CITIC Telecom International Holdings Limited (1883) Earnings Call Transcript & Summary

Ladies and gentlemen of the investment field, good afternoon to you. Welcome to the 2020 Annual Results of CITIC Telecom International. First of all, the management joining us today is the Chairman, Mr. Xin Yue Jiang; the CEO, Mr. Cai Dawei; the CFO, Mr. Esmond Li; and also the Executive Director and CEO of CTM, Vandy Poon. Welcome to this briefing. First of all, we will have Mr. Xin Yue Jiang, the Chairman, address us.

Ladies and gentlemen of the investment field, because of the COVID situation, it's been over a year that we haven't met face-to-face. I miss you all. I would like to take this opportunity to, on behalf of the entire team and management of CITIC Telecom International, to express our greatest goodwill and good wishes to you all. We would want to thank you for taking the time to be with us today at this 2020 Annual Results of CITIC Telecom International. In the year 2020, the group had been persistent in implementing our new philosophy of development, and we have spared no efforts in protecting against the epidemic of COVID-19. We focused on corporate development and high-quality growth, addressing challenges in a composed and robust manner. And we have continuously improved our quality of service, and we have driven up scientific research and new product development as well stepping up with team building and personnel development. We have also strengthened our corporate digitalization and financial management, and we have achieved stability and progress in overall operations and continuous growth in profit. We have been able to attain a profit attributable to equity shareholders of HKD 1,023 million for the year ended December 2020, representing year-on-year increase of 2.1% or 4.4% increase if the effect of investment property valuation is excluded. The group generated revenue from telecom services of HKD 7,978 million, which is 7.9% growth over the corresponding period the previous year. Basic earnings per share was up 1.5% year-on-year to HKD 0.279. The group pays great emphasis on shareholders' return, and the Board has recommended a final dividend of HKD 0.16 per share. Together with the 2020 interim dividend of $0.05 per share, total dividends for 2020 amounted to $0.21, representing a 5% growth from previous year. CTM went on an all-out 5G network build-out in the year 2020. In June of 2020, CTM, for the first phase of 5G NSA network build-out, it had already been completed, and it became one of the first batch of cities in Asia to have rolled out all outdoor full coverage 5G NSA network. At the end of 2020, we have also laid the foundation for the basis of commercial use core network, and we have achieved very good results in terms of the coverage aiming for full coverage in Macau of 5G SA for core commercial network. By June of this year, we're aiming for early rollout. As for enterprise solution business sector, there had been good development in China Mainland, Hong Kong and also Macau as well in Southeast Asia. And we continue to be developing well in this area. We are setting up global network of service centers as well as PoPs. With an increase in the scale of our network, we already cover over 130 countries as well as over 150 PoPs around the world. And we closely are in step with market and technological development trends, and we continue to enhance our smart network as well as strengthen our SD-WAN coverage. In 2020, our SD-WAN gateway has already 45 in numbers. And in Internet business, we continue to develop our fiber broadband service, and our subscribers numbers continue to grow, and our revenue also continues to grow. And in the year 2020, CITIC Telecom Tower 3 Phase B (sic) [ Phase III (B) ] have been going on well, and we will aim for June completion and commencement of service. And we continue to innovate our products and our services in a number of areas, including in our products and also in our enterprises messaging and information service. And we continue to be very close to any changes in the market and increasing our scale of international voice service business and international telecom service. In the future, we will continue to be responsive to the changeable situation and also leverage on our forte. We continue to innovate, and we will be innovative in our technology, and we will continue to be aggressive in laying out our Internet network, smart data. And also, we will continue to focus on the main emphasis of mobile and Internet services and maximize our enterprise solutions and services as well as develop leading-edge technology products. And we will continue to focus on 5G, IoT, AI, Big Data, computer -- cloud computing and also software-defining network. And we will continue to put in higher technology and resources into product development. The Board had also resolved that there will be further impetus put into Southeast Asia in 3 to 5 years. There will be major contribution from this geographical area. And we continue to step up our business in this geographical area, aiming for one-stop ICT service products for the commercial area. Next, Mr. Cai Dawei will address us. He is the CEO of the group.

In 2020, revenue from telecom services for the year increased by 7.9% to HKD 7,978 million when compared with last year. Profit attributable to equity shareholders of the company amounted to HKD 1,023 million, an increase of 2.1% from the year before. Excluding the valuation loss from investment property of $4 million, profit attributable to equity shareholders would increase by 4.4%, and basic earnings per share was up 1.5% from last year to HKD 0.279. Final dividend of HKD 0.16 per share is declared. Including an interim dividend of HKD 0.05 per share, dividends per share totaled HKD 0.21 for the year, which is a 5% increase from the year before. With strong cash flows sustained from net debt further down by HKD 616 million even with CapEx up by HKD 398 million from last year. Net gearing ratio dropped to 31%. And next, our CFO, will talk to us about financials.

Thank you. The financial results overview are as follows: In the 5 years preceding, our telecoms revenue continue to increase. It has increased by 8% to this year, and that is HKD 7,978 million as profit attributable to equity shareholders have been on the rise in the past 5 years as well, and it is now at HKD 1,023 million, which is an increase of 2% from last year. Next page. For EBITDA and also in terms of liquidity for EBITDA, for 2020, it is HKD 2,460 million, which is slightly down from the year before. If we take away the -- as mentioned just now, the valuation item for our property, if we take away that particular item, it is more or less the same as last year. For CapEx, for 2020, it is HKD 844 million, which is $400 million more than last year. It is because of 5G investments and also for the CITIC Tower, the data center in that. That is Phase III (B) investments. As for cash, at the end of the year, it is HKD 1,519 million, and it is an increase of $200 million from the year before. Total debt is $5,868 million, which is $400 million less than the year before. So net debt is a decrease of $600 million to $4,349 million. And net gearing ratio had fallen from 35% to 31% this year. And next, we can look at the past 10 years or so. We are very focused on the return to our shareholders. And therefore, in terms of dividend, there had been a growth in the past 13 consecutive years. And from $0.02, it has increased by 5% to what it is this year, and it is $0.05. It was a 75% payout ratio for the year. And since we have acquired CTM, our gearing had been 53%. And over the years. Since 2013, we have been lowering our gearing ratio and our debt. And last year, as mentioned, it is 43,000 -- $44,349 million (sic) [ $4,349 million ], and it is 31% in terms of net gearing ratio. Next, the operational performance. Yes, let us look at the telecoms services. This chart shows our telecom services revenue, the 5 areas in terms of the changes. For our Internet services and enterprise solutions, they remain steady growth. And there's a search and international telecom services revenue, and I'll go into them one by one. First of all, let us look at Enterprise Solutions. In 2020, we have continued to expand our coverage with strong capabilities, resulting in revenue growth. There had been a revenue increase of 4.5% to HKD 3,227 million in terms of Enterprise Solutions revenue compared with last year. And then there is an MPLS network coverage with 10 additional points of presence in Mainland China and South Africa and the second PoP in Ho Chi Minh City, Vietnam. And we have the TrueCONNECT MPLS VPN service coverage now extending to over 150 PoPs globally, covering over 130 countries. And 30 are in the Greater China area and also the Greater Bay Area for our SD-WAN central gateway coverage. And 6 of them are covering the major ASEAN countries, and they cover a number of areas. Our enterprise service and delivery capabilities continue to increase. And we serve government and enterprise customers in Mainland China, Hong Kong, Macau, Southeast Asia, supporting their digital transformation and forming multiple successful cases. As for Internet services, the revenue had been up by 5.4% year-on-year, mainly driven by fiber, broadband services, especially in Macau. And there had been a total number of broadband users increasing by 1.7% to over 196,200 users and which is about 97.1% of market share of Internet in Macau. And we continuously expand our fiber broadband penetration with the group's residential fiber broadband penetration rate further increasing to 94.7%. For international telecoms services, next page. And we continue to enhance our platform capabilities and develop new services as well as functions, enabling the messaging services to achieve new effectiveness. The messaging services revenue grew significantly to HKD 1,258 million, an increase of 86.8% (sic) [ 86.6% ], boosting revenue from international telecom services by almost 40% to HKD 2,481 million. An ongoing upgrade of our DataMall [Foreign Language], global mobile data traffic trading platform to support 5G, IoT applications, et cetera. And in the Internet of vehicle services market, we achieved breakthrough in data traffic platform. And next slide, let's look at mobile services. For mobile services, we continue to consolidate our leading position in Macau. As of the end of 2020, for CTM, we maintained the leading position with 44.4 mobile percent (sic) [ 44.4% ] in mobile market share and 45.8% in 4G market share, which is a 3.4% growth and 3.9% growth, respectively, from 2019 with over 720,000 subscribers. And we actively complement the Macau government policies, completing the 5G network build with full outdoor coverage and has commenced 5G indoor network coverage and system constructions. And we completed the 5G roaming testing with 30 overseas operators covering 18 countries or regions and reached LTE bilateral roaming agreements with over 355 overseas operators covering 210 countries or regions, enabling more roaming promotional plans. And revenue from mobile services decreased by 23% to HKD 957 million as compared to 2019, mainly due to the decline in roaming services as a result of COVID. As for our fixed line services, fixed line services revenue dropped 15.6% to HKD 190 million. And this is mainly because of decrease in fixed lines and also traffic volumes of commercial users in Macau, and this is in tandem with the industry. Now -- just now, we talked about the different business segments and also the revenues for the different segments. And next, I would like to take this opportunity to share with you some of the main themes and also our development achievements. First of all, for the 5G network, leveraging 5G network as a first-mover advantage to build out Digital Macau. So this is for infrastructure -- from the infrastructure moving to 5G complete rollout. And it is a full fiber broadband advanced external connection and top-tier data center kind of connectivity data and operation mode and to provide to our government and also the industries and enterprises our full-service and connectivity. So we work together in order to raise the platform and operation of smart operation. And that is not only for enterprises but also for government. And for example, we are also working with the old-age homes and old-age service industries to use cloud computing and in other industries as well to provide better service. And also, we have a competition that had been entered -- cooperated or co-organized with other organizations as well as going into a smart transport agreement with the University of Macau so as to promote digitalization and also promote our position as an operator in this field. And here, you are able to see the different areas in which we provide innovative ICT service for digital transformation. And we see from around the world, there is this quickening of the phase -- pace of digital transformation. And we are here to assist our enterprise customers in so doing. And we have listed some successful cases. For example, in Southeast Asia and Singapore, and we provide Land Transport Authority of Singapore, providing cloud computing and data analysis solutions in connection with the construction and management of smart city electronic payment, and it has been given the Singapore Innovation Award. And we also provide cloud computing service. And also, in Hong Kong, OpenRice, which is a very famous one-stop food dining guide, we provide comprehensive ICT solution, comprising information security and network services to OpenRice. And also, we have won the major awards, for example, the 2020 IDC Digital Transformation Award in China and also DX CEO in Hong Kong. And also, in Shanghai, we optimized the Shanghai Shyndec Pharmaceutical's information infrastructure as well as enhancing its network stability and security through an SD-WAN solution. As well in a number of areas in logistics, in retail and real estate, we have also provided services. This is in the area of network stability and security and also development of capabilities for these enterprises. So this is a major growth impetus for us. All through the years, we have been adamant on innovation and also our own research. We have been putting an all emphasis into our digitalization transformation with technological innovations, and we have been given recognition from the industries. For example, there is the AR application in Macau, which is a self-developed mobile AR app that we have launched. And also, in remote operation and maintenance solution based on AR technology, which had been jointly developed with ASTRI in Hong Kong, and it had been given an Innovation Award for Asia. And also, with Alibaba and Alima, we have organized and won the champion. We have won the champion of Tianchi Logistics Algorithm Competition. And also, we have one of the IBM's 2020 Innovation Award that is for Acclivis. So these are all recognition from the industry for us. So our innovation is really a part of our corporate digitalization transformation as well. So with our own experience, our cloud computing capability and our intelligence, we continue to fuel our service. And also, we continue to build our R&D team. And for the industry recognitions, basically, I would not read them out one by one. But basically, it is about our excellence in service and also recognition of the innovation of our products and our services. Thank you very much. This is the end of the report. If you have any questions, this is a time for Q&A.

[ Jenny ] will ask the first question.

Can you hear me? This is [ Jenny ]. I have a question for you. I would like to know from the group about the Southeast Asian market's development. What is the progress of the development of this market? And also, for the Southeast Asian market, how much is it part of the revenue? And in 5 years, what is the proportion of total revenue. And also, in the Greater Bay region, what is the progress of your development in this particular region and market, please?

Thank you for your question, and thank you for your care and concern. As the Chairman, Mr. Xin, had mentioned, for the Board meeting this -- today -- earlier today, it is resolved that there will be more impetus put into the development of the Southeast Asian market. It is a strategic market for us, and it will be a focus of development and growth for us in the future. It has been very smooth in the development of this market. And also, in terms of the cloud, communication and management, we have already extended our brand name and service to a number of markets, including Singapore, Vietnam, Indonesia and Malaysia and the Philippines. We serve the Chinese enterprises going out and also the local enterprises as well as the local governments, and we have already started cooperative relationships and service relationships with them. And in our report, we have also said that for SD-WAN and also our PoPs, we will continue to establish the network and our coverage in these countries and markets. And also, for Internet vehicles, we also help the vehicles manufacturers with their data and also the Internet capabilities. So for the Southeast Asian market, the achievements of ours show that our service capability as well as our brand name had been highly recognized by the customers in the market. And this means that our development directives have been correct. And then for the next step, we will continue to invest more resources into this area. We have 200 staff members in our Southeast Asian market. That is very strong. And then we will continue to develop our team, putting even more resources and also the synergy of our businesses so that in the Hong Kong market and also Macau market and Mainland China market on the basis of that kind of strength in technology and our scale, we will use that and leverage that to develop the Southeast Asian market. And further, we have also -- we are also clear about the next few years of development direction. And Southeast Asia will be bigger in terms of a feature in our future plan and development. We will put in all our resources to further develop this market of Southeast Asia. This ends my answer.

The next question, please.

This is [ Kiki ] with the second question. I have a question for the management. In the past few years, you have increased your dividend. And for 2020, what is the dividend? Do you think that it will continue to grow? Are you confident about that? Do you have any M&A plans? Are there any discussions for acquisitions or mergers, please? And what kind of industries are you looking at for M&A? And also, for your Macau business, what is the operation for the Macau market? And when will you be given the license for 5G? When will you roll out the service? And what would be the price for 5G?