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

Good afternoon, ladies and gentlemen. Welcome to the SmarTone Telecommunications Holdings Limited Interim Results Announcement for the 6 months Ended the 31st of December 2025. First, may I introduce the management team presenting today, Ms. Fiona Lau, Executive Director and Chief Executive Officer; and Mr. Stephen Chau, Executive Director and Chief Technology Officer. The presentation will begin with a business review and key initiatives, followed by a financial review presented by Ms. Lau. [Operator Instructions] Now may I invite Ms. Lau and Mr. Chau to begin with the presentation, please.

Good afternoon. During the first half of FY '26, SmarTone delivered a solid business performance. Our disciplined execution and strategic clarity create durable value even in a highly competitive market. Total revenue increased by 2% year-on-year, while profit after tax increased by 8%. Mobile postpaid ARPU increased by 1% year-on-year, and our 5G ARPU continued to be 2x that of 4G, reflecting continued strength in the premium segment. Our key growth drivers continue to perform well with consumer outbound roaming delivering solid year-on-year growth and 5G home broadband and enterprise solutions delivering strong year-on-year growth. At the same time, operating expenses decreased by 6% and capital expenditure decreased by 3%. Service EBITDA margin remained stable at 54%, demonstrating disciplined cost and capital management. The Board declared an interim dividend per share at HKD 0.145, same as last year. Stephen and I will now take you through the business review, starting with our core growth engines, customer-centric initiatives and followed by updates on our latest network developments. SmarTone continues to maintain leadership position in the premium segment, delivering quality growth during the period. Mobile postpaid ARPU increased by 1% year-on-year, demonstrating resilience despite intense competition. Our customer base continued to expand with total customer number increasing by 10% year-on-year. Importantly, our 5G ARPU continued to be 2x that of 4G, proving the premium value customers placed on our superior network quality and customer experience. Our 5G home broadband sustained strong momentum during the period. This performance was underpinned by the rapid adoption of Wi-Fi 7 penetration, which not only enhanced the customer experience, but also contributed to a higher ARPU, reflecting growing demand for the premium home connectivity. We further strengthened our home proposition by introducing attractive bundle offerings, including Disney+ video content and our fixed telephony service, HomePhone+. These enhancements have made our services more compelling and integrated for everyday life. Additionally, strategic partnerships, particularly our tailored offerings for Sun Hung Kai properties have enabled us to deliver superb customer experience in a high-value residential development. 5G home broadband is one of our structural growth. Revenue increased 12% year-on-year, while EBIT rose 36%. This segment benefits from growing demand from flexible broadband alternatives, efficient acquisition economics as well as attractive incremental margins. We see continued expansion potential as the household digital consumption increase. On roaming, roaming services maintained stable and resilient with consistent service quality maintained throughout the period. This performance was supported by a growing base of cross-border and international travelers. With greater mobility in the Greater China Bay Area, we are offering subscription plans that include GBA data, enabling customers to roam in the Mainland with a seamless experience. Customers can also choose between services such as 1 card 2 number or a virtual easy number to enhance cross-border convenience. Consumer roaming experience experienced a consistent and robust 7% year-on-year increase, driven by customer-focused roaming products and bundled packages. Roamer penetration continued its steady rise, reaching 70% in December 2025, an improvement of 6 percentage points compared to last year. Underpinning our set of solid results and strong growth drivers is our obsession in our customer-centric services, which I'm going to talk through. Number one, we continue to differentiate ourselves through network leadership. Building on this commitment, we became the first operator in Hong Kong to leverage 5G advanced technology, offering network priority for selected valued customers, reinforcing our service differentiation and premium experience. This is one of the industry's first commercialized applications of network slicing technology, whereby a customer is guaranteed to be among the best no matter how crowded data traffic is in a given location and a given time. It serves as a fast lane for our most premium customers. Number two, from a customer servicing perspective, we also enhanced the device purchase journey with industry-leading transparency and convenience. During peak phone seasons, we are the only operator in Hong Kong to provide customers with clear stock availability dates, reinforcing trust and purchase confidence. We also upgraded our retail queuing system to enable seamless device pickup. When eSIM is introduced in the mainstream phone models, we introduced a customer-friendly one-click eSIM migration assistance, which received great feedback. Now when you visit our stores, you may notice that we have launched an AI and tech corner to help our customers maximize the value of their devices and to provide consultation services for the device or on AI usage. Next, we launched Kids Care, an integrated parental control solution, tailored for the needs of today's families. Kids Care supports parents in providing a safe and enriching and digital environment for children by offering features such as screen time management and customizable website filtering. It is the first cross-platform solution in Hong Kong, supporting both iOS and Android. To stay connected, communicating seamlessly among family members and knowing the whereabout in case of dangers are essential and useful functions of a mobile technology. Now on the other hand, with rising cybersecurity threats and increasing exposure to social media, it is our responsibility to support families in protecting the young generation. Launching this as an example of serving our customers beyond the basic mobile connectivity. It is also our CSR effort to support families in protecting the younger generation. Taking innovation a step further, we've also pioneered AI Connect, a first in Hong Kong service that provides assets to leading global AI platforms via SmarTone's mobile network. This provides customers with effortless access without the need for complicated setup such as VPN, while offering safe and trustworthy connectivity through our dedicated network. We've achieved a key milestone this year by becoming the first mobile network operator to obtain approval under CEPA to distribute telecom service cards in Mainland China. Leveraging the Sun Hung Kai Group's resources and network in Mainland China, we are building more brand presence and market awareness. Our recent collaborations with Guangzhou Parc Central represent the initial phase of this strategy, serving as a launch pad to showcase our brand, products and differentiated service offerings. Looking ahead, we plan to progressively expand partnership and engagement channels to strengthen brand visibility and product distribution across Mainland China. I will now pass on to Stephen to talk about our latest developments in network and AI adoption.

Thank you, Fiona. At the heart of our strategy is the SmarTone 5G Advanced Network, recognized for its outstanding performance and major venues such as Kai Tak Main Stadium. With SmarTone Priority, we harness the power of 5G Advanced and network slicing to deliver up to 3x more dedicated network resources for users who really demand speed and reliability. That means even in the business environment like the stadium, the concerts, transport hubs and city districts, our customers can enjoy always fast and stable connectivity. Whether it's ticketing, HD streaming, gaming, our network ensures seamless experience for all high-demand applications. Our advanced architecture, including the 5G stand-alone and mobile edge computing delivers ultra-low latency, enhanced security and efficient infrastructure. AI-driven automation empowers us to optimize the network, predict issues and orchestrate traffic dynamically. We are also deploying the next-generation massive MIMO radios to further enhance performance while improving the energy consumption. We are proactively enhancing the 5G capabilities across Hong Kong's key infrastructures. The Central Kowloon route is boosting east-to-west connectivity. The Northern Metropolis is emerging as a new strategic economic hub, driving innovation and future development. SmarTone has delivered the highest speed hour speeds across all MTL stations, consistently recognized by our customers. By deploying the Golden Spectrum 3.3 and 3.5 gigahertz, we further enhanced the capacity, especially during the peak traffic hours. So far, 15 key MTL stations have already been in service with more to come, ensuring reliable 5G service through tunnels, platforms and concourses. Our collaboration with Sun Hung Kai Properties brings comprehensive 5G Advanced coverage to Hong Kong's reliability, most prestigious landmarks, including the International Gateway Center, the IGC in West Kowloon, the Cullinan Sky and Cullinan Harbour in Kai Tak. GOPA and CORC [indiscernible]. We deliver comprehensive indoor coverage and seamless connectivity from car parks to lobbies, live offices, car house, everywhere within the properties. Our 724 AI-enabled quality assurance system ensure quality mobile service performance across the whole and entire properties, while real-time fraud and security management through the 5G IoT devices ensure utmost reliable. Our market-leading Smart Connect 5G Wi-Fi delivers fast cable 3 connectivity, supporting a wide ecosystem of smart devices. We are committed to delivering superior experiences, supporting innovation and drive sustainable growth. With our cooperation, we have won the Best Smartphone Customer Experience Award by Network X in 2025, recognizing our leadership in innovation and user-first experiences. We continue to support Hong Kong as a mega event hub, delivering advanced connectivity and smart solutions for major sports and cultural initiatives. A recent example is the FIP Silver REAP tournament 2025, a prestigious international event held in Hong Kong for the first time. Our carrier-grade infrastructure provides robust connectivities, supporting seamless official live streaming throughout the tournament. On the cultural front, we partnered with the Bridge+ UOB Art Academy, a century old heritage property transformed into a connected arts and cultural center. Our smart building solutions include intelligent automation control for lighting and integrated AV systems, enhancing ambient comfort and operation efficiency. This scalable smart building backbone is already ready for supporting our building-wise smart technology ecosystem. I touched about AI. AI is central to our transformation journey. We are harnessing the power of AI to deliver customer service and operational excellence. AI enables every customer interaction into actionable insight, driving smarter knowledge engagement and effective governance. We have developed multiple AI agents to automate process across vehicle, HR, market research and content review, achieving significant time and cost savings. Our enterprise AI agent platform also enhanced the productivity, streamline operations and fostering collaboration across the organization. With this, I will end my part of the presentation. And now I will hand back to Fiona to continue on the financial review session.

I will now walk you through the financial performance for the first half of FY '26. Revenue: Revenue for the first half of the year rose 2% to HKD 3,561 million or 3.5%, excluding last year's one-off income. EBIT was up 6.2%, excluding the one-off, with margin steady at 11%. Profit after tax has grew 8.4% to HKD 278 million. Capital expenditures slightly declined by 3% to HKD 179 million. Net cash increased 50% to HKD 2,376 million. And the interim dividend stayed at HKD 0.145 per share. We maintained strict cost discipline through targeted optimization and AI-enabled efficiency programs, resulting in operating cost savings of 6% compared to the previous year, which enabled us to invest in better customer experience, digital transformation and future growth. As a result, our service EBITDA margin is maintained steady at a healthy level of 54%. We continued to reduce capital expenditure without compromising network quality. CapEx decreased year-on-year by 3%, and spectrum costs have been gradually declining following the peak in FY '23, reflecting a disciplined approach to capital management. Due to rigorous management of costs and capital expenditures, our net cash grew by HKD 788 million, representing a 50% year-on-year increase, reaching approximately HKD 2.4 billion as of December 2025. Our capital allocation priorities remain clear. We're here to sustain network leadership. We want to invest selectively in high-return growth areas, and we will maintain financial strength and stable dividend distribution. We operate with a strong balance sheet and a disciplined financial management. The financial strength allow us to sustain consistent dividends for our shareholders. Looking forward, we're feeling focused and confident. The competitive environment remains intense. We do not expect conditions to ease. However, we're confident in our positioning. Our priorities for the second half of FY '25 and '26 are clear: Quality growth, not volume growth, scaled 5G home broadband business, cost and CapEx discipline, deepened AI-driven operational transformation and better customer experience, targeted network investment to maintain leadership because we compete on consistency. SmarTone strategy is built for durability with balance between growth, efficiency and disciplined capital management. We're not pursuing short-term gains. We're building sustainable competitive advantage. We will remain committed to delivering consistent earnings and long-term value creation for the shareholders. Thank you.

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