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

Dear investors, good afternoon. Welcome to CITIC Telecom International 2021 Interim Results Announcement. Before we start, let me introduce the management: Mr. Xin Yue Jiang, Chairman; CEO, Mr. Cai Dawei; CFO, Esmond Li; and Executive Vice President and CEO of CTM, Mr. Poon Fuk Hei, will join us over the phone. The Chairman will first of all make a presentation. Thank you.

Investors, good afternoon. Welcome to the 2021 Interim Results Announcement of CITIC Telecom International. In the first half of the year, the global pandemic was still in dire situation with uncertainty in economic recovery. However, our employees have risen to the occasion despite the challenges. They've been working with -- in high spirits. We've been making an effort to expand new markets and explore new technologies with the rapid development of our capabilities of operation. The Internet platforms have been in high-quality operation. Our performance has been growing continuously in the first half. The profit attributable to equity shareholders of the company amounted to HKD 534 million, up 4.3% compared with the first half of 2020. The revenue from telecommunication services was comparable to the same period of last year at HKD 3,993 million. Total revenue for the period is HKD 4,795 million, growing by 9.4%. Basic earnings per share is up by 3.6% from the first half of 2020 to HKD 0.145. We attach great importance to dividend payout to our shareholders. We recommended an interim dividend of HKD 0.055 per share, up 9 -- 10% from the first half 2020. CTM completed the Phase 2 of 5G network construction, making us proactive and seized the opportunity in the early stage of the 5G development in the market. We have completed the NSA and SA and the Internet network slicing. We have covered all the outdoor areas, 93% of indoor areas. We became the first operator with a 5G network covering the whole territory of Macau. And we have formed 5G roaming agreements with over 40 operators, covering 27 countries and regions. We have been able to have a growth on the new demand for 5G network from society and promote the continuous growth of 5G network. The Phase III (B) project of our CITIC Telecom Tower was completed at the end of June. It was launched, and we have received very good response. As for corporate services, CPC has become a global provider of solutions. And we've been developing new products from Big Data and cloud computing. We help corporate customers to go through digital transformation. CPC expands its global network. Currently, we have over 160 PoPs and SD-WAN networks have gone to -- SD-WAN gateways have gone -- increased to 57. We've been actively exploring our business in Southeast Asia. We have established a new subsidiary. In Malaysia, we've explored a new business and started to offer corporate services. We continue to strengthen our work, cooperating with Singaporean government. As for international telecom services, we've been strengthening our platform capability with high efficiency and flexible and nimble services. We support telecom operators to explore business over the world. Looking into the future, CTM is expected to receive 5G license within the year. We will be actively working with the Macau SAR Government in the 5G license. And we will provide a strong support to the network of CTM, diversifying the functionalities of its network and strengthening its ecosystem. We will improve our service capabilities in continuous innovation and expand the size of our services and the value of the company. We will accelerate the transformation from ICT to DICT. We will be actively exploring new opportunities in Southeast Asia. Acclivis and Pacific product will be extended to more countries in Southeast Asia. Our group will continue to strengthen technological innovation with innovative network, products and services and ecosystems. We are able to build new competitiveness. In the new stage of development, we will take a lead in the market. Our group will also establish a coordinated system. And with that, we can promote development, innovation and more profit. Our group gives priority to telecommunications network. And we will also see economy of scale as a driver. And this is in line with our corporate culture, which is wisdom integrity for high-speed growth. We will make full effort to develop new markets and continuously explore new business. We will take a down-to-earth attitude in operation, prevent risks and improve the continuous and healthy development of the company with better efficiency. Now I will give the floor to Mr. Cai Dawei, our CEO, to walk you through the business of our company.

Thank you, Chairman. Good afternoon, investors. Now on behalf of the management, I will report to you the business of the first half. In the first half of 2021, total revenue is up 9.4% to HKD 4,795 million. Revenue from telecommunications is comparable to last year, which is HKD 3,993 million. Profit attributable to shareholders is HKD 534 million, up 4.3%. Basic earnings per share is up 3.6% from the first half of 2020 to HKD 0.145. We recommend an interim dividend of HKD 0.055 per share, 10% up from first half of 2020. We have recorded strong cash flow. Debt is further down by HKD 206 million. The net gearing ratio is down to 30%. Esmond will report on our financial performance.

Thank you, Mr. Cai. Now I will report to you on our financial results. First of all, total revenue is HKD 4,795 million, up 9%. Our telecommunication services were comparable to the last year. Profit attributable to shareholders is HKD 534 million, up 4.3%. In terms of EBITDA, HKD 1,254 million, up 2%. Capital expenditure, it was HKD 480 million last year, but this year, it's HKD 236 million. This is mainly because of 2 reasons. Last year marks a peak of 5G investment, but this isn't -- that leads to a HKD 200 million of expenditure reduction. As for cash, we have HKD 1.5 billion of cash as at the end of June; total debt, HKD 5.6 billion; net debt, HKD 5.1 billion because we have repaid HKD 200 million of debt in the first half. And net gearing ratio decreased from 31% to 30% in this first half of the year. As you can see from the chart above our dividends have been increasing over the last 10 years. We take our return to shareholders very seriously. That's why our dividend payout ratio has been on the rise, being over 70% at present. In the first half, we recommended an interim dividend of HKD 0.055, up 10% compared with last year. Since our takeover of CTM in 2013, we have made some arrangement for financing. We have been cutting our debt over the last 10 years. In the first half, at the end of June, our net debt decreased to HKD 4.1 billion, and net gearing ratio decreased from 53% to 30%. Now I will defer the next part to Mr. Cai.

Now I will report on our operational performance. As we mentioned, telecommunication services revenue was comparable to the last year, down by 0.8%. Revenue from international telecommunications and Internet services have increased a lot. I will now talk about this business in 5 aspects. First of all, Internet services. In the first half, our goal was to meet the new demand from Internet, and we recorded fast growth of 9.4%. So the new revenue mainly comes from optical fiber and commercial customers as well as data centers. The total number of broadband subscribers is up 0.2% to 196,000 users, taking up 97.1% of shares in Macau. And we have been continuously expanding fiber network in Macau. The residential fiber broadband penetration rate increased to 95.9%, up 1.2% compared with last year. Phase III (B) of the group's CITIC Telecom Tower Data Centre was completed in late June. Phase III (A) made a great contribution to our business, giving strong support to Internet business. In terms of enterprise solutions, we have expanded coverage and enhanced capabilities. First of all, in terms of global coverage, we established 2 new PoPs in Xuzhou, Jiangsu Province and Lanzhou, Gansu Province that brings the number of our PoPs to 160 over the world, covering 150 countries and regions. In terms of SD-WAN gateways, we have added 9 gateways, bringing the number to 57 globally. In terms of new customers, we've been actively exploring new customers. And we meet diversified market needs with flexible solutions so as to achieve collaboration in multiple businesses and continuously expand the scale of customers base covering manufacturing, professional services and other industries. In Macau, we launched the new generation of smart retail dining system in an effort to expand novel businesses and create new growth drivers. In Southeast Asia, we have won the IT system service project of Singapore's Ministry of Social and Family Development. We will be providing IT end-user support services for its 80 centers and more than 1,600 end users across the whole of Singapore. And we have completed the proof of concept for a smart visitor management solution in one of the largest medical institutions in Singapore, which involves the use of artificial intelligence in performing visual analysis and enhanced management capacity and optimizing visitors' experience. The Singaporean government recognized our technical capabilities. In the first half of this year, there was recurrence of the COVID-19 pandemic in Southeast Asia, restricting economic development and big projects. So our revenue decreased by 7.9% to HKD 1,583 million. In the next page, I would be talking about mobile services. We've maintained leading position in Macau market. Our 5G network is in place, as the Chairman said. In the upcoming 5G market, we have taken the lead. In Macau, we have maintained a very high market share. Our market share in mobile market is 45.4%, and we covered 47% of 4G market, up 1.2 percentage points compared with last year. Now we have garnered over 564,000 mobile subscribers with more monthly fee subscribers. In Macau, we have completed Phase II 5G network construction and successfully deployed NSA, SA and network slicing. We have achieved a full outdoor coverage and 93% indoor coverage. We completed 5G roaming agreements with over 40 operators covering 27 countries and regions. Apart from 5G, we continuously reached roaming agreements with 4G LTE operators. They cover over 366 overseas operators covering 215 countries and regions. And we have confirmed roaming data discounted inter-operator tariffs with 364 overseas operators covering 167 countries and regions. But revenue from mobile services due to the pandemic decreased by 13.4% to HKD 427 million. In terms of international telecommunication services, we have seen continued revenue growth. Now it stood at HKD 1.287 billion. Our messaging services revenue grew significantly by 49.3% to HKD 836 million. Our DataMall product seized the opportunity of Mainland visitors because Macau was already opened. And our DataMall recorded a revenue of HKD 19 million, increasing by 11.8%. Fixed line services. In Macau, revenue from fixed line dropped slightly by 5.2% to HKD 92 million mainly due to the drop in the number of fixed line users, which is in line with the global industry trend. On this page, we'd like to talk about our important drivers, meaning technology and innovation. We will continue to use that tool to step up long-term quality development. In our practice, we established our development strategy, which is called ICT-MiiND, our smart strategy. So with Big Data, cloud computing, AI and AR, IoT and blockchain technologies, we are able to build the smarter platform with enhanced capabilities and that will drive product and service innovation. They charted a clear line for our future development. We will be working with a cloud security service provider and launching the brand-new enterprise solution which is called TrueCONNECT. This is for edge storage and computing. This will enhance diversity of cloud network and they will offer customers new functionalities to connect their cloud and security products. We also upgraded our DataMall platform to support new application scenarios, including 5G, IoT, our IoV and eSIM and OTT products. In Macau, CTM continues to work with Macau government in smart city and smart Internet. We work with Macau Government Tourism Office in building a pedestrian flow analysis and monitoring system. We work with Sports Bureau and Education and Youth Development Bureau in their summer activity registration system. They form a very important part in our efforts in building the smart city of Macau. We have received awards from Frost & Sullivan to reflect our innovation. There are 2 awards. One is Digital Innovation Award in Greater China. Our Mainland team received a Sustainable Value Innovation Award in ICT market. That speaks volume of the recognition of market. So these are our awards. Apart from Sullivan award, we also received a big award in data and cloud computing services. Looking into the next year, we will focus on these important drivers, including technology, corporate culture, and we'll continue to create value to our shareholders. That brings me to the end of my presentation. Now it's the Q&A session.

The first question comes from [ David ].

I have 2 questions. The first one is regarding the innovation of Phase III (B) of your CITIC Telecom building. And what about the leasing program and who leased the new property? The second question is regarding CTM. Can you please update us on the progress of 5G network in Macau? 5G services are available in Hong Kong. So when are you expecting to receive the 5G license in Hong Kong? Then do you have any plan to make a clear fee schedule for 5G services in Hong Kong?

Let me take your first question regarding the CITIC data center. As we mentioned, we completed Phase III (B) in the first half of this year. A number of potential customers, partners, are in discussion with us, including financial companies, telecom carriers. There are different kinds of them who are getting in touch with us. We've been keeping a close eye on our inputs in data centers. For example, in Greater Bay area, Southeast Asia, we are always keeping a close on the opportunities for data centers. If the conditions are right, we will probably make a foray into this market. The second question regarding 5G. Mr. Poon will take the question.

Thank you, Mr. Cai. Thank you, David, for the question. Regarding 5G, as Mr. Xin and Mr. Cai mentioned, the government will grant 5G license later than we expected. But as far as we know, the government will speed up the process. And they will probably grant 5G license through a speed track program, so we expect that the 5G license will be granted soon. Recently, we have done a lot of work. We believe that our 5G network is first-in-class. We have NSA and SA 5G networks, that means that we can enable any type of 5G operators. And we have done a number of 5G roaming tests. When we launch 5G network, we don't think roaming will be a problem. As for tariff or fees, 5G operators in Hong Kong and other regions have seen the 5G tariff comparable to 4G data plan. Mobile phones, IoT and other smart applications will see higher penetration. So I believe operators will take great leaps. When 5G network is launched, we will see a huge step forward in terms of penetration and popularity. So we don't think that the tariff will jump a lot as you saw when we were transitioning from 2G to 3G, rather, we think the tariff will only increase slightly.

Next question comes from [ Crystal ].

My question has to do with your cash position. You have abundant cash on the book. So do you have any financing plans ahead? What's your outlook for CapEx in 2021? And what are the projects we are talking about? Then what is the outlook for next year in terms of CapEx?