Far EasTone Telecommunications Co., Ltd. (4904.TW) Earnings Call Transcript & Summary

Welcome, everyone, to Far EasTone's 2025 Third Quarter Earnings Conference Call. [Operator Instructions] And for your information, a webcast replay will be available within an hour after the conference is finished. Please visit www.fareastone.com.tw under the Investor Relations section. Now I would like to introduce Mr. Gary Lai, the IR Officer. Gary, please begin.

Thank you, and good afternoon, everyone, and welcome to Far EasTone 2025 Third Quarter Investor Conference Call. We have with us today our President, Chee, and CFO, Sharon, both will share updates on our performance for the quarter to all of you. Before we begin, I would like to remind everyone to pay close attention to the safe harbor statement on the first page of the presentation. Thank you for your attention. And now let's proceed to Chee's presentation. Thank you, Chee.

Thank you, Gary. Good afternoon, everyone. So I'm here to report how we have done in the third quarter and also year-to-date third quarter. So for the third quarter, we have registered TWD 26.39 billion of revenue. We actually -- this is a record high for the third quarter. And then also for the EBITDA is TWD 9.39 billion, which is also a record high for the same period and net income, TWD 3.45 billion, and that is a 20-year record high, okay. And then so we have EPS for TWD 0.96. And then if you look at the margin rate, which is 13.1% for the net income, which is one area I pay particular attention to, and I'd like to see that continue to improve. And then so this has been like in the -- around 10% a few years back. And then gradually, it is moving upwards. So -- which is good sign, and we are doing fine here. And in terms of our achieve rate, you see the EBITDA, we fell a little short there. And this is mainly due to we have some typhoon seasons in July, and that really the damage last year alone and then a lot of the OpEx spent for the disaster recovery related and helping the victims in the disaster areas, okay? But other than that, everything else is going well. And then from the one -- the first 3 quarters point of view, so we already have TWD 77.6 billion revenue accumulated so far. And it is 100% achieve rate. And Y-o-Y, it is [2.9%] as you may know, right? So for us, fourth quarter usually is the highest revenue quarter. So for what we have achieved right now, we are pleased with what we have progressed so far. And for the EBITDA, it's TWD 28.26 billion, and it is a 4.9% year-over-year growth. And for net income and also EPS, we continue to do very well, especially from a Y-o-Y perspective, okay? And then -- all right. Yes. So just look at the trend a little bit, as I have mentioned previously, for the revenue, you can see for the third quarter, and this is up 6.7% year-over-year growth. This is -- even though we have iPhone launch in September, but that was already like last week of September, September 23, I think, or even later than that. But then still, we had a very good September sales for iPhone and then they actually continued. So we've seen kind of like a best in terms of the bundled service sales with iPhone that's like a 9-year high. And then in ICT, we have quite a few deliveries and that realized revenue in the third quarter as well. So that gave us a very high revenue for the third quarter, okay? And then from EBITDA and then that is record high for the same period, for the same third quarter, and the growth is like 3.2%. And then so this is really across all existing business segments or products that we continue to improve the margin. And then I think it is working. And in terms of net income, as I mentioned earlier, it's a 20-year record high and then the EPS is TWD 0.096 (sic) TWD 0.96. Okay, our net income grew 8.7%, and it is my understanding that kind of leads the industry, and we continue to lead the industry in revenue, okay, in the net income area, okay. Okay. And some financial metrics for your information. First of all, the net debt, net debt-to-EBITDA continues to improve post merger, as you can see from the numbers below there. And our free cash flow remains very strong, okay? And then our CapEx right now kind of standing a little bit behind the schedule. So we expect the CapEx this year will be slightly lower than guidance, which is at TWD 8.3 billion mark, okay. Next, all right. And then we -- regarding to -- in terms of our value streams for our major product service areas. So for Mobile Service, the revenue and margin both Y-o-Y has shown a 1% increase and then iPhone 17, as I mentioned, of course, truth is, always IPhone, you can count on it as revenue booster and also rebound of sales booster. And then also our continued APT contract renewal, it is driving more than 20% or around 20% increase in the monthly fees and then with the churn also well managed. Our churn actually has come to a record high -- record low, I'm sorry. And then in the Digital and Essential Service area, we actually see a very solid growth there in both revenues, 7% and also margin for 8%. And this area consists of the Fraud Prevention service and that continues to see a very good user acceptance rate. And then our Insurance Agency Business started from the device handset insurance to all kinds of digital platform initiated insurance product, and that has been doing very well. And then our payment, that is a direct carrier billing, that is also showing a very strong 7% year-over-year growth. In our entertainment area, we -- this is one of our strategic areas that we will continue to invest more. And then we have just created 2 fund joints with other companies and also our [indiscernible] for 2 funds together is more than TWD 1.5 billion kind of investment. So this is one area we'll continue to invest more. And then just in all these concert events that is kind of getting all the attention, where people and a lot of young people are willing to pay a lot more -- a lot of money for the ticket. So there's definitely a very hot market there. And then in the ICT and fixed business area, overall, it's a Y-o-Y growth for 9%, and then the margin is showing also 5%. Our ICT revenue alone actually grew 17%. And then in terms of the telecom-based SI project, that itself is showing a 49% Y-o-Y. And even for the contract value, that is also showing a big growth. And quite a bit of it is because of the resilience kind of attention that the public sector and also the private companies are paying attention to, okay? And in the security, it's referring to our subsidiary, ISCU, they are growing very well. showing like a double-digit CAGR for the last 2, 3 years already, and their margin is also improving very nicely. Our cloud business continued to grow, although at a little bit slower kind of pace, and that is kind of like that because adjusting the mix of portfolio of the cloud customers. But this is an area for our Nextlink subsidiary, and we are acquiring a cloud service company in Binan and then this is going to give us a good growth going forward as well, okay. All right. So looking into the Mobile Business, -- did I mention merchandise, okay. And then merchandise that, sorry. So merchandise is one area that where we have the devices and then we kind of go more like a diversifying merchandise that we will start selling in through our stores, and we are actually seeing some good results for our kind of proof of concept. And then the margin is definitely improving a lot. And then so the iPhone 17, of course, as I mentioned, achieved the best first month bundled sales for since 9 years. And this is -- and then particularly, there is a high demand for base models such as the 17 Pro and also 17, just one additional information. All right. And looking into the Mobile business. So for the mobile service revenue alone, we are seeing a 2% growth. And I would say it is solid because as you know the base is big and then the market is saturated, but we still manage to continue to add more value to the service. And then we continue to see the upgrade and then also the migration. So we still see this momentum -- the growth momentum going. And also at the same time, our postpaid ARPU continued to improve. Even though we still are not back to the premerger level, but we still continue to lead our peers in this area. So TWD 720, that's where we come to in the third quarter. And then for the postpaid 5G penetration, we are looking at past 46% right now. It is -- my understanding it is also leading the peers of the industry. And our postpaid churn rate, as I mentioned earlier, this is a record when we came down to 0.76%. That means the market is a little bit more stable than you would expect. And I would like to -- and we would like to think that it is also our customers recognizing the value and the service performance that we provide, okay. And we have some Enterprise ICT highlights. So I mentioned Nextlink is expanding its Southeast Asia business footprint. So we are on track to acquire majority shares of Renova Cloud Hong Kong, which owns 100% of Renova Cloud Vietnam. And this is a fast-growing market. Renova already is a very profitable company. And so this will definitely give us extra growth that we can anticipate in the cloud area, okay. And then as I mentioned earlier, the ICT contract, we actually see a very good growth. And here, the 102% Y-o-Y, that's an increment. So this means the contract value till the end of the third quarter actually more than doubled when we had registered last year in the same period, at the same time, accumulative, okay. So Smart City, in particular, actually is like a 180% growth in this area alone, okay? And then there are city government work and also for National University. There are a lot of ESG solutions kind of the demand. So we are kind of banking on that. And then -- and so there are definitely lots of contracts going on. And the [indiscernible] were kind of delivered on time in the third quarter, okay? And then also we get some new contracts. All right. And then digital transformation, this is the area where we -- based on the Microsoft product basically, Azure, OpenAI. And then so we see not only the product in 365 Microsoft product that has seen good demand. And also it brought us kind of derivative business. That's a professional service. And as a lot of companies are looking for like how to adopt AI. So it will provide that service as well. And then -- so in addition to the AI-related solutions that we provide. In Smart Health, we have some Smart Hospital SI projects, so these are not directly related to the telemedicine business because these are project based. And the telemedicine business is more subscription-based, and that's ongoing. And then also for the telecom-based SI, as I mentioned earlier, the attention for the resilience for both public sector and the private companies, they definitely are driving the demand. So we have been awarded several projects in this area as well. And on the consumer side. So we have launched a new product, which is kind of a new concept because in the past, if you ask people like what is the product of a telecom company, they probably wouldn't know what you're talking about because all they know is about, okay, are you talking about TWD 13.99 or TWD 4.99, so all they know is about price, right? It's like a price tag, it's a price -- it's a price table, okay, listed price table. So I asked my team to really have a focused TA or TA focused kind or a segment-focused product that we can design. So more than the connectivity, what other kind of service that we have, either we [indiscernible] offer or we organically offer or we partner with our strategic alliance that provides, so this is a service, and this is not a onetime thing. You buy this for however much and then this is here is your reward and then you go out of your way for like a 3-year or 1.5 years before you talk to our store again, no. So this is like through our digital platform, you will continue to get updated kind of vouchers or good discounts or good information about anything that is relevant or interesting to the 50-plus kind of audience, right, or whoever is already in this mindset that you want it easy and then take it easy and then kind of lifestyle. So this actually is getting a very good response from the market. And also with this new product, we actually see new sign up, 20% of them are actually GA. In other words, those are not from the original -- the existing customers during the renewal but then it's also new customers for Far EasTone as well. So we definitely see the market is responding to this product, even though it was just launched last month, okay? All right. And then similarly, we have provided this essential services. It's kind of like all you can think of like what you would need at a home, your home repairing and then some learning kind of lessons as well. And so it's a lot of kind of freelancing services and some are like a small business that they provide. So through this PRO360, we made it available through our Mobile Circle, which has more than 6 million kind of downloads and then 2 million -- more than 2 million active users every month. So this is generating a good attraction as well and then getting the attractive flow this product needs and more awareness on this product. And we also see a good conversion rate for people using it, okay? And then the Guardian Network, which is the fraud protection service, we are seeing a 52% Y-o-Y subscriber growth. And there is definitely a demand for this with all these fraudulent calls or all these -- I should say, all these different like URL or links, right, that you can get through line through FSP and through e-mail anywhere. And then once you click on it, if you subscribe to this service, and we will protect you and make sure if the link is a dangerous site, we already have information on, and it will be blocked. So even you click on it, it would -- the damage wouldn't be done, okay. All right. And then friDay Video, this is our tenth year that we have -- we have created this platform doing the streaming services. And we have the viewership records broken 3 times in 6 months, and we still remain the #1 local OTT in Taiwan for 3 years in a row now. And then our paid users also grow like 20%. We have very good Korean kind of content that has been kind of our particular niche and we also have a good partnership with some of the major Korean content providers such as CJ ENM, okay? That definitely helps. So we are looking to some Digital Entertainment expansion. As I mentioned, the 2 funds already created, and we have some good film investment experience, and then that is also making some good profit. And then we have many events and then many more to come. So kind of ensure that, well, this is an eventful year for my entertainment area, that's for sure. All right. And then lastly, there are some recent major honors and recognitions we have received and hot off the press, I think it was just 2 days ago, it was -- it was published that for the MSCI, the ESG rating, and we received a AAA rating. So I thought as an investor, you would like -- you will be happy to see that. So that is highlighting our continued commitment to the sustainability and corporate responsibility, okay? And we are also on the 2025 Taiwan FINI 100. This is a foreign institutional investors top picks. And then we have some other corporate governance-related awards as well. But I'd like to draw your attention to the right-hand side. That is, in particular, FET's 5G Telemedicine platform. Just recently, we were awarded by 3 different awards. So the first one is from the recent, they call Chinese Israel, Taiwan, software association and then they -- it's placed as a second place. And for the -- I need to correct, it is the technology for the elderly, not the aging technology category, okay? And then we have another BCC Taipei, right? That is for the Better Business Awards. And then lastly, this is also just recent we just received the notice like 3 days ago. So from our Ministry of Economic Affairs, we got the 2026 Taiwan Excellence award. So we are also shortlisted for the second phase. They have another tier to be the Taiwan Excellence Gold and Silver quality award. Yes, and those are just kind of like fresh recent awards we have received and for your information. And lastly, and IR always asks me, so what is your focus in awards? And well, this is 2025 is almost done, right? So we have like 1.5 months to go. So of course, this upcoming 11/11 shopping spree. And then any consumer would expect any kind of like goodies during this time. So for us, we have the video product, we have the mobile products, we have the shopping, so I do expect that there will be a little booster during this time. And then we are looking forward to that. And then, of course, continue to complete the migration of the APT customers. And then our -- we still have quite a few ICT projects, and this is always kind of a seasonality. The last quarter, our sales, our project management team will do everything just to deliver all these projects on time and catch up and all that. So this will be a big quarter for us. And then we'd like to finish the year strong again. Okay. And with that, I conclude my presentation for you all.

[Operator Instructions]

We have online questions. I will read out. Congratulations that we are well ahead of guidance. Should we expect DPS to be growing at a similar rate as our EPS when we end the year?

If you ask me is that will be my rate, and I can definitely tell you that it won't be the case. But then for DPS, well, certainly, like -- and thank you for the congratulations. We do expect that we should be able to meet the guidance. That's no problem. But then we like to maintain a more stable and then everybody can kind of always depend on kind of policy. So the exact number and all that percentage is not what we're tied to, but then I certainly hear you and I always know that our investors are always looking for a better EPS. So it's just never good enough. But then we'll continue to do our best to improve.