HKBN Ltd. (1310) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. On behalf of HKBN Limited, thank you all for joining the group's 2023 Annual Results Investor Presentation. Today's presentation and question-and-answer session will be conducted in English. Now without further ado, may I now invite to owner and Group CEO, NiQ, to give us an overview of the group's annual results and also the business performance of Enterprise Solutions. NiQ please. Thank you.

Thank you, everyone. Thank you, everyone, for attending today. What a beautiful day to host this event. Before I get into the investor presentation, I would like to take a minute to thank my 4,500 talents in our company, my colleagues because without these colleagues, we will now have this set of results today. A lot of companies talk about job security. We do not believe in job security. We offer career security. What career security means is the upskilled and current, not to be working in the legacy industry working in the future industry. We want to be the most headhunted company in Hong Kong because we're going to lead the transition to the next stage of ICT. Transcendent. Let me start -- even though it's a beautiful day today, but let me start on a more somber note. The days of a fixed telecom company trading at 12x EV EBITDA are behind us, and it's unlikely to ever come back. Let's be realistic. If we don't change, we will die. That's what we talk about every day in our company. If you look at our company, when we talk about transcendence and transformation, it's not a buzzword. It's something that we've been doing for the last 30 years. If you look at our transition, our transcendence from international direct DD to fixed telecom, that was from 2000, 2007, we lost money for 7 years before becoming the largest alternative broadband player in Hong Kong. This transformation is going to be a lot quicker and a lot more smooth. If you look at when we IPOed in 2015, we were a $3 billion company, 80% residential. Today, we're a $12 billion company, 80% enterprise in revenue terms. So transcendence is something that we do every decade. It's not easy, but we do it every decade. And every time we transcend, there's going to be a big J-curve, otherwise, other companies will transcend. Every time we change, there's going to be an investment phase. And that's what we're going through now, and you will see it in the results. I am incredibly proud of these results. This is probably our best vintage in the last 5 years because if you dig below the headline numbers, you will see the incredible change that the team is executing today that will be realized this year in '24 and harvested in '25. And I can show you the math behind this. I'm not talking about a feeling that we will change by '25. I can show you the actual math. These are a snapshot. Revenue up 1%, difficult market conditions, but proud to say revenue is still up percent. EBITDA is down 12%. This is because we are investing in the future. There's no way that you can transform a company unless we can make the costs. And the costs include investing in the people, investing in the business before we reach critical mass. So these are calculated investments into the future. Our AFF is still very strong, which is how we support a $0.40 full year dividend. Let me spend a little bit of time on our transformation. If you look at the network 7-layer model. And I just have a quick snapshot of what we are doing. So a couple of years ago, we bought Jos, one of the leading system integrator only companies in Hong Kong. When I say only, all they do is system integration. That was a $4 billion revenue company when we bought it and only $100 million in net profit. So what's that 5%, right? 5% net profit. We see about 20% net margin in that business if we can transform it. How do we transform it. Well, if you look at a traditional system integrator only company, it's basically a people business. They have no infrastructure, just buying the people. And when you have a people-only business, you tend to focus on complicated business applications. So what is our business application? It's like designing a web page or a membership program, a very, very custom system integration. And typically, there's always a lot of changes in between. And by the time you get to the end product, there's a very little margin left. That's why it's a $4 billion and $100 million net profit company. If you look at our business, our business is a beautiful business. There's only a couple of key providers with a CDWide network. We enjoy a 70% gross margin, 70% gross margin, but our limitation is that this is a sunset industry. There's no growth. So if you keep saying in this industry, we're just going to compete our way of rate down to the bottom. Now when we combine the 2 businesses, the system integration business is 10x the size of ours, we will focus on the core layers 1, 2, 3, 4 and leave alone 5, 6, 7. By doing this, we can focus on repeatable, high gross margin infrastructure type system integration, such as cybersecurity, such as going from on-prem to cloud, such as networking. These are all scalable businesses that require less people leaving more margin because there's more reliance on the infrastructure. And by the way, where we have infrastructure that I-only company does not have. So this is a beautiful transition, but it would take time. You see the early signs of success. Now our transformation, this is not an excuse, it's reality. Our transformation was delayed by a couple of years through COVID. It's in past, we bought Jo at the end of 2019. So as soon as we bought it, we had the social unrest and then it was coated. It's very hard to make a mass transcendent in the middle of COVID. So I would say that 2013, the year ended August 23 is actually our first full year of transformation, where we got the team together, the team came together and you're starting to see the results. Enterprise revenues, up 9%. We have a pipeline -- a wonderful pipeline, $4 billion in discussion. We have 25 projects of $20 million and above. These are unheard of numbers in our past when we were just a telecom company. We also recognize you cannot lead a transformation by a telco-only management team. You have to bring in experts, system integration or ICT native experts to come in and supplement the skill sets that we have in telecom. And then we integrate them and it takes time to integrate. It doesn't happen overnight. Another element is we are now very strong in China. We have almost 2,000 talents in China across 10 cities. So the critical mass that we develop with our great partners, some of -- many of whom are here today, such as one but such as the brand names. We can take that critical mass and incrementally expand selectively in China, essentially following our Hong Kong customers. Hong Kong customers were a presence in China. We start with that and then we localize as we grow. The transformation is very systematic. It's not an ad hoc transformation. How many companies do you know where 1 in 2 active companies are our monthly billing relationship. There's very few. We're one of those. One out of every 2 active companies are our monthly billing relationship. That means we have enormous scale, very few, none of the system only system integration only companies can say this. So out of these 110,000 active billing relationships, we categorize in 3 key tiers. They're the top 1,000, which is Fortune 500, like very specialized, very high touch, very customized. These kind of sales processes take 6 to 18 months to close. Then we have the next 10,000 accounts, which are very large companies, but they're not at the same scale or the multinational presence that you have in the top 1,000. And then the cream of the crop for us. This is our home base. This is where we have an enormous competitive advantage that no system integrator only company can touch, the next 100,000 customers. This is where our 2,000 people in Guangzhou can call in and make the connection and sell now system integration services, not just basic telecom services. So let me give you a couple of examples, a large enterprise. This is a brand-name bank, global recognized bank that world class. In simple terms, 10 million dollar deal, HKD 10 million deal relates to our system integration. 80% relates to our 70% gross margin business, but we closed the deal because of our system integration. Now if you think about telecom, it's actually quite a simple service relatively, I mean in relative terms. So telecom point-to-point, so you have a bandwidth and you have an SLA service level agreement. That's predefined by the customer. So what's left? You tend down on the price. So it's very price competitive in telecom, but system integration is actually sitting down with a CIO and developing his security posture. The ultra-low latency routing with diversity, all these complexities that go into it, but the margins are low. But in a bundle sale like us, 20% SI, 80% telecom, the margins are wonderful. You cannot do this if you're telco-only or system integration only, we can. In the past, our main counterparty would actually be the junior IT person in a large company. Now we're talking -- now we're invited to the office of the CIO. And instead of just spec in, we're actually budget in. What does that mean? Spec in means if you have a good relationship, you determine the specification for the RFP, the request for proposal coming up, right? All the bankers in this room will know that and we all try to do that. Budget in means you speak to the CIO, and he helped them apply for the next 3-year budget. Because that's how long it takes to revamp an IT system. That's the difference. That's the difference between selling commodity and selling solutions ages. This is for our mid-tier 1,000 to 10,000. Basically, with the experience and expertise that we developed in the super high end, the same vendor partnerships that we have, we leverage and package it into very clear packages for the middle tier, the 1,000 to 10,000. Now in this group, they don't have the kind of IT resources, the Fortune 500 [ 2 ]. So they're very heavily reliant on us to give them packages. These are relatively simple programs to sell. It takes about 2 to maybe 6-month sales cycle. A little bit of personal touch, but nowhere close to the customization needed. Now if you look at these brands, such as F5, Fortinet, Cisco, Check Point, NetBrain, most retail users would not have heard of these brand names, but these are enterprise-grade vendors. That normally only serve 1,000 customers. We take that package into the solution and sell it as a package for the 10,000. An example of this, there’s a company in Hong Kong with 100 -- is a chain shop with 100 locations in Hong Kong. Now the last few years have been tough, right? So they're down to one IT manager serving 100 chain locations. Every time something goes wrong, he has to fix it. So if a shop -- the WiFi in one shop is not working, he has to figure out whether it's a router or the connection or something else. So he would take the MTR and go out to that shop and try and figure it out. All he will call the telecom operator and takes 4 hours to respond. What we offer is real-time live troubleshooting. So he can look on his handset exactly what's wrong. And if it's just a local reboot, he can do a reboot remotely. It is a huge cost savings. So in this case, it's a win-win. He's got 100 branches. He's testing 10 branches with us, and we increased the ARPU by 45%. Let me emphasize that 45% because we are in a fixed cost industry. Most of that $0.45 goes down to free cash flow. System integration cannot get you this. This service is a combination of having your own infrastructure and having the intelligence on top but simplified for the mid-tier. Now this is an incredible service. We've launched it from about 3 months now, and a response has been phenomenal. I think the take-up rate is more than 50% of the people that we call. What is this? So broadband is a pure commodity. I'm talking about the broadband to your coffee shop, the broadband to your hair salon. They range from as low as 200 to a max of $500 per month. And everybody is competing. This is a red ocean. But we have turned our SI solution into in some menu where you can pick this business solution that you want, starting from cloud-based WiFi all the way to business intelligence and other applications, ranging from, say, $400 to $1,100. But these are set menus. So these can be sold by our Guangzhou co-office, and that's how we can increase the traction, increase the ARPU and differentiate ourselves from our peers. So so far, this is an incredibly compelling results in the early 3 months. The beautiful thing is our sales people make a lot more money. It takes time. We have out of 100 salespeople we have in Guangzhou, only 25% is able to sell this so far in the first 3 months, but that 25% is earning 50% more commission. The 75% will follow. This is what we have that other people don't have. UCA. UCA stands for unfair competitive advantage. Just look at if you are a SI only company, you cannot justify these people. Our friends -- my colleagues on the right there is on the left, our Guangzhao based telecall center. This is the products that we have at incremental margins on top of a fixed infrastructure. These are the results. The order backlog is heading north. This is what we see. This is what the market doesn't see. Until now, this is inside information, but now it's public information. The order book will take 3 years to roll into -- completely roll into revenue because you sign an order, it has a 2-year contract, and then you can scale that over the 3 years. It takes 3 years to convert order book to revenue. So that's why I say our confidence in '24, '25, if we achieve our 24 KPIs, 25 will be a home run. This is a wonderful picture. This -- if you follow the SI industry, this is kind of kindergarten stuff. But I myself came from residential broadband. When I was an analyst, I was doing mainly ARPU times subscribers. This is a completely different ball game. This is what I mean by the waterfall. If we sign $100 today, we only -- in backlog, we can only recognize $20 this year in this year's P&L and $50 would be next year and 3 would be the following year because they're 2-year contracts, you recognize you amortize or the life of the 2 years. I can show you the math. I've show you this, if you're interested. Now this is what it looks like. So if you consider '23 as the first full year of transformation, all the hard work that we did, all the extra expenses that we incurred, all the extra people we hired, both in the front end and the back end, we only have a 20% impact on '23. But that impact is guarantee these assigned orders will flow or the for 50% to next year and then 30% over the next. If we do that again in '24, same thing. So it takes 25 to have the first full year of the transformation that we are seeing today. That's why this is the best vintage we've had in the last 5 years of this company. The results do not show that, but the operations do. Let me just summarize. This is the final slide, and this is what excites me. If you look at the SI industry, is a dog. There's a couple of listed companies in Hong Kong. In aggregate, they have $3 billion in revenue, and I think that made less than $300 million, less than 3% net margin. So less than $100 million. So $3 billion in revenue and less than $100 million in net profit. So it's a breakeven business at best. So it's not a business that you want to be in. And why is that? Let me try and explain it. If you look at the gross margin range in this sheet is huge, and the range is a function of scale and efficiency. Box moving. Box meeting is very simple, selling desktops, laptops, the brand names. If you sell these laptops, typically 5%. But once you hit a multi-hundreds of million dollar scale, you get another 5% rebate. -But you have to have the scale. If you not have to sell, you buy Okay, you have to have that scale. But even with the scale, it's still a 10% margin. What's next? Maintenance service. So when you buy a laptop, you get 2 years standard manufacturing warranty, but you would like to buy another 4 years for the normal 6-year useful life of a laptop in a company. We -- you pay us. This is the AppleCare equivalent. And the margins here are fantastic. Why? Because we are the wholesale provider, the HP for the manufacturing warranty, something goes right in the first 2 years, you take it to our shop, and we OME fix it for you on behalf of HP. So if we get another more business on top, the scalability is wonderful because we don't have the high new people, we just run a couple of OT shifts. So that's why the margin are close to 50% if you have scale. Now once we have the maintenance service, we're going to manage service. What does that mean? When you have a whole IT department in your office, actually, a lot of time, they're idle. Now of course, if you have an attack, they're going not -- if you have to upgrade from Win 11, they go nuts. But most of the time, they're seeing their idle, waiting for the online to ring. So it's a very -- like it's like owning a car versus Uber. So what we offer is a complete end-to-end managed service 24/7 servers backed by our technicians to outsource most of your IT functions. And this is a 20% to 40% margin. Now imagine having outsocial IT function, we're going to be on very good terms with your CIO. Then we start talking about budget in. but in our services. So to summarize this whole slide, the most important point about this whole slide is actually one bullet point, telco greater than 70% GP. Eventually, we want to sell more telco at 70% GP, but it is not a commodity. It's part of this virtuous circle. That's how we drive margins to unbelievable levels relative to SI company. Hopefully, that was quite exciting. Now I'm going to actually move on to the real home run for this year -- not this year for the -- as in this year, '24 because the momentum that you see in '23, it's in the bag for 24. With that, I'll pass to William.

So NiQ has served with you how we are sending the foundation for the growth of enterprise in the near future with all of us are very update and confidence. For the residential market, I would just want to highlight that some of you may have already know that we are a strong #2 player in the presential market in Hong Kong, having 36% of market share. And the EBITDA contributed by residential service is 48%. So this 48% EBITDA from residential service is, in fact, a very stable cash count for us to have adequate supply of cash flow for our operations. So if you look at our residential market financial year '23, we have increase of subscribers, that is the efforts of better WiFi solutions, higher bandwidth and also the efforts of our salespeople calling the existing huge base to upgrade or top up some more where the services to increase our revenue per household, Apart from the fiber as--we have OTT, we have mobile with everything. So this is a summary for financial year '23. Our team is very good at execution. I will be very proud to say that when we won subscriber number, we use aggressive price to get more subscriber number. Like for the first half, we already can live more than 20,000 net addition of subscriber number. Then we think hey, that is the right number, we scale. Now let's grow the revenue. Then we start to increase the price. So you can see that the price of acquisition for new customers and also the retention ARPU is going up. So on August, the ARPU is like more than 200. So this 200 when compared with the base of 179 , you see that it is a signal for higher service revenue from the whole base of residential customers. Why? Because we always call our customers 6 months or 5 months before the expiry days. So if today, you are paying us like 170, 180, we call you cross sales on value service or upgrade the bandwidth some and then you pay us [indiscernible] 2020, we signed up the contract now. But the effective day of the new higher ARPU will be 4 months, 5 months or 6 months later for all those customers that renew sign contract this month. So this is the uptrend of our ARPU for our huge base of 92,000. And the 26% increase in the base ARPU, if you use August number compared with the whole base, you see that there will be a reflection of growth very soon. And of course, we take the whole base update of our ARPU, it will take like 2 years. So the question is whether this is increase of price is sustainable or not, lets say. It's the combination of internal efforts and also external environment, talk about internal efforts, we started the infinite place 3 years ago beyond connectivity, not selling fiber or fixed broadband only. But unto with mobile, OTT, cybersecurity, WiFi and then also upgrade to 2 gig with the due guarantee on overspeed and the latency that is talking about money back dual guarantee. In Hong Kong, I'm going sure that no competitors are offering the same. I don't know about global players, but from what I know nobody even around the world is doing this guarantee with money back. So with all these content, all this 5G, whatever, it helps us to increase the ARPU from our base whenever we renew the contract. But that is what we do internally with our hard work. But we should make sure that external markets the pay us, what are they doing? So for VHKPN, look at the number in March, we are saying like $139, Today, not today in fact 2 months ago, we are selling more than 200. That is our selling price for new customers, for our undue service, fixed broadband plus OTT or mobile or cybersecurity whatever, to increase our ARPU. To be honest, [ 8 month ], we do not acquire too many new customers. But we renew mainly customers from our base. So this is the indicated lease price to support us to increase price by adding more value to our huge base. That is where our EBITDA and cash flow come from the residential huge base. And -- while what we are doing, look at the market that who's doing, we have 36% market share. We believe the incumbents will have above 40% or 41% something like that. So together, the #1 and us are having almost like 80% market share. I don't want to name the competitors. But when you look at this [indiscernible], you notice that the -- our arch rival has increased price from 108 to 148 within 6 months, which is a 36% -- 37% increase of their price. We stay competitive. We also increased price, but we only increased 26%, but that is still good. If we can go and attack, but we can still defend that is a good positioning for us. And of course, there are some decent #3 and addition #4 players, they are still selling at 99 or 8, reach because of their small coverage or because of their poor quality reches irrelevant. I don't want to say do some voting, but I'm quite sure that many of you are not using the small or #4 networks. It won't be something you are proud to share with you. So what I want to say is in terms of efforts of adding more value, external environment sort of support the sustaining of our price increase will lead our enterprise -- our residential surface to [indiscernible] in revenue and also EBITDA. So while I finished the [indiscernible] I also want to use one page to share where we are in the ESG. ESG, for many listed companies, they are just doing by all the of the vaculator to take the boxes. We -- because of our core purpose of making our home a better place to leave. We want to make sure that we committed seriously, deliver more than expected on ESG. That's why we have an ESG committee airport level with board member, leading and chairing the committee and with senior executive having skin in the game in the ESG targets. That's why you look at the past few years, we are talking about single A, AA and then AAA. All the improvements lead to the result that we are the #1 among all the Hong Kong telcos for consecutive years in ESG performance, but we are not satisfied with that. This benchmarking are basically regional or local benchmarking organizations. Our board is very demanding. The next stage, we are leading our team to a benchmarking with the top-notch global benchmarking organization to see where we are today. So I will say, if there are investors or whoever who really serious on ESG, you should give us many takes on the ESG performance. Derek.

Thank you William Yeung. Hello, everyone. For some of you, I know, I've been with the company less than 5 months. I am super excited about this transformation. It presents a tremendous opportunity and prospect for the company and for all the talent, including myself. FY '23 was a very important transisting year for Hong Kong broadband network. We deliver a very stable top line performances in a very challenging market. And if we're looking at the underlying businesses, our enterprise services continue to grow at a 9% very strong year-over-year growth. As we are continuing to capture opportunity and drive the transformation, our ICD transformations continue to gain important momentum. Our residential businesses with a very stable performances, and this will further accelerate as we continue to play our infinite play, creating more bundled value like for our customers, this will drive -- create tremendous value upside and the growth upside in this business for next year. Our product businesses shrunk about 6% as most of the products get refreshed and completed refreshed during the COVID period back in 2021. Our overall EBITDA shrank about 12%. We continue to invest in this business to -- for future growth and capitalize in the future opportunity. We actually invest some of the increases is actually in our bandwidth costs. NiQ talked about our backlog. Basically, our backlog will turn into future revenue. And this future revenue will contribute directly into our EBITDA, creating a significant pool of profitability for our future. Accounting adjustment on our good view. Let me reemphasize this is a noncash. It's not going to impact our dividend model, will not impact our interest payment model will not impact our future operations. And as we are -- we have a very strong core fundamental, but as we are facing a very difficult environment for the business, especially during the second half, we recalibrate our accounting assumptions, including the growth rate, including the discount rate, including our cash flow model. As a result, we make an accounting adjustment and write down this good view -- and again, this is an accounting adjustment will not impact any cash flow, will not impact any interest payment will not impact our dividend model, will that impact our future operations. We continue to invest in our transformation and yet we managed to deliver a strong set of efficiency improvement. We are spending less on our operating expenses. We have a lower CapEx ratio. And more importantly, we generate a lot more cash flow from our operations. We have increased about 10% cash flow from our operations. And the cash conversions for the EBITDA has actually improved to 97%, meaning every dollar that we earn, $0.97 that we can actually convert that into cash. It's a very strong model on the cash flow operations. And with this set of strong operating efficiency, I would like to conclude our FY '23 operations, and we are looking forward to a very exciting FY '24 opportunity and successful executions. Thank you.

Thank you, Derek. And also all the management for a detailed sharing. We now move on to the question-and-answer session. [Operator Instructions] So we will take the first question from the floor. The gentleman over there.

Neale from HSBC. I had 2 queries, please. One is on the -- where you're seeing the growth in Enterprise Services. At the half year, you had quite a lot of discussion on the GBA trends, which I didn't see you mention of, so maybe you could expand on that. And the second one is your thoughts on the debt. I understand probably constrained in the near term when you've implemented the hedge. But how are you thinking about that, I want to say, a 2- to 3-year basis?

Well, I'll take the first question, and then Derek you take a second. We are seeing growth. Actually, the beautiful thing about moving from telco to system integrate ICT is a 10x increase in the TAM. The total addressable market. So I encourage any of you, if you want to fact check this, go back to your office, speak to your CIO asked about his total budget and what percentage goes down into telco and what percentage goes into ICT costs, IT costs. And it's about 5% goes into telco, 95% goes into ICT, Internet security, laptops, networking, digitalization, ERPs, et cetera, et cetera, right? So it doesn't matter whether the market is growing or not for us anymore because we're coming in into a much bigger market that's 10x the size of our telco space as long as we take market share, whereas we were highly constrained in telco, everyone who wants a broadband in Hong Kong probably has a broadband, whether you're a residential or corporate, you already have a broadband. And we're not getting kind of price increases that we used to get just by increasing the bandwidth. So going back to your question is we are jumping from a very small pond. It sounds like a cliche, but we are jumping into deep blue ocean. And our competition is no longer just a big incumbent in the telco space. It's hundreds, if not thousands of small SIs that have no hope in competing against us.

And NiQ, just you want to also let new. Today, we have about 4,500 talents for the whole company. But we have close to 2,000 talents stationing in China over pan offices. So you see we do have many, many resources supporting the future growth, particularly in.

Actually, I was too passionate about the first part of your question one, but you tend to ask these kind of multi-tier questions, get lost. Second part, what's our outlook on the GPI? Well, China, we were expecting it to come back strong, but the reality is it didn't. But we are fully prepared for when it eventually does come back strong. You saw we have 10 offices. We're making great traction. And as I said, our approach to entering China is on the incremental economics that we already established in Hong Kong. So when you're talking about the rebates and you're talking about scale relationships, we already have scale in Hong Kong. So China is incremental. When we talk about 10 offices, they're not all large offices. Many of them are relatively small offices, 10, 20 people, salespeople, but the services that they bring in, the margins are very compelling. So China is a -- especially the GPA area is a major growth focus for us starting from an immaterial market share.

Regarding the refinancing questions. We always look for opportunity to optimize our capital structure and reduce our cost of capital. And any immediate or the day-to-day priority for us to do is to continue to execute our cash from operation conversions. That will allow us to generate like a very good source of cash and give us a lot of freedom to decide like what we're going to do next in terms of the capital structure.

Now I'll move on to take the questions from online. And this question is from Patrick of Canfor Technologies, and he asked, what's the reason behind the huge goodwill impairment? And also, he has a second question, which is if interest rate stays at the current level in the coming years, interest expenses with either most of the profit generated from the business will dividend payout be sustainable in the coming future.

Back to the good view adjustment. And again, I would like to reemphasize this is a noncash, no impact on our dividend model. No impact on our interest and no impact on our future operations. It's primarily accounting related. And given that our current macroeconomy environment, we recalibrate our accounting model on the assumptions. On the risk factor on the interest rate discount rate on our future cash flow on all the assumptions, and we recalibrate it and then we make a decision to do an accounting adjustments basically to write down the carrying value on that. But again, this is primarily an accounting adjustment, not impacting our operation in any front. And in terms of the -- the second question is...

About the interest rate. If the interest rate stays high at the current level in the coming years, will dividend payout be sustainable in the coming future?

So when we look at the interest rate, half of our corporate debt is under a swap -- interest rate swap. We actually have a locked in a very favorable rate. So that actually really helped us mitigate a lot of our cash flow risk already. And in terms of the dividend payout, we will continue to review our company financial situations. We want to make sure that we're taking the best interest of the company and look at our dividend payout policy. Right now, we have been following our dividend payout policy. But again, it's very important that we want to continue to measure against our company financial health. And I think that's the best interest of the company.

Two elements I would like to emphasize. Every $10 of ARPU increase in residential is a $100 million impact. $10 x 920,000 x 12 months. If it's a price increase, that essentially falls to the ASF line, the free cash flow line with regards to the existing cost base, adding the revenue, very minimal costs involved in the price increase. This is different to growing the subscriber base by 10% or by the equivalent. Because if you grow a subscriber, we pay for the installation cost, there's network elements involved, heavy acquisition costs, reset, et cetera. The reason we are able to raise prices is because we went on an acquisition -- subscriber acquisitions spurred for the last couple of years. We cut price in order to grow the subscriber base so that we can raise our [indiscernible]. Now if you look at our history, why is it that we are 900,000 subscribers. And the next carrier is 200,000 and below. It's because of the way we execute. That's residential. On enterprise, let me show you this -- let me just remind you of this slide. What you see is a very wide range – we have to go back a few once. A very wide range of gross profit margins for these elements of the business. We are, at the moment, maybe a little bit towards the left in the middle, but a little bit towards the left of this range. But the next $1 billion of revenue that we bring in is going to be on the right-hand side. The incremental margin of the next $1 billion we bring in will be at the right-hand side of these ranges. That's the difference. So that's why we are incredibly excited. That's why we've done the hard work in '23. That's why I say ‘23 is the best vintage we've had in the last 5 years. ‘24 is going to be hard work, but ‘25 is in the bag. If we get through ‘24 in the same momentum as we had in ‘23, ‘25 is a home run. Mathematically a home run, not a feeling, mathematically a home run.

Thank you, NiQ and Derek. We'll proceed to take another question from the floor. [Operator Instructions] So if not, I'll move on to another question taken online. So here's another follow-up question from Patrick. He asked roughly how long can the orders generated from enterprise business be converted into cash.

So it goes back to the waterfall. I'm trying to figure out what waterfall is. So the waterfall. So think about this. If you do $100 every month for 12 months in a row, but every month, it's a 24-month contract. So think of a waterfall-- it looks like a waterfall. That's why it's called the waterfall. So if we do that, it takes $100 -- if we sign on, let's say, $1,200 this year because it's $100 per month. Only 20% of that will actually get recognized as P&L this year. And by the way, we pay commission upfront for the 2-year contract at the start of bill. So there's a bit of a timing mismatch. You have 20% of the revenue, but 100% of the expenses this year. That's one of the reasons why you have a minus 12% on EBITDA. Then next year, you get 50% of the waterfall coming in. And the following year, you get the remainder of 30%. And by the way, the second and third year, we already paid the acquisition cost upfront in the first year. So this is what that situation looks like. So if you look at just '23, if we add $100 here, 20% gets recognized 50-20. Now what I emphasize is these were really bad years. These were the COVID years and we were struggling to integrate the business. It's very, very hard to put in a brand-new management team by team's conference call, right? We have added about 30 people system from the ICT industry to join our company to supplement the very strong team we have in Tokyo, but you could not do that during the COVID period. So this is what it looks like. We had to carry 2 bad years this year. And then next year, we only have to carry 1 bad year. We'll have 2 good years, assuming next year is strong. We have 2 good years and one bad year. And then by ‘25, you have the full impact of our 23 we come through in '25. That's why 25 is mathematically a home run.

Thank you, NiQ. So any other questions from the floor.

Just on residential, could you share a little bit on what portion of customers we have locked in for those new higher rate plans. And what has been customer churn rates been trending over the past couple of months that you raise your prices?

Customer rates are lower than 1% per month. I will say roughly about 40% of customers acquired will be between 1 and 2 gig or internal in fact, I would say, 1/3 being 2 gig and then maybe another 30% or 40% being 1 gig. So 1 gig high bandwidth or Hiponia will be around more than 2/3.

Thank you, Michael. We now proceed to another question taken online. This is the question from Raymond of OCBC. Could you please provide guidance on the upcoming dividend, leverage and CapEx?

Homerun 2025. on a more serious note, I think you can see the traction. I think it's up to us as a community to project your own assumptions on to those numbers.

Thank you, NiQ. Is there any other questions from the floor? If not, we have got another question online, which is from Scout of Radisson Group. The number of permanent full-time staff has decreased by over 400. Is there a layoff by company? And how does it impact the future of the company?

No, it's attrition. We were 5,700 people upon acquisition of the 2 major acquisitions in '19, WTT and Jaws. If you look at it here, there's any one of the management team, the best of the breed. We have one person selling the full suite of services. We only have one network team running 3 networks. -- et cetera. So there's massive synergies. And we intend to continue to buy more companies going forward. There are some very marginal players in Hong Kong that are really struggling, and we think we can pick them up at very good value. So that trend will continue.

Okay. So during the time, we will take the last 2 questions from both online and from the floor. So any other investors would like to ask questions from the floor. If not, then I'll move on to another question taken online. Would you please elaborate more on network cost increase? And how should we think about EBITDA margin or growth going forward?

Let me take this. If you live in Hong Kong, look at your electricity bill in the last year or so. And one day, we come home from work and you notice that price has gone up by 40%. If you live on Hong Kong Island, and 20% in calenside. And that impacts all of us living in Hong Kong within 1 month billing cycle. For us, if you look at these price increases, it would take about 32 months before we punch that price increase through the customer base. Why? Because we call you 6 months before you expire, you sign the contract, but it's not effective for 6 months. And then the average contract length that we have in our existing base is about 28 or 29 months. So it will take time. Cost of network services fluctuates month by month. We are carrying a higher electricity cost. So when costs -- that's the good and bad nature of having a fixed price business, fixed price, long-term contract business. There's a timing mismatch between revenue and costs. So the cost network-related costs.

If there are no other questions from the floor this is the end of our question-and-answer session and thank you, management. And to thank all of you for your continued support to us HKBN, and the group has prepared special gifts for all the investors who attend the presentation in person today, which is a global SIM travel data service that includes 14 days of free travel data to 14 hot APAC destinations. So we hope you all will enjoy the high-speed Internet assets and also the unparalleled flexibility offered by the group. Thank you all for joining today.