Axiata Group Berhad (AXIATA) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. My name is Clare Chin, Head of Investor Relations at Axiata. Thank you for standing by, and welcome to Axiata's Third Quarter 2020 Results Briefing. Today, we have with us Tan Sri Jamaludin Ibrahim, Axiata Group CEO; Dato' Izzaddin Idris, Deputy CEO; Vivek Sood, CFO; as well as representatives from our operating companies. There will be a presentation, followed by a Q&A session. Lastly, 2 housekeeping reminders, [Operator Instructions]. Also note that the call duration will be a maximum of 90 minutes. So without further ado, I would like to hand the conference over to Tan Sri Jamal.

Good afternoon to all. Thank you for joining us for our third quarter 2020 results. If I can you go straight to the first slide? Clicker. All right. So this is just a summary of our performance for third quarter. You will see -- and I'm sure you have seen the results that have been an excellent quarter almost all around. All, of course, did pretty well in almost all measurements, if not all measurements. But of course, just trying to make sure that we give the right expectation. Fourth quarter, given the reimposition of lockdown in at least 2 or 3 countries, and also the heightened competition in Indonesia and the education freebies that, as you know, have been launched a couple of months back, we might potentially have a soft fourth quarter 2020, just to balance the expectation. In September -- by September rather, revenue for all of OpCos, except for Ncell, was higher than the prelockdown level. Now just to be sure of the statement, XL did pretty well Q-on-Q, but we are talking about prelockdown. We define it as January, February. So last quarter -- in fact, I'm going to show you again the -- we show you the trajectory of the revenue for each OpCo. And you could see that even by time towards the end of second quarter, the trajectory was already on the uptick. So all have been very, very encouraging. So therefore, the Q-on-Q recovery has been pretty good, and we are very happy about that. In terms of margin, of course, we are very happy that our cost excellence programs, despite the reduction in the revenue, have resulted in a higher margin, and that is something that we are happy about this quarter. That translates to a very strong free cash flow that grew 44.7% to 24 -- MYR 2.4 billion. Of course, we kind of temper down the spend on CapEx because of the trying to minimize the impact to our profit and to free cash flow without affecting our ability to compete. Let's talk about the 3 companies more specific. The Celcom grew very nicely, very healthily, almost -- in fact, all measurements from subscriber perspective, 370,000 subscribers net adds for the quarter, grew very nicely on the revenue, EBITDA and even profit, in fact, quite significantly on the profit. So there's been a very strong recovery for Celcom. More importantly, as we kind of alluded to, it started towards the end of second quarter, the nice trajectory of Celcom. Now XL never fails -- never failed to amaze us. They had a very good first quarter, very good second quarter, and continued to be good in the third quarter despite the heightened competition. However, in the fourth quarter, as you all know, the competition remains very stiff, but the pandemic might be affecting us a bit, and also the impact of the education freebies or the -- that was launched by the government might have some impact; yet to be seen, but so far, so good. Ncell, we have a nice -- very strong recovery in second quarter, but not good enough to be prelockdown. We are working very hard. And we are now finally utilizing the spectrum, but more to be done to make sure that we are coming back -- going back to the pre-COVID period. Last but not least, while so far, so good, to get the expectation correct, we believe that our revenue by end -- for the whole year rather, will be a double -- single digit or low single-digit decline, together with EBITDA. The risk, as mentioned earlier, is related to, again, the pandemic. We were hoping that by fourth quarter, all clear or all full blast. But of course, in some countries, including Indonesia, there's a bit of the spike in COVID and therefore some reimposition of the lockdown, and more so, the impact to the businesses and the customers is yet to be fully known. And last but not least, as mentioned earlier, with regards to competition, we know that there's a marked competition in Indonesia for the last few months. We expect it to continue until the end of the year. With that, I'll pass to Vivek, our group CFO, to give you a further elaboration on the results.

Thank you, Tan Sri, and very good afternoon to all of you. If I can talk about the reported numbers. Quarter-on-quarter, as Tan Sri said, it has been a strong recovery after relatively weak, with 5.5% growth in revenue, around 10% growth in EBITDA and a very strong profit improvement. On a year-to-date basis, we are still marginally low on revenue, but flattish on the EBITDA. And that's, to some extent, reflective of our cost initiatives. And PATAMI in last quarter was impacted partly by the restructuring program, which we did, which is around MYR 77 million, and also the -- partly impacted by the forex. And also in last quarter, we had benefits of the lease, the gain from the tower sale. So overall the numbers on EBITDA look good. Revenues, kind of flattish, but quarter-on-quarter, still 5.5% growth. Profits, on a reported basis, it looks lower because last year, if you recall, we had gains coming from M1, sale of M1, divestments of some of the digital businesses and also disposal of Idea rights issues. If I go to the underlying performance, which is, I think, more relevant to really look at the operational performance, again, strong quarter with 6% growth on revenue ex devices. EBITDA growth of 11.4%, and still marginally lower on a year-to-date basis, but flattish when it comes to the EBITDA development on a year-to-date basis. Revenue impacted on a year-to-date basis mainly in 2 markets, which is Nepal and Malaysia. Nepal essentially coming out of the fact that -- 2 or 3 factors, which I will cover a little bit in -- later. And Celcom, mainly because of the first -- second quarter impact, which was on account of the mandated free data as well as the impact of lockdown in the second quarter. But as I said, a strong recovery. Other businesses continue to do well even on a year-to-date basis despite a number of days of curfew or lockdown. Quarter-on-quarter, all, of course, have given good results. XL flattish, mainly because of the increased competition and also some mandated government-run program. If I go to EBITDA, I think key highlight there is a strong performance across operations, but mainly improvement in EBITDA margins coming from the continued cost excellence program, which we have been running since 2017. If you recall, we had said MYR 5 billion saving over 5 years. So we should be able to complete that target by the end of this year. And in this year so far, on CapEx, around MYR 500 million saving and our OpEx around MYR 400 million saving. If you look back from 2017 onwards, our adjusted CapEx -- EBITDA margin has grown by around 4.5%, coming essentially out of the initiatives driven on the cost program. Profit, a strong growth in profit compared to previous quarter. Year-to-date, we are still behind, essentially because of the lower quarter 2. Mainly 3 factors. One is the increased depreciation, mainly because we haven't really cut down on the CapEx, to the extent, impact on the EBITDA development, and also, the Ncell contribution and the e-Tunai program, which we had run in the second quarter of this year. Quarter-on-quarter, I think a strong performance, which you can see from the numbers. This is what -- the next slide is what Tan Sri was alluding to, which basically compares how our revenue was prelockdown, which is an average of January and February, versus how it has developed over until September. So most of them -- all the markets, except Nepal, is actually running now above the prelockdown level, though it's still relatively below the pre-COVID, which is essentially the quarter 3, quarter 4 of last year. If I go to the next slide. This basically reflects kind of waterfall between the year-to-date last year, PATAMI of MYR 693 million versus the MYR 544 million this year, mainly, as I said earlier, coming out of the impact of depreciation. And below is on a reported basis. Essentially, impact is coming because of the gain we had this year on the -- between reported and underlying gain from the tower business, which we had in the first quarter of 2020. If I go to the next slide. I think cash has been our focus and reflected in the form of OFCF. But we also look at not just the OFCF impacted because of the lease adjustments, which is, as you know, from an IFRS 16 perspective, requires a different treatment. But if you look at the adjusted to that, our cash development for the 3 quarters has been around MYR 1.2 billion versus the around MYR 0.5 billion which we had last year. And largely coming out of the -- impact coming out of the CapEx moderation, which we've done this year as well as improvement in the EBITDA in some of the markets. If I go to the next slide. This basically reflects a fairly strong balance sheet for us. The gross debt-to-EBITDA looks elevated in quarter 3. That's mainly because we have -- after our MYR 1.5 billion issuance, which you recall was done in August this year, we have that cash available, which is eventually being used for refinancing or settling some of the outstanding debt. We expect around [ MYR 10.7 billion ] cash to come down to around 5 point -- around MYR 6 billion by the end of this year, with MYR 4 billion being spent on paying off some of the debts, mostly in the corporate center. But I think also the fact that our balance sheet also reflects a fairly good mix of local versus foreign debt as well as the fixed. And maturity is not quite extended. By the time we pay off these debts, we would have a maturity of over 10 years, which provides us a fair, predictable borrowing and maturity profile. If I go to the next slide, which is really around Celcom's performance. I think a strong quarter-on-quarter development, essentially coming out of the increase in subscriber base. We saw around close to -- prepaid subscribers increasing by nearly 3,500 -- 350,000, and postpaid subscribers increasing by the balance to take it to 372,000 increase in subscriber base. And also that's resulted in a 6% improvement in revenue quarter-on-quarter, but a strong development on the EBITDA side. Celcom continues to focus on their cost initiatives, and that's resulted in a strong EBITDA development. But that said, we had onetime benefit coming out of some adjustments on provisions on account of the reward program, which was available for the employees. The free cash flow remained strong for Celcom. And also there's been a development -- positive development on these profit numbers for the quarter. XL continues to do well. The quarter has been flattish when it comes to revenue, mainly because of the intensified competition in the market. As you know, most of the players have actually now moved to the unlimited or large bucket plans. And specifically, the leader being quite active in 104 cities. But year-on-year -- year-to-date basis is still a strong performance from XL, but much more on the profit side or the EBITDA development, which even if we exclude the impact of the IFRS, we are looking at around 16% year-to-date improvement in EBITDA, and that's reflective in strong cash flow generation. Part of that cash flow is also explained by the realization we got from the sale of towers earlier in the year. And also, you are seeing impact of those efforts in improvement in the profits for XL. Quickly on Ncell. I think there are 3 factors that impacted -- impacting Ncell's performance. One is lockdown. I think this is one market where we've seen much more frequent intervention to restrain movement or have lockdown in that market. And given that this is essentially a prepaid market where large paper voucher's being distributed, the lockdown does impact our distribution. And also the fact that a lot of people from big cities have moved to the rural area impact the overall consumption. In addition to that, we've seen doubling of the data consumption given this -- the time. However, the absence of tech-neutral spectrum for us, which we've been discussing with the government, constrains our network. And also there is a large ISP market which is providing the fixed at a very cheap prices. Given during the lockdown, people are more in house, the consumption for the additional data goes into the fixed operators. And these are the factors which have actually caused us to have lower revenue this year, resulting in lower EBITDA and also lower profits. However, the company has managed its flow of CapEx well to keep free cash flow in check. If I go to the next slide. I think Robi continues to do extremely well, with now EBITDA margins touching 43.5% on a year-to-date basis. And also, on a year-to-date basis, while the revenue has been fairly flattish, still better than what the market is delivering given the current environment. Continues to show extremely good numbers on EBITDA by keeping their costs virtually flat over the last 3 to 4 years. Cash flows being down, because this year, if you recall, last year, we had challenges on getting approvals from the government to import. So this year has been far more focused rollout of the network, and that's resulting in lower cash than last year, but the business continues to do well when it comes to the profits and continues to show profit quarter-on-quarter. Quickly touching upon some of the other businesses. Dialog remains resilient and it's seen a strong recovery in the quarter on revenue, translating to strong EBITDA development in the quarter by managing or curtailing some of these spends to drive improvement in EBITDA and also on cash flows. Profit during the quarter has seen a significant improvement, coming from MYR 2.3 billion in quarter 2 to around MYR 4.8 billion. Touching on Smart. I think this business continues to do well for us. There continues to be -- this market, well, has been least impacted in terms of the lockdown but does have high dependency on tourism as well as the Chinese population, which has kind of moved back during this period of time. However, business still does well on the overall management of costs, resulting in strong EBITDA growth on a year-to-date basis at 6.1% and on quarter-on-quarter at 7.3% and a strong cash flow generation of 8% improvement, resulting in a strong profitability of nearly 4.8% on a year-to-date basis. Just on Boost. I think we've been disclosing some information on our digital businesses. Boost continues to utilize the current environment where people are using online and wallets more often than they would have used otherwise, resulting in a strong 1.8, 1.8, 1.8x growth on revenue, users, merchants as well as GTV. And we have now touched around 8.8 million users in Boost with around 203,000 merchants. Aspirasi, which is the lending business for us on microfinance, which uses the Axiata Digital and Boost as a channel, we've done around MYR 57 million worth of loans being granted, which is around 5,800 loans, and has been doing well, keeping its delinquencies at a fairly manageable level. AdTech business continues to have year-on-year growth in revenue and keeping itself above water in terms of profitability and has acquired a fair amount of strategic wins during the quarter. And these businesses are one where we are looking at external investors coming in. Some of you are aware of, already in the process. And some are being -- where the discussions are going on. edotco business from an overall year-to-date basis still strong. However, given that a lot of MNOs have slowed down new tower acquisition during this period and also limitations on movement around this period of time, we've not seen that kind of growth in the number of towers during the year. And also this business has been kind of impacted by some of the write-offs on account of bad debts from some of our Tier 2 customers, mainly in Cambodia and Pakistan. So that's it from me on the financials. I would hand over to Dato' to talk about the future.

Thanks, Vivek. Good afternoon, everybody. Well, as Tan Sri and Vivek had explained and something we acknowledge, the results for the third quarter is very encouraging, very strong by most standards. But directionally, we're giving this guidance of low single-digit percentage that remains, yes, low single-digit percentage decline for revenue and EBITDA for 2020, and guidance for CapEx is likely to hit just below MYR 6 billion. In terms of the fourth quarter, of course, the opportunities remain. We are hopeful that the Collective Brain initiative, which we launched in April this year, will bear fruits in the form of a good price book from the vendors, which we are currently negotiating. This cover, as you recall, the IT network and procurement aspects of the business as a collective. ADS and edotco monetization, if you remember, we mentioned in passing that we are currently evaluating 2 proposals from financial investors. They are very keen to invest in edotco and be part of the trajectory of the expansion plans we have mapped out for edotco. Likewise, ADS, on top of the Great Eastern investment of USD 70 million, we are in current talks both on the digital financial services side as well as the adtech, digital advertising side of the business, ada. As Vivek mentioned just now, there's a higher user engagement for Boost and Aspirasi, supported by the various government initiatives, the consumers and SMEs, and this includes the digitization brand that MDEC is responsible for. e-Tunai and ePENJANA has also encouraged or raised the awareness as well as use of Boost as a platform. Enterprise growth business is something that we are very focused on. The online education and work-from-home new norm has indeed -- augurs well for our business. In terms of risk, as Vivek said just now, the COVID-19 lockdown impact from the extended CMCO in the Malaysia, curfews in Sri Lanka as well as the possible impact in terms of affordability of our consumers given the revised GDP forecast in various markets across our footprint, I think we are mindful or we are concerned of the high level of also of bad debt. Well, not so much bad debts, but probably less ability in terms of prioritizing one's wallet. So with closures of businesses and redundancies, this could have an impact on our operations in the months to come. Of course, intensifying competition, in New Year, the incumbent, Telkomsel, has launched an unlimited package as well recently. That will have an impact also on the competitiveness of the market. And as I mentioned again, the government-led CSR program for university students will cause a bit of -- some pressure on our results. Ncell, the tech-neutral spectrum, 900 megahertz, the incumbent ISP are providing very, very affordable rates. Even before the lockdown, before COVID, if you're on the ground in Nepal after 7:00 p.m., all the shops are closed, everyone is at home and on the net. And therefore use the ISP's broadband rather than our subscription. So that will prove to be a bit of a pressure on the Ncell's results. In terms of the provisions that has been made for edotco -- by edotco, this relates to second-tier customers that edotco has across the footprint countries, namely Pakistan and Cambodia. Next slide. So the key message we'd like to articulate today, a strong third quarter results, but potentially soft fourth quarter, so that we are managing the -- looking at the fourth quarter results, looking at the performance in October and November. Now of course, the change in consumer behavior has led to acceleration of data subscription and data subscribers as well as usage. So that is the good news. Of course, the encouraging -- quarter-on-quarter recovery is encouraging. As you've seen in the results, the impact of the lockdown second quarter revenue ex device grew by 6% and EBITDA grew by 11.4%, although year-on-year is very flattish. EBITDA margin expansion driven by the cost excellence, some savings of MYR 396 million, and this to -- hopefully, this is sustainable in years to come. And in terms of operating cash flow, the CapEx moderation has led to an OFCF growth of about 44.7% to MYR 2.4 billion. And of course, the strong recovery at Celcom in terms of subscribers. We managed to bring in 374,000 new subscribers, both prepaid and postpaid, and that is something that we are mindful of and focusing on. Of course, compared to the same period last year, that is still below in terms of our number of subscribers. XL, good performance, again, with the heightened competition. We are pursuing the ex Java strategy relentlessly. It's quite clear that that's a new -- a great opportunity for us. Ncell, Vivek mentioned, and the impact of the lockdown, the ISP as well as the current challenges in terms of the spectrum constraint. And directionally, as I've said, the low single-digit percentage decline revenue and EBITDA for 2020. The risks are COVID-19 related ones, lockdown impact, curfews in Sri Lanka. And the additional concern is the economic situation in Sri Lanka because of the depreciation of the local currency and economic activities that will have some impact on Dialog. And as well as I mentioned earlier, affordability impact as result of the revised GDP forecast across the markets. And lastly, the other factors, initial heightened competition, the government CSR programs as well as delays in Ncell spectrum and the provisions at edotco. As a last slide, this is an open invitation to all of you. Next week on 3 December, Thursday, we'll be hosting our Annual Analyst and Investor Day. The agenda is as what we've said on the screen right now. We are going to showcase a lot of topics that will be of interest to you. #4, especially, digital telcos: gainers in new normal. Dr. Hans will showcase our efforts in trying to position ourselves to take advantage of the new way of life, new way of working life and new way of doing things. Idham, the CEO of Celcom, will give a sneak preview of the transformation work that's currently ongoing. There has been a lot of interest in our digital financial services, so Khairil will map out the current efforts and the trajectory. And we also wish to introduce Adlan, the CEO, edotco Group -- the new CEO of edotco Group, to all of you to, for him to showcase edotco's plans. And of course, Topic #11 should be some interest to all of you. How we repositioning ourselves to be a high dividend company? Now this is, as we've mentioned earlier, a change in our investor proposition, the rationale and how we're going to do it, how we can make this happen in years to come. And that will be a topic for Vivek and I to cover next Thursday. So I do hope that you can spare the time next Thursday to join us on our Annual Investor Day. So on that note, thank you for your attention. I hand over back to Clare.

Thank you, Dato'. Okay. So we're moving on to the Q&A session. So it's the same drill as what we did in the last quarter. [Operator Instructions]. So we can start now [Operator Instructions].

Is there a question?

Or -- oh, I see. Sorry. Yes. We do have questions coming through. So the first question comes Foong from CIMB.

Congrats on the good set of numbers for 3Q. Three main questions from me. Number 1, on the government free education quota program in Indonesia, can you provide a bit more color on the revenue and earnings impact for XL now that we are 2 months into the program? That's question number 1. Number 2, for Celcom, what drove the big jump in prepaid subscribers Q-on-Q? And what proportion of the gross adds in the third quarter were coming from the prepaid unlimited plans? And for postpaid net adds, from which ARPU segments were the subscribers coming in at? And with the first increase in subs in 5 quarters, do you think we have finally turned the corner here? What does the October and November numbers indicate? And also on Celcom, what else you need to do to strengthen Celcom market positioning? And any visible gaps that you can see? And my third question regarding CapEx, you have optimized a fair bit this year. And as you mentioned earlier that it has not affected the consumer experience. Do you think that this is sustainable? Or will we eventually exhaust spare network capacity or lose competitiveness if we were to keep to this level of CapEx going forward? Yes, those are my 3 main questions.

Thank you, Foong. On your fifth -- on your question on CapEx, is that the group? Or you are talking about Celcom?

I'm talking about the group.

Group?

Yes.

Okay. So the first question you asked on Indonesia. I can get Budi from Indonesia to answer the question. Budi, you on the line? Budi is the CFO.

New CFO.

The new CFO of XL.

Yes. Thank you. Yes. Probably not too detail. I will give a bit high level. The program launched in the second -- in the last 2 weeks of the quarter -- on the third quarter. And what -- we're able to try to catch up, getting a quite number of subscriber. Until now -- I mean until last month, we managed to generate around -- injected around 6.1 million subscribers. And in terms of the dollar impact, probably I could not disclose that detail. But if you look at the news you can calculate roughly how much the contribution. But, however, don't forget to discount because the one that we can recognize is only the use portion. And I think that's it. And pretty much it's more on our AXIS brand, which is our youth segment brand that we are playing on this field. Hope that answers your questions.

Budi, can I just follow up quickly on what you said?

Yes.

Is there going to be revenue dilution from this program going into the fourth quarter? And also, would there be incurrence of higher costs maybe from SIM distribution or the need to pay your dealer commissions and all that for the program?

Yes. So in terms of costs, not significant because it's pretty much the same channel that we are using, the same infrastructure that we're using, right? So it's more on the revenue stream. The pressure on us is more on the ARPU. ARPU is the one that we continue monitoring, because it's true there's potential cannibalism in terms of ARPU for us because the same customer who used to spend more, now they're pretty much using their quota first from government before they start using their own.

Okay. Thanks, Budi. Celcom, is it Jennifer to answer the question -- the 3 questions on Celcom? Jen, please go ahead.

Tan Sri, I'm also here. Yes. Yes.

Oh, okay. Just [ give your view ] about Celcom.

Yes. Tan Sri, thank you. Thank you, Foong, for the question. Yes. We did have a surge of customers in the third quarter. A couple of factors, but I think one of the main factors, of course, are because of the weight of our network. But the main factors is we introduce our product that is now quite attractive and competitive in the market. I think that's one that kind of drove the demand higher. But besides that, we have also done quite a lot of work in terms of strengthening our trade. A lot of the trade that were -- the trade practice, how we look at the trade and our dealers, especially our prepaid dealers. So this drove in terms of what we were able to increase our gross add and net add in prepaid over the third quarter. Yes, in terms of proportion, what is unlimited? Yes, unlimited is one of the most attractive product out there. It does form a majority of our new adds in terms of prepaid. Okay. So on your question around postpaid. Yes, we have a positive net adds for postpaid after, like you said, the fifth quarter. So finally, I think we do have a product that we launched even before the MCO early in the year. However, because of the MCO, we were not able to take full advantage of the product. But post MCO, we're seeing that this product is doing quite well in the market. So we are quite happy with it, though it is still very early days. I'm going to pass to Jen later in terms of your question around bad debt. But what we are doing is quite a number of things to improve our positioning now in the market. I also have with me Allan Bonke, our new Chief Commercial Officer. We are doing quite a number of things, which I will allow him to elaborate after this, around, of course, strengthening of our network, around rebuilding our trade and also continue to introduce new competitive products. Maybe I'll pass to Jen to talk a bit about the numbers.

Hi, Jennifer here. I'll quickly bring us through in terms of the bad debt. I think the previous bad debts that we see, which was actually very high, was mainly because of the very aggressive device program that we had until end of 2018. We are starting to see with -- when we actually experienced a bad debt, we actually put in a couple of new rules in place. And with that, we are starting to see that the number has actually trend a lot more reasonable number. If you look at the Q3 number it is at 0.7% of the total revenue. There's a quite a couple of things that we have actually imposed in the last couple of quarters to actually bring down the number. One is that in terms of the credit checks that we have with the customer, we are -- in the past, we were a lot more liberal and a lot more lenient in terms of the customer acquisition with devices. But with the new things that we actually put in place, like, say, for instance, credit cards and credit checks, the number -- the bad debts has actually trend a lot further down and it's a lot more sustainable at this current point in time. On top of that, going forward, we are going to put in a few more measures, not just to trim down in terms of the bad debts but it's also to encourage the new subscribers that's actually coming, to actually encourage the customers to come in with our device bundle. I hope that answered the question. I'll pass it to Allan.

I can just echo with what Idham was saying regarding the unlimited. And you're absolutely right, it's more than half of our [ cross-sell ] at the moment is coming from unlimited. And that, in line with what we're doing, expanding our trade with both new dealers and expanding our slow dealers being more active. And we have increased the number quite a lot when it comes to active outlets who are selling our products. So a lot of good effort, a lot of good progress in the whole trade.

Okay. Foong, I'll take the last question, which is on CapEx. CapEx this year is going to be -- expected to be below MYR 6 billion, so around that level. This has been on the basis of us being extremely careful on our CapEx spend and prioritization into 2020. And the businesses where there has been lower CapEx has been essentially edotco, where there is lesser number of orders on new towers, which I think should open up once all these lockdown, et cetera, gets over, where MNO starts putting new towers in place. It's also in markets like Indonesia and Nepal. Nepal essentially because of the lack of spectrum that we can't really invest on the network. But apart from that, I think going forward, we should be looking at the CapEx intensity of around 23%, 24% going down to 20% over the next 3 years, which is what we have been communicating even in the past. But that said, we still see opportunities to grow in some of the markets. For example, we will continue to focus on investments ex Java. We will continue to focus selectively on investments in non-CCD in Bangladesh, which are the markets where we still see opportunities of growth. So the level of CapEx would be still around MYR 6 billion, MYR 6.5 billion, coming down to the levels of around 20% of revenue over the next 2 to 3 years.

Thanks, Foong.

Does that answer your questions, Foong? Do you have any follow-up or comments? Otherwise, we'll move on to the next question. Okay. So moving on to Alex. We have a question from Alex Goh from AmInvest.

I've quite a number of questions. The first thing is you are guiding now for a potentially soft fourth quarter after a strong third quarter. But given the numbers that you have in October and now, is that the current situation? Do you see softness taking place under this third wave of COVID-19? Or are you just being cautious or being prudent in this case? That's my first question. My second question is regarding Celcom. Thanks for the bit more in-depth explanation on Celcom's numbers earlier. But given the rise in competition from almost everywhere, do you see the kind of growth that you've experienced in this third quarter to begin tapering off, maybe in the fourth quarter or maybe early next year? And my third question is regarding Ncell, where you have these spectrum constraints. When do you expect the spectrum capacity issues to be resolved? How are the negotiations going on with the regulators? My fourth question is regarding edotco.

Go ahead, Alex.

Okay. My fourth question is regarding edotco. You've indicated monetization plans. Could we have some idea of what the kind of time line that we are looking in? And are we also still looking at an IPO? Or are you -- are we just looking perhaps for more direct investors?

Thanks, Alex. Why don't I get Idham to answer the second question and Dato' Izzaddin will answer question #1, #3 and #4. Please, Idham.

Yes. Thank you, Tan Sri. Thank you for the question, Alex. Yes, I think we all know the market in Malaysia is highly competitive. And whatever growth that we have seen is probably is not going to be exponentially growing continuously. So -- but what our objective is, frankly, is to outdo the growth of competition. I think we, the way that we are doing now, we're looking at market by market, region by region, and how we manage, or compete rather, in these micro markets and outdo the competition in each of the market. So it is also depending very much on how the market is going to be doing. But we think we will continue -- we believe we can continue to be competitive. And as our trade is being strengthened, as what Allan said earlier, we hope -- or we look forward -- or we think -- we believe actually we can continue to outdo the competition.

Okay. On the first question on the fourth quarter, whether we're being cautious and conservative. Actually, a bit of that. But Alex, in the context of what's going on, with foreclosures and loss -- job losses in Sri Lanka, we are equally challenged with the introduction of mobile number portability competition as well from the Sri Lanka Telecom. In Bangladesh, Grameenphone has the significant market presence. All in all, all factors taken into consideration, we just feel we -- our assessment that it will be a soft quarter for the full year. Well, fourth quarter will be soft, so that the full year will be -- although it is much more, much better than what we expected earlier on, yes, certainly, the additional -- the expanded CMCO, curfews in Sri Lanka, Indonesia and so on, taking all those into consideration, we felt that the fourth quarter will be not as encouraging, not as strong as the third quarter. Now the Ncell situation on the spectrum, are the discussions with the authorities ongoing? It's not just about the timing of the spectrum that's being awarded. It's also the rollout obligations that will impinge on the viability of the business. So we are trying to see or we are in discussions with the authorities. This, as you would expect, take a bit of time. We're working very, very hard to try to make sure that the spectrum is awarded on terms that we can make it work. edotco monetization. Okay, there's 2 aspects to this. As you all know, edotco in its current form is -- has a lazy balance sheet, meaning it doesn't have that much gearing and it has something like 1.1 billion cash sitting in its balance sheet. Now based on the trajectory and the plans that we have, certainly, edotco can go out there to gear up to raised something like USD 1 billion worth of borrowings before there is any concerns in terms of the financial metrics, yes. From 0.7x EBITDA, if we assume a 3x, 3.5x, you can easily raise something like $1 billion. Now that's the first point. The second point is, as we mentioned before, we are currently evaluating 2 proposals from financial investors who are interested to participate in the investment in the business of edotco as well as the trajectory. And if you think about it, it is very, very understandable because in the -- everyone considers the telco sector to be resilient to the pandemic or whatever is going on. I'm a bit cautious to use the word resilient. We are affected in terms of defaults, in terms of lesser customers and customers having to prioritize their wallet. But if you look at the tower business it is very much resilient because the MNOs also need -- will always need these towers to make sure they provide -- they can provide the service. Of course, edotco, as we alluded to, has its own set of challenges in terms of deferral of rollouts in terms of the second-tier customers, which we need to make some provisions for the third quarter, yes? So that process in terms of evaluating the 2 proposals of financial investors are going on. Hopefully, we'll have some closure and in a position to make some announcement before year-end. I'm pretty optimistic that we can do so. But then again, it depends on the final set of numbers after the due-D work that's ongoing as well as negotiating the definitive agreements. Now as an aside, you may be aware and have picked up the news, INCJ, who -- which has about 22% stake in edotco, they are a fund and they are in the process of also exiting the business. That's something we knew for some time back, and we're trying to make sure that the shareholding is very much intact in terms of the capacity of the shareholders moving forward to be able to fund the monetization -- the expansion plans of edotco. Now IPO is always on the cards. So given the current circumstances, where we are able to risk funding outside of the IPO platform, we don't -- we take the view that we are -- that's always on the table, and that's something that we could possibly pursue in 3 to 5 years' time. In other words, especially given current market conditions, that is not something that we want to pursue, especially when edotco can raise its own debt to fund the expansion plans. I hope that answers all your questions, Alex.

Yes, do. But can I just follow up the question on Ncell? Could you describe the issues that we are really facing with the authorities? Are they -- are you still having these issues, that you are linked with the capital gains tax issue in the past? How would you describe your relationship with the regulators?

I mean like all regulators, they're -- how should we say -- always trying to make sure that it's -- they're able to generate enough revenue for the country. Telcos in the emerging markets have always been considered the tobacco companies of yesteryears. I mean you see this manifested in Bangladesh, for example. Suddenly, the regulator introduced a tax on our revenue, for example, last year. So it's a pretty healthy discourse. That's how I describe it. The capital gains tax issue, as you all know, the Supreme Court has already decided. We are in the process of an arbitration with the government of Nepal yes through the bilateral investment treaty, and that's ongoing, but that is also long drawn -- that can be long drawn. On the ground, I think the government, the way we pitch our business is that we are trying to provide connectivity for the people of Nepal, the consumers. But if the government imposes conditions, for example, we talk about rollout obligations. If the condition is nationwide, then that will certainly not make our business viable. So that is not something that we can accept without any sort of concessions, if you like, yes? Rollout obligations are common across all the different countries. And there are ways of doing that. There could be over a period of time, a focus on certain cities and so on. So these are the challenges that we face. Nothing new actually, if you ask me, Alex.

Okay. Moving on, we have questions from Prem from Macquarie. Prem?

Prem, we can't hear you, Prem.

He can come back.

Okay. Maybe we come back to you. Sorry about that. So the next in line is Arthur from Citibank.

Can you hear me?

Yes.

Yes.

The radio silence.

Okay. Sorry. Some technical issues. Three questions, please. Firstly, on the risk factors. You mentioned bad debt provisions for edotco. I'm just wondering if that can be clarified. Why would edotco have bad debt issues considering its [indiscernible]? Second question I have is with regards to the digital services. You mentioned reduction in losses into this quarter. What's driving this swing quarter-on-quarter? Is it sustainable going forward? And last with regard to government service. So this Jendela program as well as the 2021 budget, how will that impact the company? What are your responsibilities under these programs?

Thanks, Arthur. Why don't you answer the first one?

Yes. Thanks, Arthur, for the question. On edotco, edotco has got essentially 2 types of customer. We call them Tier 1 and Tier 2. Now Tier 1 are, if you like, the Ooredoos, the Axiatas and the Telenors of the world. The bad debt provisions that we're making against the Tier 2 customers, yes, these are not, if you like, those names I've mentioned. And specifically these are operators in countries like Pakistan and Cambodia. So in the case of Pakistan, the obligations -- or rather the operator, the second tier, the Tier 2 operator has not met the payments that have been outstanding. So what we've decided to do is make provisions for the amount that they owed. And even took quite drastic actions actually because the amount due has been for some time. So we've decided to even switch off and dismantle the towers that were -- for those -- for that particular customer. In Cambodia, the license of one operator has been revoked by the Cambodian government, and this happened 2 months or 3 months ago. So given the circumstances in which that was done, we've taken the more conservative view to make provisions for the amount owing by that operator. Now on ADS, what's driving lower losses? I think like all the start-ups, the mandate that was given to both digital financial services and the digital adtech has always been to -- for them to turn around for profit in time to come. Now in the case of ada, the digital advertising, they turned a profit, a small profit last year, just above -- just more -- a bit more than breakeven last year. So they're good to go. But on the DFS side, the ePENJANA cost that was neutralized with the MDEC grant, for example, so it wasn't like the first round where E-Tunai, it was a complete -- it affected the bottom line in quite a dramatic way. Of course, marketing funds, we are much more focused. I think you would have picked up from the market as well, the other wallets are spending more than Boost. And at the same time we've also been able to negotiate some rebates or lower discounts from the merchants themselves. So all in all, this is the general direction that we have given to the team to target towards profitability in the near term.

Idham, can you answer the third question?

Yes, Tan Sri, thank you. Thank you, Arthur. On Jendela, of course, Celcom is fully participating in the Jendela as part of our commitment with our regulators as part of the industry to support the Jendela program. If I may, there is a couple of areas that we need to do. #1 is, of course, is the expansion of the network, to cover beyond what the industry has today to about 95% to 96% population coverage by the end of next year, 2021, and also to improve the overall quality of experience to the customers. So this is something that, together as an industry, we are working on it with the regulator or MCMC. One of the biggest plan for Jendela is the 3G shutdown, which is planning now towards the end of 2021, which is -- 3G shutdown has always been in our plan. The only difference here is we are accelerating it even earlier through 2021 and we are doing it as an industry. So this is something that's not a surprise to us, but in a way, to make it a lot more coordinated that what we have been. So we are working towards this, especially on migration of our customers from the 3G voice network to the VoLTE network, so on and so forth. What it does also with the Jendela program, to make sure that we're doing this in the most efficient way, the industry is collaborating a lot more, a lot tighter, especially in working out to roll out in the zone 3 and zone 4 for the more rural areas, especially in the East Malaysia, the Sabah and Sarawak.

Just to add on to what Idham said. As you all know, the country -- all the countries have set up this equivalent of the USP in Malaysia. So for Malaysia, one formulation that is being discussed is how those funds can be utilized to roll out the Jendela initiative by the government. So as it is, there's nothing of substance that we can share with all of you. That's still work in progress. As Idham said, this is an industry-wide effort to be -- to support the Jendela program. Hope that answered your question, Arthur.

Yes. Sorry, just to clarify. On the budget for 2021, there was also this comment of MYR 1.5 billion being taken on by the telcos in terms of subsidies. How is that going to translate into Celcom?

Idham?