maybank.

Congratulations on the impressive earnings growth. I have 3 questions. The first one is about the EPL spending. I think it has been mentioned that AIS is planning to spend around THB 1 billion on marketing activities and subsidies related to the English Premier League campaigns and packages. Will the THB 1 billion be booked as OpEx or CapEx? So that's my first question. The second question is regarding the postpaid churn management. I think Tee San mentioned earlier in the presentation that the postpaid subscribers grew strongly this quarter due to improved churn management. So what have you done differently in terms of the churn management for the postpaid customers? So that's the second question. And my final question is on the handset sales margin target. I think earlier this year, the management has mentioned that AIS aims to generate handset margin of above 5% this year. Is this target still achievable, especially when we consider that the handset margin was only 4.3% in the first quarter? And in April, I looked around AIS shops, and I see that there's a quite aggressive price discount, especially for Android smartphones. Like for example, AIS customers can redeem 10 points to receive THB 1,000 to THB 4,000 price discount depending on the smartphone models. So given the low margin in the first quarter and ongoing significant discounts in April and May, is the 5% handset margin target still achievable? That's my third question.

The first one regarding English Premier League spending of THB 1 billion that you heard from the news is a mixture of revenue sharing and some other things. So it will not reflect in either OpEx or CapEx directly. So it's a lot to do with revenue sharing. So that's number one. Number two, the postpaid churn management as well as prepaid, we are very much focused on acquire quality customer. As a result, so the churn rate has been continuing on reduced down. In postpaid, in particular, regarding the device subsidies, an aggressive plan has been continued on optimized to really focus on the target segment. So that's why you start to see, as we actually addressed it earlier, the past few quarters, you just see the improvement in churn management.

My answers on the handset margin, I still ensure that the 5.2% as our target is achievable in the whole year of this year. And the second question that you're talking about amazing 10 point, I think this is a one-off very good program that we have been launched during this time, is drawing a lot of customer come to the store, come to the shop. And the deduction and the price deduction actually is divided by 2 companies. It actually absorb -- half of them is by -- AIS absorb it. And the other half is from the mobile brand. They're going to absorb that one. So I think 5% is very achievable in this year, yes.

Next, we have Khun Thitithep from KKPS.

Can you hear me? Okay. I have 4 questions, if you don't mind. The first one, you did say in the MD&A that the negative net add in this quarter was due to the call center suppression activity by the government. Would the impact continue in the second quarter of the year? Second question, if you look at the number of tourist arrival in Thailand, it's a bit high by 7% year-on-year in April. How would that affect your revenue? And overall, how much do inbound tourists contribute to your total revenue? The third one, I have noticed that you have adopted more AI at your call center recently. How would that affect your OpEx going forward? Is this going to be material? And the last one, I read from Bangkok Post the other day that the cabinet is considering removing telecom from list 3 of the foreign ownership limit, meaning my understanding is that now if they do remove it, then the foreign firm can come into Thailand without a local partner. What would be the implication for the sector in your view?

For the first one regarding the negative net adds, we have continued on looking at prepaids on the personal identifications, which one is correct, which one is not, they need to redo and many of them, which is inactive, then we cut it down inclusive of the validities of tourist SIMs. So that's contributing to the negative net add in prepaid in Q4 and a little bit in Q1. Whether it continue on, I don't think so. I think it's going to come to the very much balanced. So we start to see a positive add as well in April. So that's the first one. The second one regarding to tourist inbound, yes, it's kind of structural issues that Thailand will face on the less tourists, especially from China. Right now, the tourist segment probably contribute less than 1% when it comes to the overall revenue, and we're kind of mindful about that. But anything can change. I don't know. I think it's up to the whole situation and the whole world as well.

On the AI question, we implement AI not only for the cost reduction. It also increased our efficiency in our job also. If you see on the call center, we implemented AI to not increase our operation cost. In fact, we have a lot of new activity for the call center, but we still can maintain the cost of operation of the call center. That means we indirectly do our cost. This is all of the things that we try to implement the AI, not only on the call center side, but all the -- every process in AIS, we will try to do this kind of thing.

And then on the foreign ownership limit, please?

On that one, we don't have detail yet. So we will try to find out what will impact us. But I think in total industry right now, it's remained the same. And I think we will find out more on the details of that news later on.

Next, we have Piyush from HSBC, please.

Thanks for this and congrats on a good set of numbers. Three questions. Firstly, on mobile. Any changes kind of which you are seeing on the consumer behavior because your data usage per month has started to inch up this quarter? And in the MD&A, you mentioned that lower mobile revenue is also due to lower inter roaming revenue. If you can elaborate what has happened. Secondly, in D&A, depreciation and amortization, is there any one-off? Or this is the new baseline after 3G assets have fully depreciated? And thirdly, on cost of services, you said there is some change in content cost structure, which has led to decline year-on-year. Can you elaborate on that?

For the first one, regarding the behavior, the value segment continue on consume a bit more along the way as the market develops to 5G. The big change is from the unlimited plan segment, whereby we continue to taper down segment by segment, customer by customer. As a result, the average VOU, as you see, be able to maintain. So we are entering to more sustainable zone of network investment as well as the monetization of it. So that's the general behavior. But of course, when the economic turmoil about to hit Thailand already hit, maybe some segments start to think about or start to shift a bit of behavior in terms of top-ups. They may top up in smaller amount, spend a bit multiple times per month of top-up rather than top-up onetime. So we start to see a little bit of that as well.

Second one on roaming revenue. 4Q is the higher season. First quarter is a lower season, so lower international roaming revenue coming in first quarter. And your last question on D&A, there is no one-off. It's general fully amortized asset.

And anything -- yes.

Sorry, am I getting you correctly? You asked about the content cost or what is the big difference between Q1 last year and Q1 this year. I think the one item that different is on Disney, whether it's rev share or is buy-and-sell. So that's bookings slightly different. Late last year, we entered into a pure rev share. So the recognition of revenue will become a net rather than a gross and cost.

Next, we have Arthur from Citi, please.

Two questions, please. Firstly, with regard to mobile, I'm just wondering if you're seeing any pressure related to the macro side or tourism traffic impacting into May. Or are you seeing continued benefits of customer upgrading to the new plans into the second quarter? I'm just wondering where ARPUs will be trending basically. Second question I had is with regard to enterprise. I do know that your enterprise momentum has been very strong, north of 20%. Is there a bit of contract lumpiness where things get booked upfront? Or do you see this momentum as actually sustaining? Just wondering why it's so strong considering normally enterprise pretty much tracks macro growth, which has actually been downgraded for Thailand.

On the first one regarding tourists, what we worry about is not number of tourists but the whole economy rather than tourists. Tourism contribute, if not mistaken, almost up to 20% of GDP. That would -- as a result, if there's less tourists, then these economies will be a bit weaker. Whether or not it would impact the revenue on tourists, I mean, there may be a bit once tourists have left. But as mentioned, overall economy is our concern. In Q2, it remained to be seen toward Q3 and 4 as well as addressed earlier. I think we continue on monitoring even though right now, it has not been any much of the impact.

For enterprise, there are 2 things that drive the growth. First one is coming from the connectivity, which is a customer from CIMB and also the backlog from the last year as well. Also on the cloud, there are 2 things in the cloud as well. The first one is about also the backlog and the customer seasonality of their spending from the last year and the beginning of the year. Another one is also included on the onetime licensing and cloud usage. Yes, that is the key reason that drive the growth.

So given this, we should expect a bit of moderation? Is that how we should see this going forward?

I think that we will be able to maintain the balance on the expected change on the growth on the Q2 as well. We don't see the, I mean, clear or any showstopper even though we have a very strong competition in the market.

We have Ranjan from JPMorgan, please.

Congratulations on the results. Two questions from me. Firstly, on your CapEx guidance. Does that include any additional CapEx that you might need to incur post this new spectrum allocation that you might get? I'm not asking specifically what spectrum that you're looking to acquire but whether you need to incur -- there could be upside to that CapEx number to operationalize the additional spectrum that you will acquire. And the second question is there's been a change in spectrum payment terms. Does that impact your dividend policy in any way? Because now you'll have a 50% upfront payment for spectrum cost.

I think the CapEx guidance, we still keep it the same as we guided before. And that excludes all those spectrum factors. So I think the second question also, we are in the special silence period. So we cannot comment on the CapEx needed or whatever spectrum we needed.

We have Supachai from Yuanta.

Can you hear me?

Yes.

Okay. I got specific question for the enterprise business. Can you update us more about your recent data center expansion? And because the economy this year may be worse in the second half, do you need to plan to access this for maintaining the enterprise business growth for the second half of this year? That's all.

Thank you for your questions. For the data center capacity and supporting the customer demand, we can share to you that we have enough capacity to respond to the customer demand, which alignment with the expectation on revenue and income for the 2 half of the year.

Can I have a follow-on question? If the bidding project doesn't come up a lot in the second half, do you have a plan to update for the growth for the enterprise business?

Based on the pipeline that we have, I think we can manage on the revenue and expectations on the growth in revenue.

We have finished the list of the slots. Is there any further questions from the participants.

Supachai from Yuanta. Can I have one more, please?

Yes, yes, please.

About the virtual bank, can you update us more about the recent development? And if khap continue to have more stake on KBank, would it impact your business plan?

I don't think so. It will relate together because KBank also don't enter into a virtual bank this time. I think the virtual bank and normal traditional bank, they're very different. Very different. And khap also mentioned that they invest in the KBank for dividend and not all in the -- on business.

Khun Wasu, Maybank.

I have 2 questions. The first one is quite basic. So does the migration to 5G packages still lead to 10% to 15% ARPU uplift? So that's the first question. And the second question is about the CEO succession plan. I'm not sure if you have any update on the succession plan.

For the first one regarding the upgrades. I wouldn't call it migration. It's more upgrade. When customer upgrade from 4G plan to 5G plan, it's still around 15% plus ARPU uplift.

Then our Board outside NCC, Nomination and Compensation Committee, we are very clear on our succession plan. Now we have at least 3 persons to succeed me. However, it depends on the NCC and Board. We will consider when should be in the right time. Don't worry because this second part is really important for our Board negotiation.

I think that's all for the question session. And we have come to the end. And see you, guys, in our next quarter. Thank you very much. [Foreign Language]