PT Indosat Ooredoo Hutchison Tbk (ISAT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the PT Indosat Tbk Full Year 2020 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Christy Kusumaatmaja. Thank you. Please go ahead, Ibu.

Hi, everyone. Thank you, Desmond. Thank you for everyone to dial in for our full Year 2020 earnings call. Before we start, as usual, I will provide a quick safe harbor disclaimer. Note that the company, PT Indosat Tbk, caution investors that certain statements contained in this call are management intention, hope, beliefs, expectation or prediction for the future and are forward-looking statements. We wish to caution the participant that forward-looking statements are not historical facts and are only estimates or predictions. Actual results may differ materially from those projected as a result of risks and uncertainties. Furthermore, the company undertakes no obligation to update publicly any forward-looking statements, whether as a result of future investments or events, new information or otherwise. Presentation of this earning call has been uploaded to the website, www.indosatooredoo.com, under the Investor Relations tab. I would like to mention that the conference call today is recorded, and a replay of this call will be available soon after the call is completed. On today's earnings call, we have Mr. Ahmad Al-Neama, our CEO; Mr. Eyas Assaf, our CFO; Mr. Vikram Sinha, our COO; and Mr. Arief Musta'in, our Independent Director and Chief of Strategy and Innovation Officer, on the line. So without further ado, I will hand over to our CEO, Mr. Ahmad, to deliver the opening remarks. Ahmad?

Bu Christy, just one minute. Pak Ahmad is dialing in.

Oh, understood. Okay.

Pak Ahmad, please go ahead.

Yes. Should I start? Hello?

Yes, Ahmad. Go ahead, Pak.

Okay. [Foreign Language] Good afternoon, everyone, and thanks for joining our full year 2020 earnings call. I'm Ahmad Al-Neama, Chief Executive Officer of Indosat Ooredoo. Allow me to start this earnings call with a few remarks, and our COO and CFO will follow through with more detailed presentation. Year 2020 was a challenging year from many aspects. Besides COVID-19, Indosat Ooredoo faced strong headwinds such as increased pricing pressure from other operators, accelerated digital adoption by customers and growth of a new way of working. However, despite all these challenges, Indosat Ooredoo remained resilient on its growth momentum and delivered a solid financial for year 2020 performance. Our strategy of continued investment in network as well as constant execution of our commercial strategy with an increased focus on operational excellence has enabled us to outperform the market both on revenue as well as EBITDA this year. In 2020, we posted total revenue of IDR 27.9 trillion, with a growth of 6.9% year-on-year, driven by strong growth ancillary revenue, which increased by 11.6% year-on-year growth to IDR 23.1 trillion. Our focus on operational excellence meant that EBITDA rose faster than revenue, growing 16% year-on-year, with the margin increasing 3.2% (sic) [ 3.2 percentage points ] year-on-year to 40.9%. COVID-19 has tremendously changed aspects of our lives such as how we work and study, among others. We are immensely proud and grateful that, as a leading digital telecommunication company, we have managed to transition to a new way of digital working and living swiftly. We want to ensure that our subscribers can continue working and living by staying connected in these difficult and challenging times. Indonesian data-savvy customers have continued to respond well to our data network as we are increasingly being recognized as a Global Rising Star in 2020 as per OpenSignal global recognition award. We have managed to improve our video experience by 55.8% year-on-year, doubled our 4G download speed and significantly improved our upload speed by 88.4% year-on-year. This is only the beginning as we reiterate our continuous commitment in further providing the best-in-class products and value for our subscribers. We are confident that our growth momentum will continue in 2021, and we are hopeful that this year will be a better year compared to 2020. Having said that, with consideration of economic recovery, uncertainties from COVID-19, we are cautiously optimistic by guiding our 2021 revenue growth to be in line with industry growth, EBITDA margin to be at low 40s and our CapEx at approximately IDR 8 trillion. With this, I conclude my remarks. And for further details on this quarter, I will pass to our CFO, Mr. Eyas Assaf, for the financial walk-through. Thank you very much.

Thanks, Pak Ahmad. [Foreign Language] This is Eyas Assaf, Chief Financial Officer, and I'll take you through the financial highlights. As Pak Ahmad highlighted, the operating revenue has increased almost 6.9%, and it has reached IDR 27.9 trillion. And if we normalize the impact of the tower deal concluded in 2019 and the handset strategy, the real growth in the total revenue is almost 10%. Pak Vikram will highlight this more in his slides. EBITDA (sic) [ Operating revenues ], quarter-on-quarter, it increased from IDR 7.1 trillion in Q3 to IDR 7.3 trillion in Q4. EBITDA increased by 16% from IDR 9.8 trillion in 2019 to IDR 11.4 trillion in 2020. Quarter-on-quarter, we saw slight decrease 2.3%. EBITDA margin increased to 40.9% in 2020 compared to 37.7% in 2019. Quarter-on-quarter, we saw also a slight decrease, almost 2.1%, from 42.5% to 40.5%. Loss or profit attributable to owners has recorded at IDR 717 billion losses in 2020 comparing to IDR 1.6 trillion profit in 2019. I need to remind that 2019 has IDR 2.6 trillion profit coming from the tower deal. Quarter-on-quarter, we saw a slight decrease -- or we saw a decrease IDR 259 billion losses in Q4 comparing to IDR 116 billion in Q3. If we move to the revenue and the segment revenue, we would like to highlight that cellular revenue shows double-digit increase. In 2020, the total cellular revenue reached IDR 23.082 trillion compared to IDR 20.6 trillion in 2019. Again, the real growth, it's more than 15%, 16%. And as highlighted, Pak Vikram will give more details on this one. Quarter-on-quarter has increased almost by 3%, and it reached IDR 6 trillion in Q4. Fixed data showed some decline, 10%, and this is impacted by the global situation, as explained by Pak Ahmad, also the COVID-19 impact, and it recorded IDR 4.2 trillion in '20 compared to IDR 4.7 trillion in 2019. Q4 recorded IDR 1.1 trillion compared to 1 point also (sic) [ IDR 1.1 trillion ] so almost flat between quarter 3 and quarter 4. Fixed voice showed or recorded a decrease of 15% and it reached IDR 561 billion in full year 2020. Quarter-on-quarter, there was slight -- or there is 36% increase, and it reached IDR 165 billion compared to IDR 121 billion in quarter 3. Cost of sales and OpEx spend were highlighted. Even that the revenue has increased, as we highlighted, by 7%, the OpEx -- the total OpEx increased only by 1.4%, and it reached IDR 16.4 trillion compared to IDR 16.2 trillion in 2019. Quarter-on-quarter, we saw 6.4% increase from IDR 4.1 trillion in Q3 to IDR 4.3 trillion in Q4. Now we can highlight here that the total OpEx without depreciation was IDR 16.4 trillion, as we highlighted. But if you take total expenses in 2020, it reached IDR 25.5 trillion compared to IDR 21.9 trillion -- or IDR 21.8 trillion in 2019. Balance sheet. It shows stronger balance sheet resulted in improved year-on-year financial ratios. In 2019, the net debt decreased to IDR 14.2 trillion compared to IDR 15.7 trillion in 2019. And net debt-to-EBITDA also decreased from 1.6 to 1.25. Quarter-on-quarter, it increased the net debt from IDR 13 trillion to IDR 14.2 trillion, and the net debt-to-EBITDA from 1.1 to 1.2. This is what's expected, and I highlighted in the third quarter, and the main reason is the payment of the spectrum, which used to be in September; this year postponed to December. CapEx and CapEx over revenue. The total CapEx spend in 2020 is IDR 8.6 trillion compared to IDR 10 trillion -- or IDR 10.1 trillion in 2019, which was a decrease by 14%. The quarter-on-quarter almost flat from IDR 2.6 trillion to IDR 2.7 trillion. CapEx as a percentage of revenue decreased from a level of almost 39% to 31% year-on-year. Quarter-on-quarter, almost flat 37.6% to 37.2%. Here, we would like to highlight what shareholder announced the 28th of December about the discussion between Ooredoo or between our shareholders and Hutch on potential transaction to combine the respective telecommunication business in Indonesia. As the date of issuance, there is no material impact to the financial or operation or legal continuity. And still, the MOU valid until end of April '21. Also, in February 17, we announced that the company is exploring sale of approximately 4,000 towers this year. Therefore, as of today, there is no material impact to the company operations, legal, financial conditions and business continuity. By concluding the financial highlights, I transfer to Pak Vikram to continue the operational highlights. Please, Pak Vikram.

Thanks, Pak Eyas. Good afternoon, ladies and gentlemen. Let me start by building on what Pak Eyas spoke about, especially on cellular revenue. Today morning, I have been reading some of the media analysts' trend report. It is important for me to call out that when you look at our cellular revenue, in fact, year-on-year, on cellular revenue also, we are growing 16%. I think what is important to highlight here is 2 things. As a strategy, we have decided from this year that we will not report especially handset on our cellular revenue. And this is not a onetime thing. We have taken this as a strategy. And that is how there is close to IDR 400 billion, which we used to do and which you don't see it in our cellular revenue. Similarly, tower sales, which was there the revenue close to IDR 400 billion. If you normalize IDR 800 billion, cellular revenue year-on-year will be 10%, and total revenue will be close to double digit. And that is reflecting in our EBITDA growth, which is close to 16%. And I think it was important for me to call out for this. The other important thing is our ARPU story. The way we have been able to manage our base with all this edu program and all, our analytic-driven engine, which we have on base management, is giving us very good results, not only in terms of managing the base and ARPU, also in terms of customer satisfaction. Quarter 4 also, we continued our focus on network rollout. Close to 3,000 4G BTS quarter-on-quarter growth you see, which we have been able to do. And that shows our focus on making sure that we are able to deliver the required video experience. We are able to meet up to all these shift in data traffic, all these work-from-home needs, and that is reflective of what Pak Ahmad said in his opening speech. We have been rated as the Global Rising Star in terms of Ookla, especially when it comes to video experience. The next thing I want to talk about is digital. I think last quarter, I spoke about our myIM3 app. It is one of the benchmarks in the region when it comes to rating and then when it comes to the features and all. It is also helping us in terms of our cost of sales. If you look at our cost of sales, while revenue has increased, especially cellular revenue normalized 16%, cost of sale is more or less flat. So all this efficiency through digitalization is now kicking in. The other important thing I want to highlight is launch of MPWR. We started with a soft launch, but we are very happy to see the response which we are getting. Because this is our lifestyle brand, this is where we want to make sure that we give the end-to-end digital experience, and early response have been very positive on that. Now coming on to the guidance. Let me -- before I talk about 2021, let's reflect back and see 2020 guidance and how we have performed. What we said in 2020 that we will be in line with the market. I think the market is more or less flattish. But still, we have been able to grow close to 7%. And if you look at our normalized growth, it will be close to 10%. So similarly, for 2021, we are still -- while our fundamentals are very strong, we are very confident of the growth momentum to continue. But because of pandemic and all the uncertainty around us, we want to be a bit conservative, so we are telling that we will be in line with the market, but I think we expect all the industry players to come together and see how we can grow the market. Because the need is moving to more of experience and the important role which telcos are playing. So we still feel that we will play an active role in terms of helping grow the market. In terms of EBITDA margin, again, what we said last year for 2020 was high 30s. We were able to close it at 41%. So as I highlighted and Pak Eyas also highlighted, a lot of cost initiatives have been put in place and -- but from a guidance point of view, we are telling it will be on low 40s, but we are very confident of continuing on our growth momentum and the work which we have been doing on the cost side also. In terms of CapEx, in terms of the guidance, we are talking about IDR 8 trillion. So this is what we have to say in terms of guidance. With this, I conclude my presentation. Thank you.

Thank you, Pak Vikram, Eyas, Ahmad. Operator, I think we can move forward to the Q&A session.

[Operator Instructions] The first questions comes from the line of Sachin Mittal of DBS Bank.

I have 2 questions. Firstly, data growth is quite high. So what brings CapEx guidance lower? Have you fiberized your towers already? That's question #1. Question #2, is net profit metrics part of your KPI score for this year? As that seems to be elusive so far. And what -- and related question is, can you explain the impact of any tower sale on your net profit figure here? That's the 2 key questions I have, yes.

Okay. I'll start with the second question. Can you repeat it again, the second question?

The question is, is net profit a part of your KPI scores for 2021? I mean because we have been talking about EBITDA, we have been talking about revenues, but is net profit something which is already a part of your KPI? And will it...

Yes, as I said, as you know, our guidance always is straight with these items, which is revenue growth, EBITDA and CapEx. We don't go below that, for this question #2. For question #1, Pak Vikram will highlight the answer.

Sachin, this is Vikram. So what I understood, you were asking about how -- the data growth looks like high, but still, we are taking IDR 8 trillion CapEx. Is my understanding correct?

Correct, correct.

So look, there are 2, 3 things which have been working. One, if you look at last 8 quarters, we have been continuously investing on the 4G coverage and experience and also on the fiberization. So looking the way we have been managing, also, we have implemented smart CapEx. We did it in 2019. So it helps us make sure that we reduce our low site revenue. We are able to manage our capacity planning and all these things. So all these efficiencies kicking in, and then we are very confident, while the data traffic growth is close to 50% and the kind of projection we are looking at, we are very confident of managing that within the CapEx envelope which we have.

Okay. Sorry. One of my questions was, if any tower sale happens, does it hurt your net profit? Because now some -- it's below the EBITDA line, right? Most of the tower leasing fee comes below the EBITDA line?

What do you mean? You are saying the impact on the OpEx the future implies, what is the impact?

Yes. No, my question is more on your impact on your operating profit or loss, right? The tower sale is EBITDA-neutral, right? It is now EBITDA-neutral, right? Any tower sale? So the question is, it's just an item, the impact only comes below the EBITDA? And just on the net profit side, right? Is that the right understanding?

In any -- to be frank, it's not clear to me the question, but all the financial impacts that the tower would be announced at the due time when it's completed. It's too early now to announce anything, the financial impact or any details like this. We'll announce it in due course when it's completed. We'll announce all the impact, okay?

Okay.

[Operator Instructions] The next questions comes from the line of Choong Chen Foong from CIMB.

Can you hear me?

Please go ahead.

A couple of questions from me. Firstly, I wanted to ask about the mobile revenue for [indiscernible]

I'm so sorry. Since the line is having a lot of static due to the device, allow us to take the next questions, and you can come back again. Next question comes from the line of Jearajasingam of Macquarie.

A couple of questions from me, please. First of all, looking at the competitive environment in the market in recent months, how would you say things are going? Do you -- are you increasingly worried about the nature -- the structural changes in the market, a more aggressive market leader, et cetera? And what do you think the medium-term risks are from this? Number two, I'm not sure if you can answer this, but in the event that this merger does take place, how long do you think it will take before the merged entity will be able to retake market share, which is potentially lost during that merger process? And what are your biggest concerns from any merger that takes place now?

This is Vikram. Let me answer the first question in terms of the competitive environment. From a big picture, the way I look at it, COVID has been a bit of a silver lining for telecom industry. The importance of connectivity and the consumption of data, we have seen how critical it has been. So this is one. Second, in terms of the competitive environment, and I've been talking about it, at Indosat, we have been very focused on our agenda and initiative of this strategy, which we built around -- of 3 things. One is ensuring that we improve customer experience, and that is how we have invested a lot on 4G video experience and taking our coverage to 90%-plus. Second, our commercial strategy around simplicity and transparent product. Coming out of unlimited, we feel, was -- in late 2019 was a very good decision by us. And that has helped us stay put, and we have been very consistent on our approach. And our third pillar is -- which is on sales and distribution. Indonesia being a very large country, we have been focused on ensuring that how we are able to communicate our product, how we are able to make it available at a arm's-length distance through our distribution focus. So we feel more confident, while there have been a bit of a pricing pressure and all those things from some of our competition, but we feel confident. And looking at our results and looking at our growth momentum, we are not worried too much. But I believe, looking at us, some of our competition also will see the value of focusing on value for money and customer experience instead of going into this unlimited trap. So to answer your question, we feel more confident now. And we feel that we can build on our growth momentum. And our fundamentals are in place, and we see a good demand and the important role which Indosat is playing at this point of time, especially looking at SME and all these piece. So we feel optimistic.

For the second question, as rightly said, this is too early to assess anything about. We are in a very early phase in this discussion. Once it's completed, we'll announce everything.

Sure. Could I just follow up? Would you be able to share with us what percentage of your network, especially your LTE network, is currently fiberized? And I'm not talking about 1 hop to fiber. I'm talking about specifically what percentage of your BTSs are actually fiberized?