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

Welcome, everyone, to Far EasTone's 2024 Q4 Earnings Conference Call. [Operator Instructions] Please visit www.fareastone.com.tw under the Investor Relations section. And now I would like to introduce Mr. Gary Lai, IR Officer. Gary, please begin.

Good afternoon, everyone, and welcome to the Far EasTone's Fourth Quarter 2024 Results Conference Call. We are pleased to have with us today our President Chee and CFO Sharon who will provide insights into our operational financial performance and this year's guidance and also, of course, the strategy initiatives. Before we begin, I would like to remind everyone to please pay close attention to the safe harbor statement in the first page of our presentation. And thank you for joining and start with Chee [indiscernible].

Okay. Thank you, Gary. Good afternoon, everyone. So I'd like to report how we did last year, you probably already see the deck. So basically we ended year 2024 with a very strong fourth quarter. And not to mention the whole year was really a new record high in many ways for us. So our last quarter, fourth quarter, we achieved revenue of TWD 29.17 billion, and that is a 10% year-over-year growth. In particular, if you look at the EBITDA and net income, net income is at TWD 3.66 billion, and that is a 28% more than the year before. Even though this is a merger, as you know, it definitely helped us with the revenue, the top line. But then when it comes to the net income and EBITDA growth, we actually have to overcome quite a bit of challenges that came with the merger to actually realize the synergy as we initially kind of projected for the analysts when we were asked in our announcement that we will be looking at about TWD 3 billion EBITDA earnings accretive from year #1. So here we go, and we actually look at EBITDA, it is TWD 4.2 billion better than the year before. So that is very close and actually better than our own projection 2 years ago or almost 3 years ago now. Okay. So for the full year, we achieved TWD 104 billion. I was trying to round it up to TWD 105 billion. We fell a little bit short. And then for EBITDA, it's TWD 36.31 billion, and net income has reached TWD 12.84 billion. And then also, the EPS, it is TWD 3.56. And then as opposed to our guidance that we announced in the early -- last year, that was TWD 3.11. So it is 115% achievement rate, okay? This is also a 6-year high. And I remember when I first joined, we were kind of at the bottom, and then we worked our way up. And then so glad to report this earnings result and share it with all of you. Okay. So some highlights here for the fourth quarter. So when it comes to revenue, it is, of course, partly due to the merger synergy, but then also, we continue to have this steady 5G upgrade, and it is still going strong and steadily. And also, our ICT revenue contribution that really in the fourth quarter, we pulled in quite a bit of a project and it was finished nicely. And then this is actually the 17th consecutive quarters that we have seen a positive Y-o-Y growth. And then on the EBITDA side. This EBITDA of TWD 9.38 billion is a new record high in Far EasTone's history. And this 15.1% Y-o-Y EBITDA growth was driven by merger synergies and also we have getting better margin from core telecom and also new economy business. And this is also, yes, a record high. And then for the net income, we actually got an EPS of TWD 1.01. It is a record high for the same period. We have made quite a bit of record for last year. This Y-o-Y growth rate was 28.8%. It is a strong double-digit growth for 3 consecutive quarters now. Right. And then if you look at our other financial metrics, for the net debt and net debt ratio -- net debt to EBITDA, we have improved quite a bit, so from 1.74x to 1.23x for the fourth quarter. And then in terms of the free cash flow, it is also very healthy, very good. And then the CapEx was TWD 7.09 billion, and it is 13% lower than our guidance. And then some of that is a deferred payments and then also acceptance of the equipment and some of that. So there's also some cost synergy, right, that has been realized. So overall, our cash-based CapEx was a little bit under than what our original forecast, okay? As I have mentioned, and I won't repeat here, you can see that we have quite a bit of record high for Far EasTone besides this revenue and EBITDA. The net income is actually at 18 years high and for the EPS after 11-year high. And then a little bit into the telecom core. So we continue to see the growth that's driven by 5G and also the merger synergies. We continue to migrate APT customers with a good uplift that helps and then also the steady 5G penetration, and we actually maintained #1 for the postpaid 5G penetration. And if you look at the ARPU, even though because of the merger, because of dilution on the number of shares and the number of customer base, that has increased by 2 million. But then if you look at the postpaid ARPU, and then it has come down from 2023, but then the trend has already been going up, and we maintain the leading position of #3, okay? And we also maintained a low churn rate, which helps stabilize the market, even though we still see quite a bit of in and out, but in terms of net porting, we still perform very well. And for the new economy, before, we have always been tracking like the new economy account for how many percent of the total until like last year because our base, of course, was increased about TWD 10 billion because of Asia Pacific. But then on the other hand, they didn't really have the new economy portion. So if you look at just the percentage, it went down a little bit. But then if we look at -- especially, we continue to improve the margin. If we look at the margin, absolute value, so from 2022 to 2023, that was an 8% year-over-year growth. But then for last year, it is a 19% year-over-year growth over 2023. So that was quite a significant improvement for us, okay? And this is due to, we've been very selective in terms of the large or huge projects that we select for the ICT. If we only win for the revenue top growth and then that would -- sometimes that would not take care of the margin as much. So we have been trying to do the good balance. And then definitely improving the margin becomes our higher priority as our growth in the ICT area has remained really strong. Okay. So overall, as you may recall, our new economy has 2 parts. One is the consumer facing, that the digital services base. And then we have also enterprise phase, and that is mainly driven by the Smart ICT business. And then to begin with, I remember it's a half and half kind of a pie. And then -- but now we are enterprise because a lot of these large ICT projects, they do come with a large amount, especially if this [ upcoming ] government project. So in terms of revenue, it accounts for 57% of the new economy revenue now. And then for the consumer digital services, we have remained strong for the video. Our friDay video is already named -- ranked #1 in terms of paid subscription usage or viewership fourth in a row -- fourth time in a row. And then our fraud prevention detection service is also going very strong. And then that is not only a business but for us, it is our social responsibility, corporate social responsibility to help prevent the fraudulent calls or messages or websites to -- from reaching our customers. And then our handset insurance and payment also has posted a very good year-over-year growth. And for the enterprise ICT, we have been focusing on 4 major areas that are on Smart City, Smart Health and then Digital Transformation and also Telecom-based System Integration Projects. And then for Smart City, in particular, in the management of energy usage system. So smart management system and then also like energy savings street lights, university microgrid solutions, so -- and then also EV charging. We see a lot of demand in this area, and we also have 1 -- quite a few, like 10 projects in the EV charging infrastructure across the island, quite a few university campus. Apparently, that is the focus of the central government. So several departments have actually granted some subsidies in these areas and encouraged the local government and also universities to have this kind of infrastructure in place. So this presents a very good opportunity for us. And we also have realized quite a bit of them, and this trend will continue. And then for Smart Healthcare and our current President, Lai, healthy Taiwan is like a spoken for his administration because his background is medical. And then so we see a lot of policies that are really in line with what we have been investing for. So this telemedicine becomes like the core technology and that will be supporting all these new policies like extending the rural area, medical care coverage to the urban area, but then expanded the scenario to append more. So not only limited by the geo location. Now even in the urban areas, people with the need can also benefit from it. And also, this is extended to the long-term care and at the same time, they also asked for those clinics and the local hospitals to go cloud for their cloud -- their health information system to go cloud, so that is a very good opportunity for us. And we are actually working on the cloud. We were one of the few granted by the government that we have gotten the go ahead and also some subsidies from the government to continue implementation. So this year, we're going to have a soft launch on that. So this will be a new area for us to enter into the community health care kind of area, and this is expansion from our -- what we started with, telemedicine only for the rural areas. So this is being expanding in terms of the type of applications and also the beneficiary target audience is also increasing. Okay. And then we are looking at the Smart House revenue actually grew 24% last year Y-o-Y. And then the third area is digital transformation. That is really cloud-based business, and not only we have very good subsidiary, Nextlink, and which was just listed publicly in December. It's doing very well. And then for our own enterprise, we are endorsing the Microsoft solution. So that -- because the GenAI, not only Microsoft Suite already is very, very penetrating in the business world, but then because of the GenAI, so we see a lot of the interest to ask for this kind of support, assistance or quick implementation. So we see a lot of -- a lot more of the professional service opportunities as well. So this digital transformation, we also have done very well and very good growth. Telecom-based SI is always something we have done very well. And because the government recently has been focusing on the infrastructure, the sustainability. So we have seen a lot more both the government or local government and also big industry -- or big enterprises seeing the need for this kind of infrastructure kind of upgrade or going to cloud. So this telecom-based SI is also seeing a very good growth. We also see a big demand in the IDC business, and that is also why we are expanding 1 floor of our TPKC building to expand the IDC capacity for the big event. Okay. Next, please. Okay. Just some highlights in the consumer service area, as I mentioned earlier, friDay video has ranked #1 again among Taiwan local OTT platform. And then we see the double-digit growth in membership and also user engagement. And we started with the GenAI kind of approach, and we definitely see more than 20% watch time boost from these kind of GenAI-enhanced recommendation. And on the right-hand side, the Mobile Circle, that is our app for Far EasTone users. We have won some IDC Asia Future of Customer Experience Award for its AI-enabled MarTech capabilities. It is also ranked single A in the 2024 Loyalty Survey among Telco's reward program. Okay. And then on the left-hand side, that is the Guardian Network. And what I was talking about earlier that we've done a lot in this using AI to detect and block fraudulent calls, text and also website that our users would otherwise visit. And so there is a lot of accomplishments there. And then also on the right-hand side, we are doing the new marketing to mobile business, so unlike before, what we usually see amount this industry is, okay, on TWD 9.99, TWD 30.99, TWD 4.99, you only hear about pricing. There's really no product per se. There's no target audience kind of focus. So we started focusing on different TAs. So like we have collaborated with MaiCoin, that is the #1 shared crypto point exchange company in Taiwan. We worked with them. We offered this kind of a free giveaway and also for Bitcoin for our GA/Renews program, and that is really targeted for the younger generation because apparently, I was told these folks, they are not interested as much in the stock market. They look at this crypto coin. So this is for the younger generation TA. And then on the other hand, we also offered this concert ticket by our local legendary singer Jody Chiang, even my Chairman knew about her at our Board meeting today, and he actually mentioned it. So this is also for the senior kind of a generation, even though she is very popular and then probably like for folks that really like her probably range between 30 to 60, 70, I don't know. But she is definitely a very popular local legend here. So we will be doing more kind of this diversified and different nontraditional kind of a way of approaching our mobile users and just give them different kind of promotion, different kind of offering and then with different TA in mind, okay? All right. And then we have some -- we have quite a few honors and ESG-related recognitions, and here are a few for your reference. So I think most importantly, we actually won this #1 again as rank in the DJSI sustainability, it's the World Index. So we are #1 in the telecom industry. So we took pride in -- that is the second time in a row. And then for the local in Taiwan ESG Index that is for us after 7 years in a row, and also for the TCSA, we are #1 again. And with the 11 awards, they have like a several award. And then also for Common Wealth, some magazine, they do the Excellence in CSR Award. We also maintain Taiwan's telco #1. But the others, I won't just repeat them 1 by 1 for you and then you can just take a glance at it. Okay. All right. So for our 2025 priorities, as you might know, actually, as we have agreed with Fair Trade Committee, our former APT customers, they have until the end of this year if their contracts are due for renewal or already up for renewal. So this December 31 will be the last day their contract or the status will be honored. But of course, if the contract is beyond the deadline or the expiration day on their contract is beyond December 31. Those will still be honored, but that is very -- very few are still with that status. So there will be major migration happening this year. So as we migrate former APT users, we are expecting to see some uplift. And then also once we are able to migrate them completely that we will further be able to consolidate like our core network, there will be more savings to be expected next year. Okay. Also, of course, we need to continue to grow our mobile service revenue. And even though our business as usual kind of approach has been serving us well, but then we are also expecting to offer new products and then new ways of marketing, okay? And then for our Mobile Circle, that is our application. We have now more than 6 million downloads and the 2.2 million active users monthly. So that is quite a bit of traffic. And then we are looking to monetize that traffic. And so we can expand our digital services and at the same time, just the platform itself, we can realize some platform economy. Okay. And then for the Enterprise business, we will continue to grow our 4 Dragon, I call them 4 Dragon, that's the 4 areas I mentioned earlier, so we are all set. And then I think the team is on the right track, and we just continue to do well there. And also, we will explore -- we've been exploring, but then this year, since we are almost done with the merger, we got some time now can really focus some external opportunities for further growth, okay? And of course, not only we help our partners with the AI adoption, internally, we are also accelerating our adoption speed to -- for our employees to utilize AI to enhance automation, productivity and also at the same time, use this opportunity to really optimize, streamline our process and then help collaborations across teams more efficient. And then all in all, I believe this will further make our companies even stronger. All right. And then for our 2025 financial forecast, so we will be looking at TWD 108.33 billion for the revenue, it is 3.5% Y-o-Y growth. If you compare last year, that's a double digit, of course, is a lot less than what we had last year. But last year's growth is also because of the merger. So you just couldn't expect that another year like that. We are more back to our steady growth but then because the base is also much bigger. And then also EBITDA is also at a 3.8% level. For the net income, we -- although we still have some synergies to realize that would help us save some OpEx. But at the same time, as you know, the power usage and then the utility costs will continue to grow. And then recently, what we know is that Taipower's budget got cut in our -- by assembly. So we believe that costs eventually sooner or later will be transferred to either residential or the industry. And most likely, I think it's the latter. So with all that, our synergy to a certain extent will be offset by the anticipated cost increase, okay? And then for our EPS, it's going to be TWD 3.63 and it is also a 2% increase from last year, which we did very well. Okay. For the CapEx, we are looking at just about the same. So like TWD 8.3 billion -- this is a cash CapEx, right? And then with TWD 8.3 billion with TWD 0.5 billion about is deferred from the 2024 payment. So overall, it's kind of pretty flat, okay? All right. For the dividend, so here is a trend for our dividend. So this year, we are going to -- for this year, it's going to be TWD 3.56. It is 100% payout. But then most importantly, we were looking at this TWD 3.56 over TWD 3.25 that we paid for the last few years, that was 9.5% year-over-year growth. And then compared to our EPS growth, that was at a 4-point-some percent. So this is double that. So we think this is to show our appreciation for the support from our shareholders, and we'd like to share our results, our earnings with our shareholders to its full value. Okay. All right. With that, I conclude my report today, and then we welcome your questions.

[Operator Instructions]

I either have done a good job or a lousy job that I got no questions.

[Operator Instructions]

So we thank you for your support and confidence. And then as always, our IR team is standing by for any time you have questions, just call them up. And then we welcome any opportunities if you want to have further discussions in private or scheduled conference call or meeting. But then thank you all again for coming to this IR call.

Thank you, everyone, and see you next quarter. Bye.

Thank you, President Chee and Gary. Ladies and gentlemen, we thank you for your participation in Far EasTone's conference. There will be a webcast replay within an hour. Please visit www.fareastone.com.tw under the Investor Relations section. You may now disconnect. We thank you, and goodbye.