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

Welcome to the CITIC Telecom 2024 Annual Results. I'm [Karis] from Investor Relations. We are going online and offline today. Those who are online, before the meeting, you would have received our PPT. If you haven't received our PPT, please contact our team. For the English line, this is for listening only. If you have questions, would you please dial into the Chinese channel online. Now the management, please. On stage, we have the Chairman, Mr. Luo Xicheng; and we have Mr. Luan Zhenjun, the CFO; and we have the Executive Vice President of the company and CEO of CTM, Mr. Vandy Poon; and then we have Mr. Brook Wong, Vice President of the company and CEO of CITIC Telecom CPC. The Chairman, please.

Friends of the investment community, first of all, I would like to thank you for taking time to the CITIC Telecom International Holdings Limited 2024 Annual Results announcement. The year 2024 was a year of hard work and challenges. All staff of the company tightly focused on the development of strategy and our annual operating objectives. On the one hand, consolidating traditional businesses and at the same time, accelerating the digital transformation process, expanding the proportion of our emerging businesses and continuously optimizing the business structure and adhere to scientific and technological innovation to lead the development in high-quality and we have a forward-looking layout of the strategic emerging industries intensifying the expansion of overseas market and made all efforts to enhance efficiency of our operation and development. In the year, the group's total revenue amounted to HKD 9,573 million. Profit attributed to shareholders, HKD 910 million and basic earnings per share amounted to HKD 0.246. The group attaches great importance to our shareholders' returns. The Board has recommended a final dividend of HKD 0.128 per share, which together with the interim dividend of HKD 6.0 per year for 2024, it is a dividend of HKD 18.8 per share for the full year, representing a 76.4% dividend payout ratio for the year. The group's CTM unleashed its 5G high penetration value potential. At the end of 2024, CTM's market share in Macau's mobile market rose to 53.3% continuing to hold the top position in Macau. 5G subscribers increased to nearly 760,000 with a penetration rate of 98.4%. It is worth mentioning that CTM officially launched its commercial 5.5G network service in July last year, helping Macau become one of the first cities in the world to commercialize 5.5G. In the face of trends of convergence of new generation digital technologies represented by cloud computing, big data and AI, the group has comprehensively accelerated the process of digitalization and intelligentization, and vigorously promoted the layout and cultivation of our emerging businesses. Key industries include government affairs, tourism, education, health care in the Macau market, realizing scale of expansion in our services in a number of segments. The group continued to deepen our strategy of smart empowerment, cloud network security, incorporating new elements such as big models, AI into our products and services and enhance the competitiveness of our business. And at the same time, we have gained market recognition and continue to expand the scale of our markets, including that in a number of areas, introducing well-known customers in industries such as banking, hotels, et cetera, establishing good business relationships. We continue to expand in the market and introduce well-known customers as well. The group continued to enhance our internationalization capability and in our overseas businesses in 2024, especially in Southeast Asia, we have obtained Internet service license in the Philippines as well as obtained licenses in Malaysia, Indonesia, Thailand and the Philippines and continue to provide server deployment for local customers in Singapore. And in Europe, we expanded in cloud hosting services in countries such as Ireland, the United Kingdom and Germany. Looking towards 2025, the formation of new productive forces, integrating cloud computing, big data, AI and other new technologies are accelerating and the digital economy is very important as a support for our new development pattern. In face of this new situation and opportunities, we optimize the existing businesses layout and cultivate new business development momentum. We promote the upgrading of our new businesses and in particular, in international telecoms are strengthening the construction of network infrastructure upgrade our existing customer services as consolidating our leading position in the Macau market, whilst we're seeing new opportunities in [GSMA] open gateway initiative, AI+ data elements and to leverage our market-oriented and carrier-neutral strength to enhance our competitiveness, and to inject new energy into our high-quality development. At present, the information and communications industry is facing a new round of growth opportunities. The group will strengthen our global business layout and proactively seize opportunities in overseas markets, focusing on expanding into Belt and Road and BRICS countries and other overseas countries and regions, leveraging our group's, CITIC group's brand influence. If you want to go abroad, you go with CITIC and if you want to come to China, you come with CITIC. And we are a preferred partner for digital intelligence and for enterprises, empowering our customers' globalization in different trades and industry. Next, we will have Mr. Luan Zhenjun, our CFO, to talk about the annual results.

Thank you. First of all, I would like to report to you CITIC Telecom International Holdings Limited 2024 financials. In the year 2024, the group had strategically strived to overcome challenges brought about by a decline in messaging services revenue, strengthening our traditional business advantages and stabilizing our core businesses. And you would have noticed that in 2024, for us, it is an unusual year. We had 2x of profits warning. For all investors and also our management, it is pressure as well as a challenge. In 2024, the revenue from telecom services decreased by 6.1% year-on-year to HKD 8,045 million. Total revenue was down by 4.1% to HKD 9,573 million compared to 2023. Excluding messaging service revenue, our telecom services revenue and total revenue amounted to HKD 7,440 million and HKD 8,968 million, respectively, which is a year-on-year increase of 6.6% and almost 7%, respectively. Revenue from mobile services, Internet services was up 12.7% and 5% year-on-year to HKD 1,090 million and HKD 1,499 million, respectively. Finance cost was HKD 252 million, which is a decrease of 5.6% year-on-year. Profit attributable to shareholders amounted to HKD 910 million, a decrease of 26.1% compared to the year before. Basic earnings per share declined 26.1% to HKD 0.246. Final dividend, HKD 0.128 per share, including interim dividend of HKD 0.06 per share. Full year dividends totaled HKD 0.188. And compared to 2023, which was HKD 0.253 per share, it is a decrease. And now, dividend payout ratio has been to sustained, 76.4%. Stable operating cash flow achieved, total debt was HKD 3,907 million. Compared to 2023 year-end, it was HKD 3,934 million, which is a slight decrease this year. With net debt of HKD 2,296 million compared to end of 2023, it is a growth. At the time, it was HKD 2,208 million at the end of 2023. And the net gearing was slightly up to 18% at the end of 2024. At the end of 2023, it was 17%. As for this page of PPT, we give you the 5 past years in terms of total revenue and profit attributable to shareholders. You can see that for 2024, our total revenue was HKD 9,573 million. Compared to 2022 and 2023, it is rather large adjustment down. And the reason, as mentioned before, it is because of our revenue drop in terms of our messaging services. As for profit attributable to shareholders, I also give you here on the PPT, the past 5-year record. And also, you see that it is a little bit regrettable for 2024. It is HKD 910 million compared to 2020, which was about HKD 1,000 million. It is even lower than that. And on this page of the PPT, it is our EBITDA, our CapEx and our liquidity. Last year, the EBITDA was HKD 2,000 million. 2023 was HKD 2,571 million. This is a significant decrease. CapEx 2024 was HKD 410 million, 2023 was HKD 278 million. The increase is significant. And the main reason was because of the transformation of the business and also for the messaging services revenue decreasing, we had to increase our investments in other areas. And for cash and deposits, 2024 year-end was HKD 1,611 million, slightly less than the year before. Total debt is also slightly lower at HKD 3,907 million. Net debt, as I've mentioned just now, because our net cash has decreased and therefore, the net debt position has increased slightly. And for net gearing ratio, it is 18% compared with last year that is 2023's 17%. This PPT page gives you the earnings and dividends per share. For 2024, the basic earnings per share is HKD 0.246, which is lower than the past few years since 2020. In 2020, it was HKD 0.279, 2021 was HKD 0.293, and it's lower even those years. For dividends for 2024, interim plus final, it is HKD 0.188. Also, it is lower than the past few years of dividends per share. So personally speaking, I think this is somewhat regrettable. On this page, we have the gearing situation. The company continues to have a stable cash flow, and it is at 18% in terms of the net gearing ratio, which I think is reasonable. And if you look at 2020, since then, the company's net gearing ratio has been lowering steadily. And on this page, you have the interest rate and currency risk management. As of the end of 2024, all our borrowings are at fixed rate. But on the 5th of March of this year, we have successfully been able to redeem the 2013 debt issuance. And we have used up a certain amount of cash. And also, we have used some bank loan quota as well. I would want to thank the bank's support. And after that, we will utilize this opportunity to -- for the fixed rate borrowings that we have turn those into floating rate. And hopefully, with the Hong Kong dollar rate coming down, interest rates coming down, we would be able to save some financing costs. For currency situation, at present, our transactions are mainly in Hong Kong dollars, U.S. dollars and Macau patacas. You know that Hong Kong dollar and the U.S. dollar, they float within a collar, a region. And also there is a fixed translation rate between Hong Kong dollar and Macau Pataca. So the risk for currency is not large. And also, we will closely monitor any situations that will affect the currency situation. And last year, we have signed [ CDS ], a swap and also futures contracts. So we have been able to hedge against certain currency risks. And on this page of the PPT, we report to you the revenue breakdown by business sectors. The main sectors are mobile services. In 2024, it is about HKD 1,100 million, which is an increase of about 12.7% for mobile services. As for Internet services, it is about HKD 1,500 million, which is a 5% increase from the year before. The third sector is international telecom services. And in the year, it was HKD 2,365 million, a decrease of 19.9% from 2023. There are 3 parts to it, DataMall and also international voice as well as message service. In 2024, the 2 warnings that we issued from the company within the international services, it's messaging services being the main reason. And so for these 3 subsectors in 2024, voice has been increasing about 30% or perhaps even higher than 30%, and DataMall that also increased by double digits. So I mean for messaging in 2023 after the drop, it is stabilizing. So that's for international telecom services. As for enterprise solutions in 2024, it is about HKD 3,000 million, which is a decrease of about 4%. And for this particular sector, I think it is stabilizing as the economy recovers. We hope that there will be new growth in the Enterprise Solutions. And for fixed line services, it is HKD 133 million, which is a drop by 6.3% from 2023. Now this is a mega trend for fixed line services decrease so we have been able to lower its drop. So we are fortunate that the portion of the revenue is not large for fixed line services. And for sales of mobile handsets and equipment, it is an increase of 7.8% from the previous year to HKD 1,528 million. So for 2024 for mobile services, there is continuous expansion of our network capabilities. Sustained growth in mobile services revenue. In 2024, we have been leading the 5.5G era, and we have increased our 5.5G communication network infrastructure, and our subsidiary, CTM had launched the 5.5G commercial services in Macau in July 2024, making Macau, one of the first cities in the world to implement 5.5G commercial use. By the end of 2024, CTM's market share in Macau increased to 53.3% in the mobile market, which is maintaining its leading position and the registered users was nearly 760,000, up 51% from the end of 2023 and penetration reached 98.4% for 5G. And also, we have pioneered 5G SA roaming in the Greater Bay area, GBA, expanding roaming coverage internationally. We collaborated with mainstream telecom carriers in GBA to launch the 5G stand-alone roaming services, promoting seamless connectivity across the 3 regions. As for Internet services, we continue to advance intelligent upgrades in technology and services and expanding our scale of Internet services business, as you can see from the bar chart. And we continue to accelerate our broadband, fixed broadband technology and also achieving world-leading Internet speeds. As mentioned, Macau was the first to introduce 5.5G and WiFi 7 technology, propelling the city into the era of dual 10-gigabit connectivity. And by the end of 2024, the market share had reached some 97%, and we continue to expand our data centers and strengthen our market competitiveness. And the CITIC Telecom Data Center has been completed on schedule and is now in operation. The group continue to strengthen our service capabilities in Hong Kong, Macau and also in other regions. In 2024, we continue to increase the revenue from this area and also in service upgrades and sustainable revenue growth in CPC, a subsidiary of the group, accelerating technological innovation and upgrades, optimizing domestic and international Internet footprint and further enhancing our stability in dedicated Internet service, broadband service and other Internet service, therefore enhancing our revenue scale. For international telecom services, we enhanced our business management to adapt to market changes and we upgraded technology to explore new opportunities. So for DataMall, we continue to strengthen it as well as expanding our IoT and IoV application scenarios. For upgrade of DataMall [Foreign Language] platform, we support 4G and 5G cross-border data roaming application scenarios. So also for telephone roaming, it has moved to IoT eSIM platform, deepening the exploration of IoT, IoV business, resulting in a growth in both the number of vehicles served and also related revenue. Further, we stabilized our international voice business and enterprise messaging service, resulting year-on-year growth in revenue from these 2 areas and also stabilizing our business and revenue here. Enterprise solutions. We actively address challenges and accelerate our AI-driven empowerment. For AI, upgrade digitalization, intelligentisation, innovation practice, we have achieved new progress, including new products, AI+ Cloud; Network Security; SD-WAN products and SmartCLOUD AI assistant, continuing in our upgrade of AI technology. And also, we have introduced Baidu PaddlePaddle AI platform and deep cooperation with Macao Government Tourism Office create Macau Tourism Smart Customer Service App, developing AI smart applications to empower Macau's digital transformation across industries. As well for overseas expansion, we deepen our business layout along Belt and Road and establish 4 new network PoPs and employed new SD-WAN gateways, further enhanced the network coverage and service capabilities. In Southeast Asia, we have obtained Internet service licenses in the Philippines, and further solidifying our operational foundation in the region. The business scope now covers 5 core markets in Southeast Asia. As for fixed line services. There is a drop in revenue, which is in line with the worldwide trend. In 2024, it was HKD 133 million for fixed line services revenue, mainly because of the decline in the number of residential and business fixed line users. This is inevitable, and it is a global trend. All we can do is to slacken the drop. But luckily, the share of revenue from fixed line services is not large. Next, accelerating digital intelligent transformation and embracing the AI era. We continue to strengthen our network capabilities in infrastructure and advanced AI+ initiatives to drive intelligent development. For AI+ innovation industry solutions, CTM promotes the integration of AI LLM multiple elements such as cloud, network, computing power, security to serve key sectors such as government, tourism, education and medical care. And further, AI+ empowering cloud network security product upgrades using LLM to enhance our SmartCLOUD products, enabling intelligent assistant features. The users can now easily query cloud resource information through natural language dialogue. And thirdly, AI+ enhancing international operational efficiency, driving comprehensive quality and efficiency improvements across front-end, back-end operations using big data and AI-powered tools. We promote enterprise-wide adoption of large models to optimize workflows, resources and overall performance. At the end of 2024, our group has a cumulative total of 21 authorized patents and 63 software copyrights. This is to elevate innovation and technology, products and holistic solutions. And also, we have newly obtained 9 authorized patents and 20 software copyrights in 2024. We also expanded into a large model market, developed a heterogeneous, large model management platform to reduce the application cost of large AI models and drive value enhancement in cloud computing services. And also for healthcare platform, we have launched Dr. Easy using AI technology, offering one-stop smart healthcare solutions in Macau. For innovation capability, we are widely recognized and we continue to enrich our products and service offerings. We have been awarded the Distinguished Contribution Award by World Internet Conference to CTM and also the Macau's Smart Tourism + Smart Expo Solution won the first price in GBA 5G application innovation competition. And our China Enterprise ICT Solutions Limited, a wholly owned subsidiary of ours and China Resources Beer collaborated on an award-winning benchmark project. And CITIC International Telecom, we have garnered the 2024 STAR Award - Best Cybersecurity Solution. So we continue to do so, and we continue to be recognized. At the same time, we actively implement our ESG concepts and improve our standard of governance. We are committed to green practices and sustainable development, and we leverage on sound governance to strengthen our business foundation, and we have a top-down sustainable development system for management with clear structure and clear responsibilities and our Board plays a key role in leading our sustainability structure, overall strategy and takes a lead in ESG performance. And at the same time, we have been recognized in terms of our people-oriented approach, caring for our employees and our societies, and we have been given awards in this as well. This ends my presentation. I would like to thank you for your attention.

Thank you so much for the sharing. Next, we will have the Q&A time. First of all, would investors, please ask your questions in the room. [Operator Instructions] On the Chinese line, we will have those who are in the room to ask the question first. The first question, please.

Thank you, management, for the detailed presentation. I see that for messaging services, it is coming down significantly, and therefore, it has brought down your revenue. So what do you think in 2025 first half, will it rise? And going forward for this particular sector, how would it affect your revenue, either up or down?

Mr. Luan will answer this question, our CFO.

Thank you for the question. This is a very deep question, and that goes to show that you are very to the point, indeed. And I would want to thank you for your attention. It is because of your concern and attention that you have provided motivation for the management of the company so that our work is even more meaningful. In the past 1 year, I am very thankful to our shareholders and investors for your support. And I would want to thank the employees for their efforts, and it is through the acceleration of potentials and also innovating new products that we have been able to really strike out for our business. For 2024 for the company and the management, it was a challenging year indeed. And also for myself, I would think that this is a thankful year personally. And it is a year that I will remember well. Why? Because in 2023, our profits were as high level, and it was at [HKD 123 million]. And in the second half of that year, we know that for some of our customers in order to face up to external challenges, they have adjusted their own structure. And therefore, for the messaging services, it had been -- we have been under pressure. And for international messaging businesses, it had been affected by new technologies. So for these reasons in 2024, our employees, our management had to face up to various challenges, and we have been working very hard, and this is my personal experience. And I have reported to you for our international business, there are 3 parts to it. And as mentioned there is the messaging services, DataMall and also voice. In 2023, in the first half or before that, for messaging revenue, it was a major part for our international services. But with the customers' restructuring, the company had to find ways to -- in other areas of business, find revenue growth areas. So that too, so as to cover for this drop in messaging services and therefore, to lower the trend of decrease and the impact from the decrease of messaging services. In 2024, we have strategies to explore deeply the existing businesses, and we have some major achievements. As I have mentioned just now, disregarding messaging services, for international telecom services, the other 2 subcategory had increased significantly for 2024. For instance, our voice revenue increased by over 30%, and DataMall [Foreign Language] had also increased by revenue, and it is in double-digit growth. Even though for messaging services, it had come down. For messaging services, there are 3 parts to it, and that is external to China. And secondly, from China going out and also among international messaging services. These 3 parts. For these 3 kinds of services for China going out and also between international services, these 2 numbers are still rising. So that is for international telecom services. For the other businesses for mobile services and also Internet services, they have been growing in a certain proportion. So one can see that we have been able to consolidate our basis. So the strategy has played out. So regrettable is that messaging services revenue had come down significantly. And the other 2 parts increase have not been able to offset the decline in messaging services revenue and therefore, our revenue and our profit overall had been dropping. For 2025, we will continue to deeply explore traditional business capabilities so as to stabilize ourselves and also we continue to consolidate our telecom top position and also consolidate our leading position in the Macau market and also in mobile services and Internet services. And basically, through consolidating these basic services, at the same time, we allow for -- we give us time to develop our new products, new technology. We picked up the pace in these areas so that the new products in 2025 will be able to bring to the company certain profit contribution and revenue contribution. But this will take time, it will take a process. For new products, hopefully, in 2025, it will bring on a certain level of revenue contribution and profit contribution.

Further questions? Any further questions in the room, please?

Greetings. Thank you for the opportunity, [David] from United Capital. For the license in Macau, what are some of the concerns that you have. If we should lose it, what are some of the prices we have to pay?

Right. Mr. Poon?

Thank you very much for your question. This is a must answer question. For CTM we have been very closely working together with the Macau government on the arrangement for the license. In the past few years, actually starting 2021 December, the Macau government because in their arrangement and policy, they needed more time and more consideration still. And our company had been working very closely with them, and there have been short-term contracts. In the past few years, whether the government or CITIC, we have been saying the same things. And that is we try our best. We do our best. No one wants you to go. CITIC didn't say that. The government did not say CTM should exit, no. So this is a basic condition, and that is to say the Macau government wanted to handle the high-tech industry that is to come up with a strategy for high-tech industry to provide a long-term planning for this. And in the past few years, with things changing, the Macau government has different considerations at different times. And at the end of last year, there was a signing of a 1-year contract. So if we look back, review the past few years, we have had some achievements. And you can see that for CTM, the branding, customer loyalty and even for the government comments on us, it is getting more and more positive. It is positive and assuring. And our market share, and also in the past 3 years for CTM, our performance had been growing. So if you look at CTM, that is the situation. Even though we are facing a short-term contract situation, I would say this is subideal. It is not unideal. In the long term, CTM will continue to work and operate in Macau and also in Macau, there is this need to develop telecoms business. And I would say that it is not that an agreement cannot be reached, but it is just that it needs time for certain arrangements to be best mapped out. And I will be in my position and I will be listening to their views and that is to do my best. So I have shared with you in the past few years at CTM, we are getting more and more successful and smoother and smoother in our operations and the Macau government needs a -- perhaps needs a diversified development. And technology-wise, I would say our company has hand of very good cards. So we don't have a problem.