SmarTone Telecommunications Holdings Limited (315) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the SmarTone Telecommunications Holding Limited's Annual Results Announcement and Management Presentation for the financial year 2024-'25. Before we start, may I introduce you to the executives with us here today. Ms. Fiona Lau, Executive Director and Chief Executive Officer. Mr. Stephen Chau, Executive Director and Chief Technology Officer; and Mr. Danny Ho, Chief Financial Officer. The briefing will first begin with a slide presentation by the SmarTone management, followed by question and answer session. [Operator Instructions] Now may I invite Ms. Lau to begin with the presentation, please.

Good afternoon, and welcome to SmarTone's FY '25 Annual Results Presentation. For today's presentation, Stephen and I will first take you through the business review. After that, Danny will take you through the financial results. In FY '24-'25, SmarTone continued to brace for challenges in the operating environment, with uncertain macro conditions and fluctuating consumer sentiment, exerting additional pressure onto an already saturated competitive market landscape. We are reporting a stable revenue with 2% growth in profit after tax. We have intensified cost management efforts to drive productivity, achieving continuous savings over the past years. These savings have enabled us to sustain investment in our network infrastructure, while also enhancing our agility in serving customers and investing in new growth opportunities to meet the evolving customer needs. We have delivered 4% of OpEx savings, 10% core CapEx savings, while continuing to provide high-quality services and network experience. We are committed to evolve into a leaner organization and reinvest resources to serve our customers better. With the adoption of AI and a more deliberate effort to redirect resources, we will raise the bar on a premium customer experience while staying affordable for the general public. Our mobile postpaid ARPU was stable at HKD 222 with our 5G ARPU doubled that of our 4G ARPU. In terms of business units, our 5G home broadband revenue grew substantially, increasing 16% year-over-year, with EBITDA rising 18%. And on our Enterprise Solutions, it has delivered 24% EBITDA growth. Our full year dividend -- therefore, full year dividend per share is HKD 0.32, same as last year and 6.88% yield according to today's closing share price. Maintaining leadership in our premium segment. Despite intense competitive pressure, our ARPU has remained remarkably stable and is the highest in the market at HKD 222. Our 5G ARPU remains double that of 4G, underscoring the distinct benefits of 5G in high-bandwidth applications. To meet the growing demand from our customers for children's digital safety, in August 2025, we have launched our Kids CARE application to enable parents to tackle challenges such as screen time management, web content featuring. Our simple interface enables parents to mentor the children but not monitor the children. SmarTone is the first telecom operator in Hong Kong to develop such a platform across iPhone and Android applications. This integrated solution is tailored for today's families and to empower them to create a balanced and healthy digital habits for children. We recognize the power and benefits of technology, but we also acknowledge that it comes with real challenges from online safety to digital well-being. We will continue to partner with families to harness the power of technology responsibly, ensuring that innovation enhances quality of life while safeguarding what matters most. With the increasing risk of cyber attacks against our customers, we remain committed to enhancing our capabilities to minimize customers' risk exposure while using our network. Our existing suite of security solutions including Data Guard that provides professional grade data protection for consumers and Call Guard that identifies and blocks fraudulent calls. We launched an anti-scam WhatsApp hotline in March 2025 that allows our customers who are in doubt to screencap and forward those suspected messages to our experts via WhatsApp. In April 2025, we have also launched a Phishing Alerter, alerting our customers to the ever-increasing array of scams. We have established a dedicated hotline where customers can consult our expert teams 24/7 if they suspect their phones have been hacked or targeted by scams. Moving on to AI. AI is now embedded in many mainstream uses with customers increasingly adopting AI in the daily life and expressing interest in further advancements. To service our premium customers, we have hosted AI training classes, both in person and digitally to enable our customers to get the best out of the AI tools available. With this increasing demand of AI knowledge, we have also set up AI corners in our SmarTone stores to provide one-on-one tutorials. Leveraging social media, we regularly share digital content, incorporating AI practical tips on YouTube, Facebook, website and our own CARE app. We are constantly on the lookout for new content to enhance our service offerings. Since the beginning of this year, we've introduced Disney+ as a bundle option to broaden entertainment experiences. Combining exciting content ranging from educational content for children, to global movie or TV drama hits, we are engaging our customers across all ages and segments. Combined with our superior network, we provide customers with a seamless entertainment experience. We are the only operator -- mobile operator in Hong Kong offering such bundled Disney+ service. On Roaming, SmarTone remains committed to delivering a high-quality roaming experience for our users. Through close collaboration with our Roaming partners, we ensure that our customers enjoy consistent SmarTone quality. We do not want to leave our customers to experience only in hands on our overseas partners. We have a dedicated team to conduct real-time monitoring of the performance of our network partners. Where there are issues, we'll be detecting them immediately and will take actions with our overseas partners. Through our 24/7 toll-free customer hotline, customers are able to report any issues to us directly while roaming, which we prioritize and will address. Collectively, these measures ensure that our customers enjoy the best Roaming experience at their destination while abroad. To further support our customers, we recently launched a new service where we offer Free Spare SIM, Travel SIMs, to our premium customers. We understand the urgent need to regain access to lost phone or Internet and we offer solutions to help our customers in such circumstances. By delivering better service and launching more customer-oriented roaming offerings and bundled packages, we have recovered over 100% of our pre-COVID outbound data roaming revenue by FY '24. This year, we continued to improve our offerings and capture travelers with over 50% of our customers using our data roaming services. We sustained our consumer outbound data roaming revenue, which increased by 6%, while our recovery against pre-COVID improved by 3 percentage points to 105%. On 5G Home Broadband, SmarTone leads the market and is recognized as the #1 best preferred 5G home broadband operator. Our 5G home broadband service has seen strong double-digit growth over the past three years. Customers now enjoy fiber-like network experience without the need for installation at home. We continue to innovate this product. SmarTone was the first in the market to launch Wi-Fi 7 for 5G home broadband, which supports a much faster connection and allows for multiple devices to be connected across various frequency bands seamlessly. SmarTone has a unique advantage in the 5G home broadband market through our strong partnership with our parent company, Sun Hung Kai, and to drive growth through its property portfolio. Turning to the financials. During the year, 5G home broadband revenue increased 16% year-over-year, while EBITDA rose 18% year-over-year, demonstrating strong growth potential alongside economies of scale. We will continue to partner with Sun Hung Kai Group to accelerate the growth, and this will lead to expanding margins through scale. I will now pass the time to Stephen to touch upon our network development, AI and Enterprise Solutions initiatives.

Thank you, Fiona. In the next few slides, I would like to walk you through on what we are doing on the network, somehow how we make use of AI to enhance our work and also our enterprise setup. As always, we are committed to deliver our best network performance to our customers. Through strategic investments and optimized base station deployment, we aim to maximize network performance and efficiency. To ensure the best coverage for customers, this year, we added over 100 new cell sites and deployed Golden Spectrum in the key areas, including those mega venues like the Hong Kong Coliseum, Kai Tak Sports Park, we have also covered the new Central Kowloon Route to further improve indoor coverage. We have strengthened both indoor and high-capacity coverage through the deployment of 700 megahertz and also this 4.9 gigahertz spectrum, which is significantly enhancing our network performance even in high data traffic areas. On the technology and infrastructure front, we have made significant advancements through the large-scale deployment of Massive MIMO Antennas with Dynamic Beam Switching, which greatly enhance signal quality and coverage and at the same time, significantly reduce the data cost. The introduction of our 5G advanced network further elevates our 5G home broadband service performance. Additionally, our 5G advanced network also enables us to offer tailored private network solutions for industries and major events, ensuring reliable, secure and seamless connectivity. Recently, we've also launched intelligent Network Slicing for our premium customers and Enterprises with enhanced service assurance. This technology allows us to dynamically allocate extra network resources to meet customer demand, ensuring optimal performance even in high data traffic areas. Leverage on 5G, AI and IoT technology, our Enterprise Solutions team continues on multi digital potential of Hong Kong's industries. This is essential to support digital transformation and help to position Hong Kong's role as a leading innovation and technology hub. Over the years, we've expanded our enterprise solution portfolio to different sectors, ranging from SmartHome, SmartMall and Smart Construction. Leveraging on the smart living trend, our SmartHome solutions have achieved significant growth. By building desired automated living environments, customers can enjoy the benefit of a smarter and more convenient lifestyle. With our solutions, Sierra Sea, a new flagship residential project by Sun Hung Kai Properties has become the first residential project in Hong Kong to achieve the WiredScore Platinum Pre-Certification. It is a validation of our innovations in delivering the best-in-class digitally connected home experience. We are now also expanding beyond the Sun Hung Kai Group to serve the broader market. On the move, our SmarTransport solutions applies smart IoT and video and edited technology to enhance passengers' experience and safety. Lastly, in the construction sector, our AI-based 4S solutions improves worker safety and site management, while SmartHotel and Smart Property Management improve operational efficiency and guest experience. We support the government's Mega Event economy. SmartHome solution has supported Hong Kong's position as a mega event hub with innovative 5G solutions. We are very proud to be the official network partner for major events such as the 18th Asian Film Awards, The 2025 Para Fencing Satellite Tournament and the Rope Skipping Invitational Championship in Hong Kong, all offering high performance connectivity and also end-to-end 5G solutions to enhance the event experience. How we use AI? I would like to walk you through how we actually adopt AI in our digital transformation journey, where we leverage cutting-edge technology to enhance business operations, customer experience and optimize efficiency. Internally, we integrate AI power solutions to streamline our business operations. Our enterprise AI assistant helps our staff with content creation, data analysis and task automation. We also adopt AI in application development and workflow, to streamline our development process, resulting in significant time saving and enhanced productivity. Today, more than 100 tasks have been AI-enabled. Our customers are at the heart of everything we do. To enhance customer satisfaction, AI Sentiment Analysis helps us to understand customer sentiment timely with insights to improve service quality. On network front and for many years now, we have leveraged AI to optimize network resource allocation, improving performance while achieving better cost efficiency. In today's digital landscape, cybersecurity threats are constantly evolving and customers' online safety is our priority. To safeguard customers against these threats, we've adopted AI-based threat detection, the advanced endpoint network detection and response system ensuring better protection for our customers. Together, all our AI initiatives create a flywheel, smarter operations, stronger security and better customer, delivering measurable efficiency and quality gains today and building a scalable platform for further innovation in the years ahead. Lastly, what we are committed to on the ESG area, where we are committed to fostering innovation, Community and sustainability. Here how we are making an impact? Cybersecurity remains a key priority. We have supported Anti-Scam Consumer Protection Charter 3.0 initiated by Hong Kong Monetary Authority. It's a cross-industry initiative to combat fraud and build a safer, more resilient digital environment for Hong Kong. As a technology leader in Hong Kong, we are empowering the younger generation by supporting programs, such as Strive and Rise that sparks interest in technology and encourage personal development. We also hosted digital Silver smartphone workshop to support elderlies in integrating into the digital era and enjoy the benefit of technology, helping them to stay connected and enjoy the convenience of digital life. Employee is always our important asset. We forged a collaborative working environment and prioritized our employees' engagement and wellbeing through various activities and wellness programs designed to promote a healthy work-life balance. Last, on environmental protection, we have introduced a recycling program aimed at protecting the environment from electronic waste. We also participate in [indiscernible] initiative such as Earth Hours and Lai See Packet Recycling. Together with all this effort, we felt our commitment to creating a more sustainable future for all and our sustainability efforts are being recognized with the ESG Pledge. With this, I would like to end my presentation. I would like to pass to Danny for the financial review session. Thanks, Danny.

Thank you, Stephen. Good afternoon, everyone. I will now take you through a financial review of our performance. All amounts will be presented in Hong Kong dollars unless otherwise specified. SmarTone delivered a set of results that demonstrated the resilience of our business and profit amidst the challenging operating environment with profit for the year increasing by 2% to HKD 479 million. Our total revenue was stable, increasing 1% year-on-year to HKD 6,253 million, while Service revenue, excluding handset sales, was marginally down by 2% year-on-year to HKD 4,415 million. Within this, we have seen strong growth in the 5G home broadband sales. It continues to deliver impressive results achieving 16% revenue growth alongside an 18% increase in EBITDA. We also saw continued growth in consumer outbound data roaming revenue, which increased by 6% despite some softening in travel. On a positive note, cost discipline was maintained, leading to operating expenses decreasing by 4% year-on-year to HKD 1,612 and depreciation of right-of-use assets declined by 6% year-on-year to HKD 605 million. EBITDA and EBITDA margin remained stable at HKD 2,445 million and 39%, respectively. In addition, core CapEx reduced by 10% to HKD 451 million, and net cash increased by 30% to HKD 1,966 million. As a result, the Board was pleased to propose a final dividend of HKD 0.175 per share, making a full year dividend of HKD 0.32 per share, which is consistent with last year. Turning to our operating expenses. Over the past two years, we have intensified our cost management and capital discipline that has led to productivity gains and allowed for continued reinvestment in growth areas. Through disciplined execution and deployment of advanced technologies, we have simplified our platforms and modernized operating systems. As we continue to identify and implement efficiency initiatives, we've been able to achieve a 4% year-on-year reduction in operating expenses. However, there has been no compromise in our quality or service levels to customers. We have also achieved a 6 point reduction in the depreciation of right-of-use assets, representing lease payments in respect of our cell sites, retail stores, offices and warehouses through vigilant negotiation. These combined savings have enabled us to sustain investment in our network infrastructure, enhance our agility in serving customers and invest in growth opportunities to meet evolving needs. Going forward, we will continue to maintain cost discipline in the pursuit of productivity and ensure SmarTone's long-term resilience. The net impact of our stable revenue and cost reduction measures are such that our EBIT margin has improved marginally by 1 percentage point from 11% to 12%. This margin performance is also reflective of the resilience of our core business and premium customer base. In terms of capital expenditure, core CapEx was down 10% year-on-year to HKD 451 million, reflecting stabilization of our capital expenditure and our disciplined approach towards network investment while maintaining network performance and coverage. Total spectrum costs also decreased 1% year-on-year to HKD 534 million. Spectrum costs picked in 2023, and we expect it to gradually decline in the future. Our healthy operating cash generation has resulted in an increase in net cash balance by 30% to HKD 1,966 million. Accordingly, we have maintained a stable dividend payout to shareholders, which amounted to HKD 353 million for the year. In summary, our business and profit margin has remained resilient despite intense competition in a challenging environment. We maintained our leadership in the premium segment despite strong competition. Our 5G home broadband and the Enterprise Solutions business delivered strong profit growth and showed continued potential. Through vigilant cost control and deployment of advanced technologies, we drove productivity and reduced both OpEx and CapEx. Our full year dividend per share was HKD 0.32, which was the same as last year. Our dividend yield was 6.88% according to today's closing share price. Thank you for your time. I will now pass over to Fiona.

Thank you, Danny. I'd like to conclude this presentation by discussing the outlook. We expect the challenging operating environment and intense competition to continue. We maintain leadership in the premium segment despite strong competition, and we will continue to deepen our relationships with the customers through tailored services and product offerings. Our 5G home broadband continues as a material growth driver. We will continue to exercise diligent cost discipline and adopt AI to deliver OpEx savings and CapEx reductions. As always, we remain committed to provide exceptional network performance to our customers. SmarTone will continue to extensively collaborate with our Sun Hung Kai Properties Group businesses to better serve our customers. This ends our presentation today. Please feel free to raise any questions you might have in the following Q&A session. Thank you.

[Operator Instructions] [Interpreted] First question, in intense competition market, how is your company going to maintain your leadership in premium markets?