HKT Trust and HKT Limited (6823) Earnings Call Transcript & Summary

Hello, and welcome to the HKT 2025 Annual Results Webcast. Presenting today, we have Susanna Hui, Group Managing Director; and Mr. Patrick Poon, Chief Financial Officer. We'll start with the presentation followed by Q&A. And with that, let me turn it to Susanna.

Good afternoon, ladies and gentlemen. Thank you for joining our HKT 2025 results announcement. I think for 2025, throughout the year, basically, we witnessed a lot of shifting geopolitics, volatile trade conditions and sluggish domestic demand, which contributed to a very cautious approach from enterprises in investment and spending. However, despite all of these headwinds, HKT delivered a very solid and resilient performance for the year, anchored by our business scale, our unrivaled network infrastructure and our continuous innovation. Total revenue grew by 5% to almost USD 4.686 billion. EBITDA reached HKD 1.825 billion, representing a 4% increase. And most importantly, AFF growth is at 4% to USD 795 million. As a result, today, our Board of Directors declared a final distribution of HKD 0.4797, bringing the total distribution for the full year to HKD 0.8177 for the full year. With economic conditions showing signs of stabilization and the government implementing a lot of supporting policy, we are confident of achieving an even better performance in 2026. This next slide shows our payout and the dividend yield. This year's payout represents a yield of around 6.9% and a steady growth with CAGR of around 3% in our distribution over the past 5 years, although at a period where Hong Kong witnessed COVID and also GDP shrinkage, especially in the year 2021 and '22. Now this demonstrates our resilience on our unparalleled infrastructure, our leading market share in both consumer and enterprise markets as well as capturing the industry tailwinds and growth opportunities from the recent AI data center and 5G development. Turning to the next slide. This is basically sharing with you in terms of our fixed network. We have achieved during the year, very significant infrastructure enhancements to meet the increasing bandwidth requirements, especially on the backhaul area and also in intra-data center fabric, which is required, of course, by the exponential growth in the AI-generated traffic. In the emerging Northern Metropolis area, for example, we have added a new AI exchange at the Lok Ma Chau Loop, which has been connected by dedicated fiber pass to the other key nodes in the area, facilitating interconnectivity between all data center locations in Hong Kong as well as increased cross-boundary connections across the GBA. Earlier on, we have introduced our unique 800-gig AI super highway. And we have, in addition, embedded quantum-resistant encryption features to defend critical infrastructures and customer data and to enable AI brokers, quant traders, agentic architecture, et cetera, to achieve real-time, secure and low latency coordination. We have also extended our fiber network in rural and remote areas to improve services as well as to upgrade our mobile backhaul coverage, particularly in the high-traffic locations. Our unmatched fiber coverage will also, of course, enable us to facilitate the smart city initiatives set out by the government as well as to cater to the increasing adoption of AI applications and services of the general mass. Turning to our wireless network. During the year, we have been continually adopting the latest technologies. We are, in fact, the first operator in Hong Kong to deploy 25 gigabits per second mobile backhaul, which will help ensure scalability, particularly to support mega events at high-traffic locations such as the Kai Tak Sports Park. And in this context, a lot of the other competitors are still using 10 gig and 1 gig. We have also adopted the latest generation of dynamic spectrum sharing technology, the DSS technology to continuously optimize efficiency on the cross-band 4G, 5G resource pooling. And also in network management, we have already deployed AI monitoring tools to enable rapid troubleshooting and root cause analysis for quick resolution of customer complaints regarding the network as well as AI agents to automate network performance protection, particularly during major events where there might be a sudden surge in traffic loading. Meanwhile, during the year, we continue to elevate network performance by expanding capacity and coverage with an additional 94 new sites, both indoor and outdoor, bringing total site numbers to 3,500. Looking at our customer base. Important part, of course, is our premium segment who value our trusted brand and quality of services. With our rich data set and enhanced analytics on the back of our 1O1O mobile customers, we have launched the 1O1O home service as well to cross-sell and upsell our other HKT services to the premium segment with average ARPU of over $900. And this particular solution has been especially successful with the customer base growing by 32% year-on-year and uplifting the overall spend across this segment by 5%. Turning to our mobile business. We have, during the year, added 35,000 net customers despite competition with ARPU expanding to HKD 195. Our core 1O1O and csl segments continue to grow with 2% expansion in terms of subscribers and sustained low churn rates of 0.7%. And to meet our mobile customers' demand for travel connectivity, we have also introduced many innovative and easy-to-use roaming plans. To further differentiate ourselves during 2025, a golden roaming service was launched in partnership with the leading telcos in popular travel destinations of the Hong Kong people to ensure access to the respective premium 5G spectrum for our roamers. And we have also introduced a global 5G service plan with additional privileges such as travel insurance and so on. These solutions have increased the proportion of our active roamers in our base to 71%, which is an increase of 6 percentage points, helping to spur further 8% growth in our roaming revenue for 2025 and also our consumer outbound roaming revenue notably increased by 18%. The trend of 5G upgrade continues during the year with 5G customers now reaching almost 2.1 million, representing an increase of 20% year-on-year and penetration rate of 60%. To further spur this upgrade process, we are offering a wide array of AI devices and applications, which also has the added benefit of driving increased data usage. Obviously, we continue to see demand for our high-bandwidth, high-speed broadband services. We saw 2,500 subscriber base grow by over 90% during the year. And together with the rental of the Wi-Fi 7 routers, we witnessed an ARPU uplift of around HKD 100 to HKD 150. And overall fiber users increased by 4% to almost 1.1 million, representing a 73% penetration on our consumer broadband users of 1.5 million. Also, the quality of our Navigator broadband has been well attested by our winning 6 awards from Ookla, a globally recognized industry leader. in terms of connectivity intelligence as the best fixed network in Hong Kong as well as in East Asia, surpassing operators in Japan and South Korea. As for our Pay TV, Now TV continues our journey of transformation from just IPTV to be a super content aggregator platform, offering the wider selection of live sports as well as movie and dramas. In September 2025, we added back Disney+ to our platform, which significantly beefs up the local and Asian movie libraries as well as Western and Korean movies and dramas, complementing our video streaming services of our Viu OTT, our Netflix and HBO that are already available on our Now TV platform. And further recognizing the shift in terms of viewing habits and also the growing affordability of smart and connected TVs, we have focused on promoting the Now OTT service, leading to this segment of our Now TV customer base increasing significantly by 16% during the year with total Now TV base expanding to 1.464 million. We have also recently launched an Infinite Entertainment 5G plan, which is Hong Kong's first unlimited speed 5G plan bundled with entertainment and world-class sports content and so on to further boost adoption of the Now OTT service, which can be sold as a VAS to our mobile customer base. Following on this line is to show that we are not just being recognized as the home of sports, we are also the home for movies. And to address specific interest of viewers, we have created a range of content packs, including Now Cinema, Asia Signature Pack, Western Signature Pack, so that it is easier for us to again tap into our mobile base and cross-sell these OTT content packs. Moving to our key enterprise segment, which has delivered a very solid and stellar result for the year 2025 despite the fact that enterprises in Hong Kong remain cautious with their investment and spending. And at the same time, SME, retail and F&B sector still evidencing consolidation of lines or even shrinkage of lines. This is made available due to the fact that HKT's enterprise team has delivered over 320 large-scale projects across diverse industries, leading to local data revenue increasing by 8% during 2025. And as at end of 2025, a total pipeline of new project wins of around HKD 5 billion was secured. The following few slides are some of the projects undertaken by our team during 2025, showing how we have expanded services beyond connectivity and move up the value chain by offering AI managed services. For example, we deployed 5G private network for a logistics company as well as a waste management company to support their automated operations and AI-enabled security applications. In addition, we have delivered an AI-driven drone inspection solution for a construction materials company, for example. In terms of smart city offerings, we have leveraged our unique position of the network to deliver IoT-enabled smart lampposts and also water meter monitoring services as well as a food safety, temperature monitoring solution for a very established retail chain across the territory. Meanwhile, in terms of the AI side, the main theme for 2025 is the AI-powered IoT intelligent operation centers behind a number of mega projects across the electricity, public utility companies, banking as well as the transportation sectors, whilst autonomous robot platforms were also deployed in certain industries, including hospital and university campuses. In addition, AI-powered contact center solutions have become well sought after to elevate the customer experience, especially important for banks and finance and insurance companies. And in view of geopolitical tensions, both public and private sectors enterprises have been busy diversifying the supply chain for resilience. We see a trend of more and more Chinese vendors being used, incorporating dual brand designs and solutions for better resilience. In addition, for data sovereignty compliance, different hybrid clouds, including public cloud, private cloud and on-premise cloud have to be used, which involves a lot of data migration, and this also helped contribute to our cloud-related revenue. In terms of our China business, we recorded a revenue increase of 13% during the year as we help Chinese enterprises expand their business locally as well as overseas. For instance, last year, we assisted a very giant online gaming company in Mainland to link up its data centers and POPs to facilitate its global expansion. We also completed the project of providing SD-WAN for a Mainland insurance company connecting its branches in China and overseas. Turning to our PCCW Global, our international business. We continue to see both international voice and data traffic, especially across Asia area increased significantly, reflecting the shift in economic activities as enterprises look to mitigate the impact of global trade tensions. To meet this demand, we have continuously invested in different subsea cables. In addition to the JUNO Transpacific subsea cable in 2024, we have also committed to invest in 2 new cables that connect Asia, Africa, Europe and also expanding into different European, African markets to support the various Belt and Road initiatives. At the same time, our software-defined network platform, Console Connect continued to connect over 1,000 data centers with 240 cloud on-ramps and over 140 POPs in over 50 cities around the world. Recently, we have also launched a private label service integrated with SIM on our platform, which provides a fully automated SIM provisioning services that ensure a secure, reliable and scalable IoT network. Turning to our local customer loyalty program, the Club. During the year, our membership base reached over 4.1 million, and it continued to deepen membership engagement through personalized content and exclusive lifestyle offers. Recently, we have launched a campaign together with a number of our PCCW Group artists in terms of targeting different lifestyle interests of our vast member base. Important is that with a certain portion of our member base being non-HKT customers, we will be able to have good opportunities to cross-sell our HKT services to the non-HKT customer base. It also demonstrates group synergy, leveraging on the group's artists, programs and concepts. We are pleased to see the number of customers subscribing to 3 of our services and above, increasing by 14% during the year, thereby substantially strengthen the customer stickiness. As a key technology enabler in Hong Kong, we are focused on supporting the government's initiative to empower innovation and technology development. As mentioned earlier, we are extending our infrastructure in the emerging Northern Metropolis area. At the same time, we are working with [indiscernible] to co-develop AI-enabled solutions to help SMEs as well as establishing R&D and innovation offices in the area and support university incubation programs to foster and accelerate collaboration with tech start-ups. Through these efforts, we have been recognized as a research leader by the Innovation and Technology Commission of the government since 2019. Turning to the slide of sustainability. During the year, we have doubled down our efforts to support a broader range of community projects, including students with special needs, people with disabilities, elderly and so on. Our 40% increase in terms of volunteering hours also demonstrate our greater dedication to community engagement. Ongoing educational initiatives to digital literacy continue to drive digital inclusion while reinforcing measures to prevent digital fraud and extending anti-fraud education to the wider community. As part of our ongoing commitment to environmental stewardship, we have established new environmental targets for 2030. Our efforts in terms of combating climate change is also reflected in our launch of new energy efficiency initiatives, the expansion of Smart Charge EV base throughout the city and the raising of over USD 1 billion in terms of sustainability-linked loans in 2025. So entering the year 2026, we continue to play a critical role in the AI ecosystem in Hong Kong, underpinned by our investment in the future-proof AI-ready network infrastructure and helping to empower Hong Kong's development as a technology hub and obviously contributing to the smart city development overall. And further enjoying the industry tailwinds of AI and vendor cloud diversification of the enterprises into Hong Kong, we believe that our different lines of business will continue to grow, and we will continue to drive strong performance across all of our key financial metrics. Having said that, we will continue to be very vigilant in terms of strengthening our capital structure and continue to reduce leverage as and when necessary. In this context, in the year 2024, we have divested 40% of our fiber co to our investor being China Merchant Capital. We are pleased to share today that we have also received a nonbinding offer from China Merchant Capital to increase stake by another 9% in our fiber co, proceeds of which will be used to reduce leverage further and details will be in separate announcement as soon as when it is ready. On that note, I will pass to Patrick to walk us through the financials. Thank you, Patrick.

Thank you, Susanna. Okay. Let me first recap our key financial lines for the year 2025. Our AFF increased notably by 4% year-on-year to $795 million. Revenue grew remarkably by 5% to $4.69 billion, and service revenue reported an encouraging 3% growth to $4.23 billion. The service revenue growth was driven by the robust demand for our local data services in the enterprise segment as well as the sustained growth in mobile service revenue from higher roaming revenue and 5G penetration, coupled with the expansion of customer base. Our EBITDA for the year was up by 4% to $1.83 billion with service EBITDA margin edge up to 43.1%. And our NPAT also grew by 4% to $678 million. Now let's look into the segment details. TSS segment first. From the chart on the right-hand side, you can see our local TSS revenue grew by 3% year-on-year to $2.28 billion, underpinned by the continued growth in local data and broadband revenues. Local data revenue achieved a robust 8% growth year-on-year, driven by the continued growing demand for our unique digital transformation solutions, utilizing AI technologies, cloud computing and data analytics across diverse industry in our enterprise segment. It also coupled with a 13% year-on-year growth in the China Mainland business. Our broadband service revenue continued to grow by 3% for another year, driven by the sustained demand for our high-speed, high-bandwidth ultra-low latency reliable fiber services. Our 2,500 mega broadband customer base surged 93% year-on-year, spurred by the acceleration adoption of home smart devices and escalating bandwidth requirement from data-intensive activities. Local data services overall reported a solid 6% growth for the year. Pay TV service remained resilient with now OTT customers growing by 16% year-on-year. Overall, local TSS revenue expanded by 3%. Our international business revenue grew steadily by 3% year-on-year, primarily driven by increased wholesale global voice revenue and growing demand for our console connect services. Overall, total TSS revenue increased by 3% to $3.22 billion. TSS EBITDA grew 2% to $1.25 billion, fueled by further operating efficiency improvement. As such, EBITDA margin was stable at 39%. Now let's turn to our mobile business. So on the chart, you will see the mobile service revenue rose 5% year-on-year to HKD 1.17 billion, underpinned by an 8% increase in roaming revenue, mainly contributed by an 18% growth in consumer outbound roaming. Secondly, further expansion of our postpaid customer base to about 3.49 million with a net gain of 35,000 year-on-year, of which the 5G adoption momentum continued with 5G customer base growing by 20% to almost 2.1 million, representing 60% of total postpaid customer base and the growing demand for enterprise solutions deploying 5G as well. Postpaid exit ARPU was up by 1%, that is to HKD 195. Product sales grew by 30%, steered by the launch of flagship handset in the second half this year and further support by the Club, which provides a convenient digital shopping experience to the customers. As a result, total revenue grew 11% to $1.63 billion. Total EBITDA for the mobile grew 5% year-on-year to $714 million, with mobile service EBITDA margin remained stable at 61%. Let's have a closer look at our operating efficiency achieved for the year. We attained an overall 4% OpEx savings, down from $423 million to $407 million with the OpEx to revenue ratio improving from 9.5% to 8.7%, reflecting our continuous efforts in streamlining business structures as well as workforce and IT platform optimization. The deployment of AI loop initiative also help boost productivity and deliver significant cost savings for the company. Apart from OpEx, we also keep on exercising cost control over our CapEx spend. Our total CapEx for the year was lower to $270 million, representing a 5% year-on-year saving. CapEx to revenue ratio further improved from 6.5% to 5.8%. Mobile CapEx registered a 4% saving to $85 million, reflecting the efficiency gain from capacity upgrade and network maintenance following the completion of our territory wide 5G coverage. TSS CapEx was also lower by 2% to $168 million, with the investment largely to support the growing demand for our unique integrated fixed mobile solutions for enterprise customers and also the investment in subsea cables. Next is the AFF. EBITDA and CapEx have been covered just now. CAC and license fee increased by 7% to $232 million, mainly due to higher license payment from the newly assigned mobile spectrum and also the higher CAC in line with the revenue growth. Payment for right-of-use asset being the rental payment lowered by 5%. These savings were partly offset by the higher fulfillment costs to support our growing base of consumer and enterprise customers. Operating AFF before tax finance costs grew notably by 6% year-on-year to $1.08 billion. Benefited from the lower cost of finance linked to HIBOR and the successful deleveraging last year, the payment for finance costs decreased by 14% to $202 million. Tax payments were slightly lower to $29 million, together with the change in working capital requirement to mainly finance the enterprise project delivery and also the investment in subsea cables, which will bring positive net cash flow upon completion. The overall AFF for the year grew 4% to $795 million, translating into a full year distribution of HKD 0.8177 per SSU. Income statement. For the P&L, we have covered from revenue to EBITDA lines. Depreciation and amortization slightly increased to $748 million, of which depreciation decrease reflect our continuous effort in managing CapEx spending in the recent years, but the amortization increase driven by our investment in intangible assets as part of the group's R&D effort for enterprise projects. And as explained, our P&L net finance costs decreased significantly by 23% to $221 million, driven by lower market interest rate, coupled with the reduction in borrowings. Income tax expense was stable at $116 million level with a slightly lower effective tax rate from the utilization of deferred tax assets. Profit for the year notched up by 13% to $737 million. The NPAT attributable to the SSU holders grew by 4% to $678 million. Turning to our gearing position. Our total net debt at the end of December 2025 increased slightly to $5.43 billion as compared to $5.32 billion at the end of June. The higher debt level was due to cash spend on inventory, especially for the new flagship handsets and also the working capital to support various large-scale enterprise projects. Corresponding net debt-to-EBITDA ratio remained the same at 2.97x, underpinned by the strong EBITDA growth. Assuming the proceeds from the sale of additional interest in the passive network business just mentioned by Susanna are fully utilized for debt repayment, our pro forma debt -- net debt balance will be lower to $5.22 billion and the corresponding net debt-to-EBITDA ratio would be improved to 2.86x. As of today, we have around $2.8 billion total liquidity, including undrawn banking facilities of around $2.5 billion and over $300 million cash on hand. We continue to carry an investment-grade rating at BBB or Baa2. Our current proportion of fixed to floating rate debt is about 55% to 45%, slightly more than on fixed interest rate to cut the adverse impact from the interest rate fluctuation. Our effective interest rate dropped to 3.85%. We will keep monitoring the market situation and minimize the interest cost. The average debt maturity is now approximately 3 years. There is a USD 750 million bonds due in July 2026. But as just mentioned, we have around $2.8 billion liquidity on hand, sufficient enough to redeem the bond when they become mature. This is rather important. It gives us flexibility to find the best window to tap the fixed income market. This ends my presentation. Thank you.

Okay. Let's now open up to questions. The first question is, have you noticed any change in the industry competition following China Mobile's acquisition of Hong Kong Broadband?

Competition. Thank you for your question. I think we trust that all players now have to be very rational. And I think all of us have to preserve cash, especially in view of telcos nature in long-term CapEx in terms of the network rollout and spectrum and so on. So we haven't noticed any sudden change in terms of competition in terms of the mobile and broadband side. But obviously, we would continue to focus on our strength in the enterprise side and also in terms of serving the high ARPU segment as well.

The next question is, do you expect your roaming revenue to continue to grow at a high single-digit percentage?