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

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

Good afternoon, everyone, and welcome to the 2025 First Quarter Investor Conference Call. We are pleased to have you all join us today. We have with us our President, Chee and CFO, Sharon. Both will share valuable insights and updates on our performance for the first quarter in 2025. Before we begin, I would like to remind everyone to pay attention to the safe harbor statement in the first page of the presentation. Thank you for all your attention, and now let's proceed with the presentation. Ms. Chee?

Okay. Thank you, Gary. Yes, good afternoon, everyone. So Far EasTone, we started -- we finished the first quarter of the year pretty well. So we have exceeded all our financial KPIs, exceeded our guidance. And also, we were seeing an improved margin. As you can see, we have a TWD 26.0 billion for the first quarter revenue and the EBITDA, which is also a record high for a quarter -- quarterly EBITDA is our history record high for TWD 9.48 billion. And then the net income, you look at Y-o-Y, it's double digit, and it's also better than our original forecast. So all in all, we had a very good first quarter. And in terms of trending, and you can see some financial highlights. So from the total revenue perspective, the first quarter revenue that is TWD 26 billion, it is a growth of 1.2% Y-o-Y, but it is a record high already for the same period for Far EasTone. And then it is driven by very steady mobile business growth and of course, the continuous 5G upgrade and the APT migration uplift, they all helped. And on our ICT side, we also have a very impressive first quarter deliveries and all that. And also the quarterly revenue, we have seen a positive Y-o-Y growth for 18 consecutive quarters already and starting in 2021 second quarter, okay? And then when it comes to EBITDA, the first quarter EBITDA, as I just mentioned, this TWD 9.48 billion, it is a new record in Far EasTone history. And then our 6.6% Y-o-Y EBITDA growth is attributed to merger synergies and better margins across the board. Now all of our services are -- continue to improve our margin, okay? And as far as net income is concerned, we have come to TWD 3.24 billion net income for this first quarter and the EPS is TWD 0.90. It is also a record high for the same period. And then the first quarter net income, we grew 10.3% Y-o-Y. It's a double-digit growth for 4 consecutive quarters now. Now and for some more financial metrics for your information, our net debt and the net debt-to-EBITDA ratios improved significantly post merger, as you can see from the chart here. And our free cash flow remains very strong. And then CapEx in line with our 2025 guidance, which is a total of TWD 8.3 billion. And so far, it's about TWD 1.54 billion spend. All right. In terms of some more details on the service, the revenue breakdown for your information, so as I mentioned already for the mobile service, then because of the time on the handset replacement, it -- it certainly drove some replacement and so more 4G to 5G upgrades with bundles. And then so we are seeing 40% uplift in the monthly fees for the 4G to 5G upgrades and also continued APT migration with uplift and it also attribute to the overall renewed 12% uplift for our monthly fees, okay? And then for the digital essential services because some of our services is coming to offline. For example, we have some events scheduled or we sponsored or we invested, it's all in the entertainment area. So I included them here already. So we are seeing a revenue growth for 3% and margin improved Y-o-Y 5%. And then insurance agency business continues to grow very well, and we're also finding new type of products that we can resell in this area. So we are definitely seeing some very good momentum for growth. And then in terms of fraud prevention service, and that is our strength for assuring our customers with a very safe and reliable network, and then we are seeing a 38% Y-o-Y growth. And then in terms of the friDay video and that already is 3 years in a row, we are the #1 local OTT in terms of a paid number of subscribers and also the number of viewership, okay? And then we are also seeing revenue-wise, there's a 5% revenue year-over-year growth. okay? And for ICT and the fixed business and then revenue grew 13% and then the margin grew 5%. Our ICT revenue alone grew 24%. And then we have like a 4 focus area that there's one slide on it. But then in terms of the SI project that we show the strongest growth in the first quarter, that is 63%. And then also in the security and the cloud area, we have Nextlink that is -- continue to drive the cloud growth. And then we have ISSDU that is a security company, we are also seeing a very good strong growth. okay? Now merchandise, we do see minus 6% in terms of revenue loss, but our margin improved by 14%. So we have moved more allocation of the handsets to our bundled services within our own channels. So the number of devices we sold to the external e-commerce channels have been reduced. So here, you see the decrease of the total number sold, but in terms of margin, definitely is much better. Okay. We have had a steady mobile service. And in this chart, that should be 18 consecutive quarters, right? Okay. So as you can see, we had launched our 5G service in July 2020, and that was the year of the pandemic started. So -- but then we do see -- and as my peers telco, right, so in the second quarter of 2021, we started seeing -- we kind of hit the bottom and then coming back. And Far EasTone, as I remember, was the first to show the month-over-month positive year-over-year for the same month. And then since then, it has been 18 consecutive quarters now. And this time, we're also seeing 2.1% Y-o-Y. okay? In terms of our postpaid ARPU, we continue to improve it even after the merger, this trend continues to go up. So we are now come to TWD 713. And then our postpaid 5G penetration has come to 44%. And I believe that's #1 for the telco here. And then for our postpaid churn rate, we continue to work it down. It has come down to the 0.8%. We'll continue to improve that. We have some very good first quarter in terms of the ICT contract that we have been granted. So it's almost double the contract amount -- the contract value that we received at the same time last year. And then like I said earlier, we focus on 4 areas for our ICT projects. One is the sustainable smart city. So we have some big projects from the local government, such as for the Smart Streetlight Management and then also the continued maintenance and then also the EV charging station and management systems. It's all kind of from our EMS, Energy Management System platform as these are the applications came off that platform. And then in terms of the digital transformation, we have some big data-related and data security-related projects that bring us a very good contract. And then on the Smart Health side, our telemedicine platform service renewal, these are kind of like continuing, and we are also expanding our Smart Health or Telemedicine Platform technology into the cloud hits and also the clinics for 2C kind of application as well. And then in terms of telecom-based SI, we have quite a few projects awarded to us as the enterprises are seeing the need for their resilience in terms of their IT infrastructure, partly because of the net zero efforts and partly because of all these so-called infrastructure sustainability. So we have seen quite a bit of project in that area. In terms of the digital service highlights, so for the 2 major paid subscribers, friDay video, we have exceeded 400,000 subscribers. And as I mentioned earlier, we actually are #1 for 3 years in a row as the local number -- local OTT for the number of paid subscribers. And our Guardian Network continue to see a good demand and strong demand. So when we give the users tryout period and the conversion rate has come as high as 60-some percent. And so that led to a 42% year-over-year growth for us. And also the paid subscribers has come close to 400,000. On the right-hand side, we are expanding our service offerings to the consumers. So this is really way beyond our typical like a service, our telecom service, right, or just device related. So in the insurance area, as I mentioned earlier, so not only we started with the device insurance, but then now we have also come into the travel insurance, life insurance and property insurance. So all that business is looking pretty good. That's why we are showing, I think, a 12% or 14% growth earlier -- 12%, yes. And then also, we have kind of sponsor or we have worked or co-worked with Spotify. So we launched an exclusive Spotify offer with 3 to 4 months free access, and this is receiving very good feedback from the users. And recently, we have just invested in [ PRO360 ] as we aim to really expand the services to our users. So beyond the telephone or telecom related. So this is a platform that offers more than 700 different kind of services, and they have like 250,000 professionals on their network. And then every month, they have like 100,000 transactions that they brokered. So this is a very good service. And then we are looking to co-work with them since we have a Mobile Circle platform as well. So we will help them to expand more transactions and more business for them and for us, too. Okay. And some honors and recognitions we have received recently in the environmental sustainability area, we have received this in the S&P Global for the 2025 Sustainability Yearbook. It was ranked in the top 5 for the global companies. And it is #2 among global telecom companies, and it is #1 among Taiwan telcos. And for the CDP climate change, we won the leadership level award for 5 years in a row now. Okay. And in terms of our corporate governance area, we have received some recognition from FinanceAsia just recently for Asia's Best Companies poll. So we were awarded Best CEO, Best Large Cap Company and Best Managed Company in telecom services. And I thank you all for your vote if you voted for us. If not, next year, hopefully, you will. Okay. Just kidding. All right. And then for Taiwan Stock Exchange, we have -- we are one of the 7 companies listed -- public listed companies in Taiwan that have been consistently ranked in top 5 of -- top 5 for 11 years now. So there are only -- including us, only 7 companies in Taiwan that have received such honor, okay? And we also earned Accredited Healthy Workplace by the Ministry of Health and Welfare. And just recently, and actually, just this past weekend, we have -- my team has received this AI Award. It was called like the biggest AI competition ever or so far. We were awarded the Silver Medal for Best AI Award, and that is for the enterprise list -- enterprise category. So we were very pleased with that, and that also demonstrated our capability in this area. And this is how we kind of continue to enhance our solutions, especially serving our partners and also in providing our professional service to them. Okay. In terms of our 2025 priorities, of course, this is -- the end of the year is the deadline that the Fair Trade Committee gave us that we can migrate all the APT customers with a contract that already expired and all that. So we are aiming to complete that in time. And then also for -- we will continue to grow our mobile revenue. We wanted to have some new offerings. And then we want to expand our digital essential service offers for our consumers. This is something we'll continue to do. Actually, for my own focus and as our enterprise business is pretty much on track and mobile is also doing very well on its own, I will spend more time on growing our new business because this is the area where we see more opportunities are yet to be tapped. Okay. And then we will monetize our Mobile Circle as we have received a lot of traffic or visits and then -- for the platform economy. And then for some profit sharing kind of a model, that is the kind of business that we will continue to engage. And then also our Smart City, our Smart ICT business solutions that we will -- as I mentioned, this AI-enabled or our AI capabilities, we will enhance them with more AI-enabled solutions or enhancements. And then internally, we are -- we continue to accelerate this AI-powered process and productivity optimization within our own team. So this is very important. This is also on our priority list. And last but not least, our Annual Shareholders' Meeting will be held on May 16, that is next Friday. So with that, I conclude my presentation and ready for your questions. Thank you.

[Operator Instructions]

Okay. We have seen some questions from the web. The first is some concerns about the impact of Mr. Trump's tariffs. And of course, this seems to be a daily topic on news. But then -- well, so to a lot of the extent, we -- as a telco, we operate locally. So in terms of the tariff impact, it is -- if anything, it's indirect. But then, of course, smartphone being one of our major merchandise that we do purchase and in large quantity. And then so we will -- we just need to wait and see. For example, if iPhone, we do know iPhone fans are very loyal, right? So this is going to be, okay, so in terms of a PxQ, how much P is going to increase because of tariffs and how many people less that will be more willing to replace their phone as they always do every year. So we will just have to wait and see. And so other than that, maybe as a secondary, right, when all the enterprises are feeling some pressure and that may have some impact in our ICT. But we do see a lot of contracts we already have signed. So we have a pretty full pipeline to deliver for the year. So -- and then with changes so fast coming out of White House, so I guess this we just have to play, wait and see. But then for now, we really don't see any significant impact at all. okay? And for the number 2, there was some question about lawsuit between us and Taiwan Mobile. I think they started before I joined FET. So if I recall, because this is like a so long for us -- for so long. But then I know if I remember correctly, the latest verdict from the last one we received before we went on again, it was in favor of Far EasTone. So I don't really worry about it, okay? And then -- so in terms of the trend for 5G penetration, I think it is going to be a very smooth and surely continuous growth. And we -- actually, I push my team kind of to hit the 50% mark this year. And I think it's pretty doable. Okay. Any more questions there? Okay. There is a question about our insurance resale business, right? So yes, so currently, we do cooperate with multiple insurance companies, and I listed 2 in particular because of products that I mentioned involved. And then so I don't think we have like a set rule like no more or whatever. So we always are open and welcome kind of reciprocal and then mutually beneficial cooperation. So we are not limited our partners' options, okay? And I think some folks are asking about like maybe the exchange rate impact. So if anything, it's actually doing us good because we pay some U.S. dollars for some of the vendors, but not a lot. That is still not our major type of payments at all. But then -- and usually, we don't do this as a onetime thing. We hedge, right, along the way as we needed more dollars. So it is insignificant. All right. I think I answered them all. All right. I guess that's all for now. But then as always, you can contact Gary and Amy afterwards if you think about some questions that you forgot to ask or didn't get to ask. We always welcome it. Thank you.

Thank you. We'll see you next quarter.

All right.

Thank you. Bye-bye.

Thank you, everyone.

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. Goodbye.