PCCW Limited (TH3C.F) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to PCCW 2025 Interim Results Announcement. Presenting today are Ms. Susanna Hui, Acting Group Managing Director and Group Chief Financial Officer; and Mr. Marco Wong, Head of Investor Relations. Over to Susanna, please.

Good afternoon. Thank you for joining the PCCW 2025 interim results today. Despite a very challenging macro environment in the first half of 2025, PCCW remain very focused on delivering high-quality services to our customers and achieving profitable growth across all of our businesses. Within our Media business, Viu maintained its market leadership with paid subscribers reaching 13.8 million and is on track to reaching positive cash flow. Viu TV unlocked new opportunities and elevated the global presence for our roster of talented in-house artists. As for HKT, we are very committed to leveraging our leading digital infrastructure and comprehensive deployment of AI to serve our customers better, unleash the advantages of digital transformation for enterprises as well as transform HKT's own business workflows. If you look at the financial highlights, PCCW delivered solid financial performance with revenue rising by 7% to over $2.4 billion and EBITDA increasing by 6% to USD 771 million. Whilst HKT posted robust results with 4% growth in revenue and 3% growth in EBITDA as well as a 3% growth in AFF and distributions, demonstrating continued resilience. Our OTT regional service also recorded an impressive 10% growth in top line and a 51% improvement in terms of the EBITDA. On the domestic TV side, the Viu TV revenue and the related businesses retreated in the first half due to the timing of the concerts and events with margin remaining stable. We expect that performance will rebound in the second half on the back of numerous popular shows and concerts scheduled in Q3 and Q4. On the back of this performance, the Board has declared an interim dividend of HKD 0.0977 per share. Whilst PCCW continues to benefit from HKT's steady growth and distribution upstream, we, as a Board, will continue to adopt a very prudent dividend policy to prioritize financial strength for sustainable growth as well as striving to provide stable returns for shareholders. Turning to our OTT business. The regional business continues to hold #1 position amongst the Asian players and maintain its differentiation against the large global platforms. In terms of key operating metrics, we sustained our ranking with strong performance in terms of the MAU, monthly active users as well as paid subscribers. These achievements demonstrated the appeal of our carefully curated content portfolio, localized strategy as well as strong partnership ecosystem. To deepen penetration and enhance viewer experience, during the first 6 months, we added new titles of 150, which are diversified across Chinese, Korean as well as locally viewed original content with a lot of travelability across the entire region. And to extend our reach, we also expanded our partnership ecosystem. We deepened partnership with local carriers by offering premium packages, integrating with their applications and media platforms as well as broadening cooperation to include content co-production, for example, with Telkomsel in Indonesia on a few original scripted drama series. We believe that these initiatives allow us to effectively optimize resource allocation and increase exposure for our content, resulting in paid subscriber growth of 19% year-on-year during the first half. In terms of the advertising business, we also expanded the monetization opportunities despite the relatively soft advertising spend that we saw from the region. In particular, during the first half, the AVOD tier on connected TV gained traction, which enable advertisers to extend their reach to the mass affluent segment. As a result of these efforts, we saw total subscription and advertising revenue grow by 27%, leading to EBITDA margin improving significantly to 29%, providing a pathway to achieve positive cash flow in the coming months. The following slide shows the content. We continue to be very focused in terms of striking a balance between the Korean content as well as the Chinese content and the local content for prudent return. During the first half, we doubled the number of Chinese titles on our platform in response to the rising popularity on top of the -- obviously, the crowd pleasing Korean shows. We also released 7 View originals with cross-market appeal that received positive audience response. In the first half, we saw very strong expectations built up from our content lineup. And we do think that in the second half, we will be able to achieve top viewership on a lot of the content, especially on the Taxi Driver Season 3, which achieved very good results from the previous 2 seasons. Next slide is the domestic Viu TV business. We have been consistently delivering captivating content across various formats. And in particular, during the first 6 months, we saw digital membership grow by more than 4% to reach 3.3 million and viewing time also rose by more than 4%, reflecting our relatively younger audience segment. In terms of advertising revenue, we achieved stable advertising revenue in the first half despite the soft consumer spending in Hong Kong. Content pipeline for the rest of the year includes proven hits of drama and game shows as well as our iconic program, King Maker VI, which we believe will contribute to stronger sponsorship and advertising revenues in H2. Our talent management business on a roster of nearly 70 talented artists achieved mileage in the first half in terms of elevating our artists' international exposure. Many of our talents collaborated with top-tier artists on global stage, including the recent Coldplay's World Tour concert in Hong Kong, participated by one of our artists, Marf as well as a variety of international productions. With respect to our concerts and events, despite a limited schedule during the first half as compared to first half of 2024, we are seeing momentum in H2 with very strong lineup of popular concert series planned in Q3 and Q4. In addition, we are diversifying revenue streams to include theater plays for live entertainment presence. And some of our acclaimed content, including music shows, dramas and movies continue to push the frontier to different platforms and markets. With that, I would pass to Marco for the financial section. Marco?

Thanks, Susanna. As you can see on the first slide is a summary of the HKT financial performance for the first half, which was released yesterday. I won't go into the details of the financials, but summarize a few key points. As you can see, HKT's total revenue as well as services revenue both grew 4% to USD 2.2 billion and USD 2.09 billion, respectively. The main drivers being accelerated demand from enterprises for our digital transformation solutions, sustained demand for our high-speed fiber services, as well as the growth in mobile services revenue from 5G as well as roaming revenue. On the right-hand side of the chart, you'll see that EBITDA also grew with mobile registering a 5% EBITDA growth with TSS growing by 3%. This, together with enhanced operating efficiency resulted in an overall EBITDA growth of 3% to USD 818 million, and the overall EBITDA margin was stable at 37%. Adjusted funds flow also increased by 3%, reaching HKD 328 million. And as a result, the interim distribution per SSU was HKD 0.3380. Turning to the Viu regional OTT business. This saw significant revenue growth of 27% in subscription and advertising, but this was partially offset by softer syndication and event revenue, particularly in the Middle East market. Nevertheless, overall OTT revenue grew by 10% to USD 153 million. And with our optimized content offering as well as our growing scale, this drove an impressive growth of 51% in EBITDA, with the EBITDA margin expanding by 8 percentage points to 29%. With the strategic scaling of the business as well as continued disciplined content portfolio curation, we believe the OTT business is on track to reaching positive cash flow. On the Free TV side, with the more limited number of concerts and events scheduled in the first half, the free TV business revenue retreated to USD 44 million compared to USD 62 million last year, although advertising revenue was stable despite weaker consumer spending and the subdued retail market in Hong Kong. As a result, the EBITDA decreased to USD 6 million. However, in the second half, with the lineup of hits as well as iconic shows, together with concerts scheduled in the third quarter and fourth quarter, we expect revenue and profitability to return. On the OpEx side, you'll see that there was improvement with OpEx decreasing by 5% to USD 376 million, with the ratio improving significantly from 17.4% to 15.5%. This was contributed by OTT's OpEx savings through the enhancement of publicity promotion efficiency due to its rising brand recognition. And as we discussed yesterday, HKT also delivered 4% OpEx savings from AI adoption as well as streamlining business structures, network as well as the IT platform. On the CapEx side, this continued to fall, dropping by 3% to USD 142 million, with the ratio further improving from 6.5% to 5.8%. This was driven by mobile CapEx being lowered as well as TSS CapEx being lowered at HKT as well as the completion of the initial phase of the new production facilities at the media business. This led to the spending there at decreasing year-on-year to USD 3 million. In terms of capital structure, as you can see on the debt maturity profile, you'll see that HKT, as mentioned in yesterday's results, gross debt dropped to $5.57 billion from $5.94 billion 12 months ago following the deleveraging that we completed in December 2024. In terms of the bond that's maturing in 2026, we already have strong liquidity of USD 2.3 billion, comprising of cash as well as bank lines that are sufficient for refinancing when it comes due. At the bottom of the slide, you'll see PCCW. There's no imminent debt due in 2025 and just a small amount in 2026. You'll see that we've maintained a balanced mix of bank borrowings as well as bonds with the ratio being of fixed to floating debt being kept at approximately 55-45 resulting in an effective interest rate of 4.1%. Although with this mix of fixed floating debt, we expect the effective rate of interest to fall further if the current lower HIBOR persists. And we saw the maturity kept at around 3.1 years. In terms of the liquidity, we continue to enjoy strong support from banks with total facilities of $2.8 billion, comprising of $2.05 billion at HKT and $800 million at BCW as of the June year-end. And overall, the group's cash was USD 300 million on a consolidated basis. The net debt-to-EBITDA ratio has improved to 4.17x compared to 4.2x at the same time last year. And with that, that ends the presentation today.

That's the end of the analyst briefing. Thank you very much.