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

Good afternoon, ladies and gentlemen. Welcome to the CITIC Telecom International Holdings Limited 2023 annual results announcement. I am [ Kares ], your MC today. Today, we will have a hybrid mode. Those who are online, as investors, you would have received, before the meeting, the PPT. If you do not have the PPT, would you please contact our PR staff? [Operator Instructions] Now first of all, the members on stage: Mr. Luo Xicheng, the Chairman of CITIC Telecom International; the CFO, Mr. Luan Zhenjun; Mr. Vandy Poon, the Executive Vice President of the company and CEO of CTM; and also Mr. Brook Wong, Vice President of the company and CEO of CITIC Telecom CPC. Now first of all, Mr. Luo, our Chairman, will address us.

Good afternoon, ladies and gentlemen of the investment community. First of all, I would like to thank you for taking the time to come to our 2023 annual results announcement of CITIC Telecom International Holdings Limited. On the 27th of October 2023, I ascended the role of Chairman of the company. And this is my first such conference; and I'm very happy to be here meeting with the friends who have been caring for and supporting our company, CITIC Telecom International Holdings Limited. And I would want you to continue to give us support. In 2023, the global economy was challenging and complex. With the support of our major shareholders of the company, our team forged ahead despite challenges, maintaining our principles of being client centric, releasing new impetus for innovative development and putting in all efforts for the company's high-quality development. In 2023, the group's total revenue was HKD 9.987 billion, a slight increase (sic) [ decrease ] year-on-year of 1.2%. Telecom service revenue was HKD 8.569 billion, which is a drop of 3% year-on-year. Profit attributable to shareholders was HKD 1.231 billion, which is an increase of 3.4% year-on-year. And earnings per share is HKD 0.333, which is 3.1% increased from last year. The Board recommends a final dividend in 2023 of HKD 0.193 per share. This together with the interim dividend of HKD 0.06 per share, for the whole of the year 2023, the dividend is HKD 0.253, which is 3.3% increased year-on-year. Within the group, CTM in Macau continued to lead the market. We invested wholesale into Digital Macau 3.0. And as of the end of 2023, CTM 5G subscribers had exceeded 500,000. The market share is 75%, well in the #1 position in 5G market. We were first to introduce 5G leased line service for 5G in Macau, expanding the industry adoption of 5G and working closely with the Macau science and technology university and smart campus network as well as serving Macau in the #1 science satellite pilot (sic) [ Macao Science 1 ] project. We also help develop Macau's space industry development in this regard. We successfully achieved the target of replacing copper with fiber. And fiber rate is now 100%, so all CTM Internet broadband subscribers are now officially in an all-fiber [ area ]. The group further developed the GBA smart city 5G integrated development, leveraging the international roaming IPX platform capabilities. For CTM, we cooperated with a world-class-scale mobile operator to deliver the first testing of VoNR roaming service which supports 5G stand-alone network capabilities and structure. Our DataMall resumes growth trend. Year-on-year, revenue grew HKD 104 million to HKD 131 million. We continued to proactively expand the scale of our data center sector. And we successfully brought in major Internet clients and platform and also major projects to become users of our proprietary high-standard data center. Our technological service is well recognized by [ our clients ]. We built out in big ways on cloud security one-stop service platform and speed up digital transformation for our clients. Our CPC extended the coverage of the Belt and Road region, the Middle East and also BRICS country service coverage. And we also built out the service nodes and increased the number of overseas service points. We continued to optimize on our Internet safety products and systems. We developed in Southeast Asia, [ grasped the ] opportunities. And we are serving the Singapore government department and also the Malay government department in providing moving services for digital telecom systems. And looking into the future, we continue to focus on innovation and transformation. And we increase our investment in technological development and innovation with new clients. And lastly, I just want to, on behalf of the Board, thank the outgoing, former Chairman, Mr. Xin Yue Jiang. In the past 10 years or more, Mr. Xin, the Board, the company management and all our staff have been striving forward successfully, achieving impressive developments. I will continue with my duty in a steadfast way living up to your expectations, shareholders, Board, all staff, media and investors' expectations. With your trust and support, we will continue to strive for new heights.

Next, the CFO, Mr. Luan, will share with us the 2023 results. Thank you.

Greetings. We have a lot of old friends here and some new friends. Next, I would want to go through the 2023 performance of our company. In 2023, the sales of mobile handsets and equipment increased by 10.8% year-on-year to HKD 1,418 million. [ As well ], revenue from telecom services was a decrease of 3% year-on-year to HKD 8,569 million. Total revenue for the year decreased by 1.2% to HKD 9,987 million. Profit attributable to shareholders of the company amounted to HKD 1,231 million, an increase of 3.4% year-on-year. Basic earnings per share was up 3.1% from last year to HKD 0.333. Final dividend is HKD 0.193 per share. Including interim dividend of HKD 0.06 per share, full year dividends totaled HKD 0.253 per share, which is a year-on-year increase of 3.3%. The stable operating cash flow achieved with net debt further down by HKD 326 million when compared to the end of 2022. And net gearing ratio dropped to 17%. In the end of 2022, it was 20%. That is a drop of 3% (sic) [ 3 percentage points ]. And here on this page of the PPT, we see the financial results overview including the total revenue and profit attributable to equity shareholders. In the past 5 years, there has been a growth from 2019 of HKD 9,014 million to, in 2022, HKD 10,111 million. And 2023, we fall just shy of HKD 10,000 million. And over 80% is from revenue from telecom services, and 14.2% from sales of mobile handsets and equipment. And for profit attributable to equity shareholders, there's been a CAGR of 5.3% from 2019, which stood at about HKD 1,000 million, to HKD 1,231 million in 2023. Next, let us look at the EBITDA, CapEx and liquidity. For EBITDA, in 2023 year-end, it was HKD 2,571 million; CapEx, HKD 276 million. And for our debt, we have always been prudent; and our cash flow is also strong. As of the end of last year, it is the total debt is a drop from HKD 4,520 million to HKD 3,934 million. Net debt is HKD 2,208 million. And net gearing ratio dropped from the year before, 20% to 17% as of the end of 2023. Next, let us look at the last 5 years in terms of earnings and dividends per share. There is a stable growth in our basic earnings per share and dividends per share. And you can see that basic earnings per share had risen from HKD 0.275 in 2019 to HKD 0.333 in 2023. And dividends per share was HKD 0.20 in 2019, growing to HKD 0.253 in 2023, which is a CAGR of 6.1%. Next, let us look at the gearing and debt levels. As mentioned just now, the net gearing is a major drop compared to 2019. The -- it was close to HKD 5 billion in terms of net debt for the company, and therefore, the gearing ratio [indiscernible]. And net debt had been dropping, so we have -- the gearing and net debt had been stable but lowering. And net gearing ratio has dropped to 17% as at the end of 2023. So for interest rate risk and currency risk exposures, a major risk had been the floating rate for interest. And 91% of the company's debt or total borrowings are at fixed rate, reflecting the group's continuous efforts in reducing interest rate risk exposure. And also, during 2023, we had reduced the variable-rate borrowings by HKD 596 million. And majorly, we are in Hong Kong dollars; U.S. dollars; and patacas, Macau currency, in our debt. And as you know, there is [ a peg ] for the Hong Kong dollar, U.S. dollar and Macau patacas, so there is not a lot of currency risk among these currencies. And also we have a small amount of business that are in other overseas currencies, including the businesses in Singapore and also in the mainland of China and other Southeast Asian countries, but this is a situation which we will -- closely monitoring to see whether there are any changes in currency risk. And where necessary, we will do hedging, but at present, the currency risk is a -- in an acceptable and controllable state. Next, we want to go into the operational performance of the company. First of all, there is sustained growth in Internet services. And also we see signs of recovery in the mobile services. In 2023, revenue from mobile services was HKD 967 million, which is an increase some -- of some 17% from 2022. Internet services revenue increased 7.2% to HKD 1,427 million. For Internet -- international telecom services, there is unfortunately a major decrease of 14.5% from 2022 to HKD 2,954 million. Enterprise solutions revenue is in line with 2022; or slightly increased, about HKD 10 million increased. And fixed line service revenue decreased 6% from 2022 to HKD 142 million, and this is in keeping with the industry. For Internet services, for this sector, we maintained our leading market share in the Macau broadband market and achieved groundbreaking development in the data center business. The revenue is an increase of 7.2%. And as mentioned, because this is of -- from -- we increased the revenue from Internet services to our corporate customers, a data center business and also the fiber broadband in Macau. And also we maintained leading market share in the Macau broadband market. As of the end of 2023, we have a top-ranking Internet service in Macau with 97.1% market share. Also, we have launched a fiber 360 service. And we -- CTM became the first Internet service provider in a city to launch "fiber to the room" technology, providing customers with full coverage of WiFi 6 in residential properties. And the data center business of the group achieved groundbreaking development, and its high-grade data center in Hong Kong has secured a sizable Internet platform company as customer with a large-scale project. And to meet market demands, we have commenced expansion project at the CITIC Telecom Tower Data Centre; and it is anticipated to be ready in the second half of the year. And also, in tandem with market developments, the CITIC Telecom International CPC Limited, our subsidiary, has boosted the technological innovation and service intelligentization in response to market changes and customers' needs, thus strengthening our service in cloud data centers and bringing in sustained revenue growth. And for our enterprise solutions, as mentioned earlier, revenue amounted to HKD 3,079 million, which is slight increased from 2022. And during this year, we have further broadened our network coverage, so at the end of the year, our virtual private network service business covered 160 countries and regions worldwide with nearly 170 points of presence and 63 SD-WAN gateways. And we continues to -- continue to enrich our product lines, including the Versa network to launch integrated SD-WAN and SASE solutions providing customers with strong network connectivity and security products and services. And further, we are working with the University of Macau and iSSTECH, respectively, to leverage the advantages of the different parties and big data services, et cetera. In Southeast Asia, we continue to actively expand. And we continue to strengthen our AI technologies capability by establishing the first deployment of NVIDIA DGX BasePOD and becoming an authorized partner of NVIDIA. For mobile services, we continue with our leading position in Macau's mobile market. We launched the 5G private network projects and enhanced our development of smart applications. As mentioned just now, in 2023, the -- due to recovery from the pandemic, mobile services revenue was HKD 967 million. And we continue with our leading position in Macau. And we have 48.3% share of the Macau mobile market, which is 2.6 percentage points increased from the end of 2022, with over 663,000 mobile subscribers at the end of the year. And because of our first-mover advantage in commercial 5G services, at the end of the 2023 period, it had more than 500,000 5G mobile subscribers, representing more than 75% of CTM mobile subscribers. And also, together with Macau University of Science and Technology, we've joined hands to launch Macau's first 5G private network project, 5G smart campus, providing students with scientific network environment and security and mobility. We have the following indices. First of all, we have 5G roaming services with 124 overseas network operators, covering 99 countries and regions. And we have 4G roaming services with 390 overseas network operators. And also, for bilateral VoLTE roaming services, we have 21 overseas network operators coverage. And we continued to strengthen our IPX network -- platform capabilities; carried out first successful 5G SA-plus-VoNR roaming service trial between Hong Kong and Macau, promoting smart connectivity in the GBA in -- Macau area. We continue to increase our revenue from DataMall [Foreign Language] services, up by -- and this is up by remarkable 385.2%. And we continue to provide stable, reliable voice services to our customers around the world. And our revenue was HKD 1,234 million from voice business, increasing 42.2% year-on-year. And there are a few parts to it. First of all, the DataMall [Foreign Language] services, which had surged around 385.2% -- and it is small still in size, this kind of growth. Despite that, our actual revenue is only HKD 131 million. We will further increase that. International telecom services amounted to HKD 2,954 million, which is down by 14.5% from last year. And this is due to changes to external factors in the second half of the year. Some customers made corresponding adjustments to their businesses, resulting in relatively large decrease in messaging services revenue. We incorporated eSIM function into DataMall [Foreign Language], thereby enhancing our competitive edge; and explored new business scenarios in IoT with projects spanning across a range of industries, including vehicle Internet connectivity, logistics and transportation, EV charging stations, et cetera. Apart from this, we became the technical solution provider of WhatsApp business providing one-stop multichannel OTP authentication, marketing, member notification to different types of enterprises, with the aid of WhatsApp Business API professional technical solutions. Next, let us look at our fixed line services. The subscribers and revenue dropped, and this is in line with global trend. Last year, it was HKD 142 million in fixed line services revenue, a drop of 6%, which is in line with global trends for this particular business sector. And here in the next page of the PPT, we very briefly go through the advancing digital economy development. First of all, in CPC, April 2023, CPC became the first accredited service provider of VMware Sovereign Cloud. This ensures compliance, security and reliability of customer data. And in September last year, CTM and Macau University of Science and Technology jointly built Macau's first 5G-based smart campus private network, and this provides a scientific network with security and mobility for the campus. And this solution was also applied to the university's Macao Science 1 satellite project research. As for November 2023, CITIC Telecom obtained Meta certification and became an accredited tech provider of Meta's WhatsApp business messaging service in Asia. As such, we have become a member of Meta ecosystem. And in the past year, we continued to carry out synergy in the industry. In December, CITIC Telecom and CTM jointly completed the first 5G SA-plus-VoNR roaming service trial. Next page. This is a few examples in our technology innovation. We have won a few awards, including the national "blooming cup" award; and we have won the first prize for 2 consecutive years. And also last year, we have been given the best international application award, reinforcing the innovative 5G application scenarios in Macau. And further, we continue to provide the Hong Kong authorities, including OFCA in Hong Kong, to alert citizens to fraudulent calls from overseas, benefiting society by meeting requirements of OFCA to combat these fraudulent overseas calls. And also we have the -- in the sixth application for -- competition, we won the champion at the hydrogen fuel cell system average performance forecasts, which is an award in the sixth industrial Internet data innovation, application competition. And further, armed with abundant ICT resources worldwide and successful projects along the Belt and Road, we ranked on the digital pioneer list of [ ccidcom.com ], recognizing our contribution to construction of network infrastructure and digital transformation along the Belt and Road. And next, just to blow our own horns a little bit further: With the leadership of the Board and the senior management leadership and also thanking the investors' support, we have received a number of industry recognition and awards. This is for your reference. Thank you.

Thank you for the presentation. Next, we will have the Q&A session. We will first have the investors who are physically present to ask their questions. [Operator Instructions] And then we will have the members of the audience here to ask the first question, first. The first question, please.

[ Xinhua ] development bank. First of all, in our international business messaging service, why is there a drop, please? Please help us understand that. And secondly, with the Macau government and the Macau regulators, a concessionary agreement, what is our understanding at this stage of development?

Mr. Wong will answer the question. And then Mr. Poon will answer the second question.

Well, thank you for your concern. In 2023 second half, with external environment with a number of factors impacting, some of our customers have made business adjustments and causing this rather big drop in the sector of our business, but last year, we also saw that our DataMall had increased significantly, with COVID behind us. And also we have put in a lot of efforts in innovation, for example, in media messaging, WhatsApp business. In these areas of business, we would want to make up for the drop in messaging.

I'll use Cantonese. Is that fine?

Yes, that's fine.

Well, for Macau, as you all know, we have the contract from the concessionary scheme. And once every few years, we will need to discuss and negotiate with the government about a new arrangement. And in 2016, we have extended it for 5 more years of operation. And the government had said that the -- that they want to revamp the telecoms structure and system, so they would want to take back the licenses. And then in 2021, end of 2021, the contract term had come to an end. And we -- it was extended for 2 years because the government was still in the legislation process; and they needed more time, they said. And end of last year, those 2 years had also ended. So that is the 2021 term, 2-year term, had come to an end. So we, both sides, wanted to continue going forward, but of course, the government will have to be ready first. On the one hand, it is about the assets evaluation. That's one side, but also, about the giving out of licenses in the future, that's important too. As the Chairman had mentioned, in October, he has come to the chairmanship. And he went to see the Chief Executive. And the Chief Executive said that they want us to continue with our service, but how exactly to do that, the government has certain thoughts. But at the same time, there will have to be legislative arrangements as well as executive arrangements, so as of now, we're still in negotiations. It is positive in the negotiations. For example, the contract had been signed for a period of time. According to the contracts, if we go -- on the terms of the contract, there are advantages and disadvantages. If it is to be discussed or negotiated completely anew, it will be overly complicated, so both sides are working together. And the government had made a determination to complete this process as soon as possible within 9 months. And we basically put in our best efforts during this time, and the government had also recognized our achievement in 5G. And we have been well #1. We were the first to -- and the market share growth had been #1 around the world. As a leading operator, we are very energized. We are very bullish. And with the leadership of our Chairman, Mr. Luo; and with all staff; and working together with the government; and the subscribers actually giving us a vote of confidence, we see this as a -- as work and not as a major difficulty, no.

Next question, please.

UBS, [ Kenneth ]. I have 2 questions. For 5G, subscribers growth had been encouraging and rapid, but for ARPU growth, it is slow, though. I understand this is the first year, so there are certain concessions given out to users, so from ARPU growth, how are we to view this? Going forward, what would be the growth rate, please, for example? And what would be the timing for those growth? Second question. Mr. Luan, for government, we are in negotiations with them. And also in the PPT you have mentioned that there are some extension of data centers, so how do we understand this year's CapEx? Last year was 300 million and this year is stable at 300 million. Or is it lower -- to wait for the clarity from the government about the concession contract before we put in the CapEx, or what?

Can you answer the first question, please?

For 5G work. Last year, it was the first year. And it was a good first year, initial year; and we're confident that we will continue to be successful. For 5G, whether it is CTM or other 5G operators, 5G is the future of digital economy. It will be the major vehicle for us going into the future, so we will do this sector of business well. For ARPU, whether it is for 3G, 4G, the volume had grown a lot, but the quantity had not. And 5G will be the same as 3G and 4G before. As I said, this is year 1. Yes, ARPU had been higher even though there had been concessions, et cetera, but going forward, we don't just look at ARPU but what 5G can bring on in enabling. There will be a lot more clients, for instance, a lot more subscribers. And for the digital economy, when it's built up, it will bring on a lot more business. And also we feel that, for 5G, it is not in full implementation yet, so we have committed, for this year, we will be putting in all efforts into 5G, [ advance of 5.5G ] so that, its capability, it's going to be a lot bigger and also can be connected to a much huger number of connecting points. So 5G cost to serve would be much lower, and also our coverage will be much bigger.

The second question.

Thank you for your question. For our CapEx, how do we see our CapEx? In normal situations, for our CapEx, there are a number of areas: first of all, 5G investment; data center investments; and also network extension and also the transformation of our network. So these are the major areas of CapEx. In 2023, it is $278 million. And before that, it was $325 million. And there is no major change even though there is a drop. And that is for 5G investment in Macau. In its initial stage, there was huge investment, and therefore, the investment in 5G Macau had come down. And for 2023, because of the overall development of the company, it is in a relatively mature stage. So the CapEx in the past analysis. Last year was $278 million. And before -- [ to ] $325 million. Average is [ 300 million ]. Then it will be around the same level, [ 300 million ]. And also in our past report, we have told you that, for data center investment, we have already started with the building out of data center. For CapEx, we are proactive but, at the same time, stable. Proactive, we need to be proactive and because our investment now is productivity in the future. And also, with risks considerations, we need to be stable and healthy as well.

Next question.