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

Good day, and thank you for standing by. Welcome to the PT Indosat Tbk First Quarter 2021 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to our host, Ms. Christy Kusumaatmaja, Vice President of Investor Relations. Please go ahead, ma'am.

Thank you, Rohit. Hi, everyone. Thank you so much for joining our first quarter 2021 earnings call. Before we start, as usual, I will provide a quick safe harbor disclaimer. Note that the company, PT Indosat Tbk, would caution investors that certain statements contained in this call are management's intention, hope, beliefs, expectations 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.investorooredoo.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. For today's earnings call, we have Mr. Ahmad Al-Neama, our CEO; Mr. Eyas Assaf, our CFO; and Mr. Vikram Sinha, our COO, on the line. So without further ado, I will hand over to our CEO, Mr. Ahmad, to deliver the opening remarks. Mr. Ahmad, the floor is yours, sir.

Thanks, Christy. [Foreign Language] So good afternoon, everyone, and thank you for joining our first quarter 2021 earnings call. I am Ahmad Al-Neama, Chief Executive Officer of Indosat Ooredoo, and I will start this earnings call with a few remarks. And then our CEO -- our CFO will follow through with a detailed presentation. Quarter 1 2021 was a great start for our company. As promised, we managed to maintain our growth momentum and delivered a stellar result on this quarter. Our revenue has increased by almost 13% year-on-year, driven by the resilient growth of our cellular business at 12.5% year-on-year and the rebound of our enterprise business, which booked a 15.8% year-on-year growth. Our EBITDA grew 43% year-on-year and we achieved 46% EBITDA margin. And this is by far the highest in the past 7 quarters. This is the new benchmark in our performance. And I am extremely happy to share that we have finally recorded IDR 172 billion organic net profit, an outstanding IDR 777.8 billion improved compared to last year. I am also extremely proud of how the Indosat team has risen and shown resilience during this time. And I would like to thank all of our customer and stakeholders for the support and confidence they've put in Indosat Ooredoo. Our strategy of providing simple and relevant products, combined with our commitment in providing network excellence, has helped us to sustain and expand our customer base. This quarter, we recorded over 60 million healthy and engaged customers across Indonesia. This achievement will further encourage our effort and commitment to transform Indonesia into a digital nation and helping the communities to grow more. 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. Mr. Eyas, the mic, with you.

Thanks, Pak Ahmad. [Foreign Language] Good afternoon, welcome in our Q1 call. Before we go into the financial slide, I would like to highlight our results, Q1 numbers, which is shown in Slide #5. As Pak Ahmad highlighted, our revenue has grown by almost 13% from IDR 6.5 trillion last year to IDR 7.3 trillion this year, which is a double-digit growth. EBITDA also shows a huge increase from IDR 2.3 trillion level to 3 point -- almost IDR 4 trillion level, which is 42.5%. EBITDA margin increased by almost 10% from 36.5% to 46.2%. And the most important thing, which has been achieved due to the growth in the revenue and growth in the EBITDA, the net profit attributable to owners achieved IDR 172 billion positive from a loss last year to IDR 600 billion, which is a growth more than IDR 770 billion. And last number here in this summary, net debt to EBITDA increased -- or decreased from 1.5x to 1.1x level, which is a huge improvement. Now we'll go in the financial slide details, which is Slide #8. As highlighted before that Q1 revenue shows 12.6% growth compared to last year and almost flat compared to Q4 at a level of IDR 7.345 trillion from IDR 6.523 trillion last year and Q4, IDR 7.334 trillion. The EBITDA performance also shows increase, a solid EBITDA growth, to reach 46.2% from a level of 36.5% last year and 40.5% as absolute value, it has grown by 42.5% compared to last year and 14% compared to Q4. Net profit, as we highlighted, it reached IDR 172 billion comparing to IDR 600 billion last year and a loss of IDR 259 billion last quarter. Move to Slide #9. Cellular revenue, this is the breakdown that shows that cellular revenue and fixed data revenue has grown by double digits. Cellular revenue reached a level of IDR 6.045 trillion from a level of IDR 5.332 trillion, which is almost 12.5% growth. And compared to last quarter, it's almost flat, IDR 6 trillion compared to IDR 6 trillion. Fixed data revenue shows double-digit growth also, almost 16%, from Q1 last year, IDR 1 trillion to 1.1 -- IDR 1.166 trillion and also shows an improvement or increase by 4.5% compared to Q4 2020. Fixed voice, we saw de-grow by 7% compared to last year and 19% compared to Q4, which is because of -- in line with the global trend. If we move to Slide 10, quarter-on-quarter, OpEx and cost of service improvement through ongoing cost optimization initiatives across the organization. Without going into the details of this that we see the total OpEx decreased by almost 5% year-on-year from IDR 4 trillion level, IDR 4.1 trillion last year, to IDR 3.953 trillion and a decrease by almost 10% compared to Q4. Q4 recorded IDR 4.367 trillion. And this is a continuous improvement on the OpEx because of the cost optimization initiatives started last year, continued this year. Move to Slide 11 for our ongoing CapEx investment are -- as per the plan. So as you see, in Q1 this year, we spent IDR 1.4 trillion, which is tally with our guidance for this year, which is IDR 8 trillion, comparing to last year, Q1, IDR 634 billion, which is almost 123% improvement, and decrease from Q4 level, which is a seasonality normal, Q4 has spend more than Q1, 48%. CapEx to revenue percentage reached 19.3% in Q1 comparing to 9.7% last year and 37% Q4. All of this helped us to improve our balance sheet and strengthen our financial ratios. And if you see the net debt decreased by 8% year-on-year from IDR 15.3 trillion to IDR 14 trillion this year. And even comparing to last quarter, the net debt amount reduced almost by 1%. If we see it as percentage net debt-to-EBITDA, it keep decreasing from a level of 1.5x in last year, in Q1 last year, went down again in Q4 to 1.25x again to 1.13x, which will help strength the financial ratios and the balance sheet of the company. Last here, we're just highlighting, Slide 13, that our sale, as we announced, we completed the transaction on May 18. We sold 4,247 towers and we leased back 4,085. More details on the financial impact will be discussed in the Q2 numbers or Q2 call once we complete the second quarter financial. That's it from my side. I'll now pass you to Pak Vikram, our Chief Operating Officer, to take you through the operational highlights. Please, Pak Vikram.

Thank you, Pak Ahmad, and good afternoon, everyone. Let me call out a few important things, which has been already spoken by our CEO, Pak Ahmad and our CFO, Pak Eyas. If you go back to Slide 4, which shows the key highlights. When it comes to mark-to-market, our growth clearly shows that we are not only outperforming the market, we are also helping the market to grow. And then that number very clearly is reflected on our EBITDA margin, so these kind of EBITDA growth and the fundamentals, which is very strong. And as spoken by Pak Ahmad, very happy to again call out that we have recorded a net profit of IDR 172 billion, which with all the 3-year turnaround quarter-on-quarter sustainable growth on customer base and especially our strategy and our plan, which we initiated in 2019 on smart CapEx deployment, it is helping us make sure to ensure that we are sweating our assets properly. While doing that, we are also making sure we are future-ready. So happy to share with all of you that all the investments, which we are doing for especially last 9, 10 quarters is also 5G-ready so that when right time comes, when the ecosystem is ready, when the spectrum road map is clear, Indosat will be on the forefront on making sure that it helps on the 5G drive also. Similarly, we launched our VoLTE. So all these things are helping us make sure that we are putting our money in the right place and we are sweating our assets. As Eyas spoke about tower sale, what I want to call out here is this was one of the largest deal, and in terms of value also, one of the best. It shows two things: one, the quality of our asset; second, the partner, they have trust and belief on Indosat growth momentum. So this was a reflective of these two, three things. So going back to some of the operational highlights. Again, cellular revenue, subscriber and especially ARPU, we continue to improve. If you look at year-on-year, close to 11% growth in ARPU and also data usage. So all these KPIs are giving us confidence that our growth momentum is very sustainable and our fundamentals are in place. I spoke about sweating our asset. If you look at Slide 17, the way we have been able to improve our spectrum efficiency, which is very important, how we are able to put maximum of our spectrum on 4G because more than 80% of our revenue come from 4G customers. So this has been a good story and then we continue to build on that. And that has also helped us accelerate our 4G network rollout. And despite of all the COVID challenges, logistic challenges, we have been very consistent on our rollout. Our rollout engine has been extremely consistent in terms of delivering quarter-on-quarter. The other good news is last year of COVID, we had a bit of a struggle on enterprise and B2B. But happy to say that, as a team, we understand the responsibility which Indosat has, especially during this COVID time. And we are trying to make sure that Indosat is in the forefront, whether it is SME, whether it is government. And then we are getting very good response. And that is reflective in our B2B and enterprise revenue also. IM3, which is our digital channel, has been setting benchmarks. And if you look at how we have doubled our active users from a level of 7 million to 13 million, but the more important thing is this is becoming like a lifetime place. And if you look at our app rating, not only within the country, when we look at it in the region and in the world, we are -- we continue to make sure that we give the best experience to our customers and we see very good traction. And this is helping us on our gaming, on our content, on delivering the lifestyle experience which customers want. So we are seeing very good engagement on our app. All these numbers, it is important to take a recap. We started our 3-year strategy in the beginning of 2019. And the whole piece, when we mark it into a bit of a driving game, we moved to more of disciplined execution. I'm happy to say that our strategy of focusing, not on competition but focusing on customer experience, focusing on what customer is saying and able to listen to them and deliver them value for money, all these things are very reflective. We have done a lot in terms of becoming a more agile organization, in terms of even making in terms of execution on rollout and all those things are reflected. We see more and more strategic partner coming and trying to partner with Indosat, which is giving us again a lot of confidence that we'll be able to continue on our growth momentum. So this is what I have from my side. Over to you, Christy.

Thank you, Pak Vikram. Operator, that concludes our remarks for the first quarter 2021 results. I think we can move on to the Q&A session.

[Operator Instructions] We have the first question coming from the line of Ziad Itani from Arqaam Capital.

And congratulations on the strong numbers and the turnaround. I just have a couple of questions. First of all, when it comes to the tower sale, the gains that were sort of disclosed by the independent appraiser valuation company of IDR 6.8 trillion, IDR 6.9 trillion expected, this is net of capital gains tax or just the difference between sale value and book value, basically? And as you mentioned, we do expect this -- the impact -- the financial impact to occur in Q2. That's one on tower sales. And also when it comes to the dividend payment, the guidance of IDR 6.7 trillion, that's a massive 20% yield. Can this change if, for example, we see the merger with Hutchison happen and part of that cash directed towards the merger or such a scenario is not plausible at the moment?

Thank you, Ziad. This is Eyas, CFO. For the first question about the gain, as exactly I said before, this is estimated gain calculated by the financial evaluator. But the final number, we'll disclose it in Q2 and more details after making off all the taxes. So if you just be patient with us and we'll announce more details in the Q2. The gain now is only based on forecasted number. For the second, still is a subject for internal approval. Nothing has been discussed or finalized for the dividend amount or timing. So on due course, once it's decided, we'll inform -- we'll go and inform the public. For time being, nothing has been decided.

Okay. Great. And can we get an update on the Hutchison merger? Mainly, I mean, I understand this is still material information, you cannot disclose a lot of details. But what's the rationale behind this merger again? And also, can we see a scenario where Indosat is not the controlling shareholder in the merged entity?

Yes. Okay, I'll start and Pak Vikram can add. As our share -- or our [ holding ] amounts that they extend the non-exclusivity period until end of June, nothing has been finalized and nothing has been disclosed now. And in due course, we'll come back with more details about the transaction. For time being, nothing has been materialized, so nothing can be shared. Pak Vikram, anything else from your side?

No, Pak Eyas, I think we updated -- this is a shareholder thing. And we have to wait and see how we later update this, but we have extended the nonbinding MOU until June end and then that it will be updated.

The next question comes from the line of Choong Chen Foong from CIMB.

This is Foong from CIMB. Congrats on the excellent set of results. Three questions from me. Firstly, on the substantial increase in the EBITDA margins year-on-year and Q-on-Q, were there any one-offs, especially for staff and also maintenance costs in the quarter? That's question number one. Question number two, on competition, we saw Telkomsel and XL taking some small steps towards rationalizing their offers. What is Indosat's view on the market competition now? And have we done anything to go in the same direction? And thirdly, with regards to the second round of the free education quota program, are we seeing any visible impact, whether positive or negative, on revenue and bottom line thus far? Yes, those are my three questions.

If you allow me, I'll the answer the first question, which is about one-time. And in Q1, there is no material one-time adjustment except a small adjustment for omnibus law. Due to the change, we reduced some provision by, I think, IDR 90 billion. But I need to remind you the measure, one-time adjustment, was in Q1 last year, which is the restructuring cost, almost IDR 360 billion. But in Q1, there is no major one-time adjustment just like what I described. And this is the first question. I think the second about the market, Pak Vikram?

Yes. So again, supporting on what Pak Eyas said, Mr. Choong, Q1 is all looking healthy and very organic for us. And talking about competition, you spoke about Telkomsel and XL taking more utilization. We have been very consistent, when the whole market was fighting among unlimited, we moved out of that space. So I think there's a message for the market also looking at us consistently for last 6, 7 quarters. Our focus is very much on customer experience and delivering value. So while we'll stay competitive, but we never got into that kind of a scenario, where we need to keep changing things. I want to remind all of us that Indonesia is a big country. And it is very important to have consistent commercial strategy and not keep changing things frequently. And then that is why we will continue to build on our strategy of a simple, relevant product and also making sure that there is complete transparency with our customer. We have seen some good traction on our Net Promoter Score on our high-value customers. So we'll just keep executing on our strategies for this year. So this is on competition. On [ edu subsidy ], now we have been seeing [ edu subsidy ] in different form. Last year was in one form. Now this year, when we had the new one was under the print form. Our customer-based management team and the engine which we implemented in 2019, that has got very evolved. And that is helping us ensure that we are managing these programs very effectively. So again, happy to say that, for sure, we don't see any negative. There was a lot of risk cost, negative impact off it. So we don't see any negative impact off it. And then we have been able to manage it. In fact, there is a bit of a plus. But again, it comes with a lot of investment on managing capacity. So I will say that this stays neutral for us. But we have been able to make sure that there's no negative impact on us.

Okay. If I can just throw in a follow-up question for Pak Vikram, your network has improved a fair bit, and as you've seen your customer management has been pretty good, right, churn has been well controlled. But at the same time, if I look at the data yield for Indosat, it's still the lowest among the big 3. Must we take that position in the market?

No, I think this is a very good question. If you look at how we have been managing yield, and I'm happy that you think that question, if you compare our yield, and I don't want to name any competition, but now we have become #2. So this is the latest information, the way we track. And the other way to look at it, look with [ edu ] program and all, there's a bit of pressure on yield. But we also need to support government and ensure that we play our role. But we are the best among all the 3, the way we have managed our yield for last 5 quarters. If you draw the numbers, you will see that Indosat is the best. And now there is not much difference. There used to be -- if you go back to early 2019, there used to be a significant gap. We were 30% below than others. Now we have really mastered it and we continue to improve on it.

The next question comes from Niko Margaronis from BRI Danareksa.

Congratulations for the results. My question, maybe again on the numbers and the EBITDA margin, 46%. Overall, is this sustainable at the 46% going forward? If I'm not mistaken, on the -- previously, you were guiding low 40s. Are you setting the pace for a positive surprise in the next, yes, full year 2021? That's the first -- yes, and in relation to that, I mean, marketing and personnel costs, are these sustainable at those levels, quarterly levels? That's question number one. And question number two, on a quarterly basis, revenue, yes, is sort of flattish. And given that -- given the impressions that you give us in relation to the performance, we understand that you did well. So overall, the industry, how do you see -- how has it performed in the first quarter? Yes, that's question number two.

Yes, I'll answer first question. Second question, what are that, the second question?

Go ahead, sorry.

Yes, go ahead. Yes, okay, I'll answer the first question. Maybe the second question, Pak Vikram, if it's about marketing. Because the voice wasn't clear to me on the second question. Okay. The first question about EBITDA, I think now, you know our style, we announced the guidance, low 40s. Sure, this is -- would be the minimum. This is not the maximum we are targeting. And we always try to surprise -- a good surprise to all of you. So this is what I can comment about the 46%, that we always guide that the guidance is always the minimum, not the maximum. Regarding personnel cost, yes, it's -- except the one-time adjustment, we said it's almost IDR 90 billion back in the Q1. I think the number here is sustainable, as I said, except this IDR 90 billion, which is one-time adjustment. Okay. Anything else on the OpEx or EBITDA?

Yes. And the marketing, marketing expenses, has this picked up maybe in Q2 due to Lebaran or something, maybe? I mean, how do you see this trending in the next quarter?

So Pak Niko, if you may allow, sorry, Pak Niko, this is Vikram. Can you hear me?

Yes, Pak. Yes, yes, of course.

So Pak Eyas spoke about our EBITDA number. Just to -- on our generally guidance, we always stay on the bit of a conservative side. But what you see, our performance is, as I highlighted, our fundamentals are very -- in good shape. All the numbers are more organic. There are no big one-offs which is there. So I think Pak Eyas highlighted about all those things. So talking about -- even when you're talking about marketing cost, our Ramadan campaign, we keep investing. We don't -- if you look at our Ramadan campaign, it has been rated as -- on the YouTube leaderboard among Asian region. So all these investments, we continue to do. So there is nothing that -- which is -- which we need to call out for, yes? So all these things are in line. And we continue to invest on our brand, we'll continue to invest wherever needed. Yes, we have been putting most of our investment on digital channel, and we see a lot of the return on investment and it is much more transparent. So from a conventional TV and all, significant investment for us is going on digital, and we are seeing good traction coming out of it. And it is also helping us make sure that our marketing cost to revenue ratios and all those things are improving.

I see. Yes, that's well noted. And perhaps on the -- yes, may I repeat the second question here?

Yes.

Definitely, I understand that you performed better than market in the Q1. So should that mean -- should this mean that the sector had a negative growth in Q1? That's the question.

So Niko, what you said that is a flat quarter, please be mindful that quarter 1 is 3 days less. So it is, in actual term, an equal day basis. It is not a flat quarter. We are growing, so when you compare quarter 4 with quarter 1. So I think some of our trends have also announced their result. So what I can tell you is that we are growing 2 to 3x of the market. And we are trying to make sure that we grow the market. So this has been our approach.

[Operator Instructions] I mean, we do not have any questions as of now. I would like to hand the conference over to our host for any closing remarks.

Thank you, operator. I think this is a really good and strong quarter for us. We hope to be able to maintain such trend going forward within the year. If Pak Ahmad, Pak Eyas or Pak Vikram have any additional ending or closing remarks before we end the call?

Bu Christy, there's no other questions?

No more questions on the lines, Pak.

Perfect. If there are no more question, once again, thank you, everyone.

Operator, we will end the call now. Thank you, everybody, for tuning in. See you guys next quarter.

Thank you, guys.

Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect your lines now.