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

Good afternoon, ladies and gentlemen. Welcome to SmartTone Telecommunications Holdings Limited Annual Results Announcement and Management Presentation for the Financial Year 2025 and '26. First, 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 finally, Ms. Ada Lam, Head of Finance. The briefing will first begin with a slide presentation by Ms. Fiona Lau and Mr. Stephen Chau covering the business review and outlook, while Ms. Ada Lam will cover the financial section, followed by a 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 '26 Annual Results Presentation. For today's presentation, Stephen and I will first take you through our business review. After that, Ada and I will take you through the financial review and outlook. In FY '25-'26, SmarTone delivered profitable growth despite an intensely competitive market. Our performance reflects disciplined execution, a more diversified revenue base and our continued focus on delivering quality growth. We are reporting stable revenue with a 10% growth in profit after tax. Mobile postpaid ARPU decreased slightly by 1% to HKD 220. Importantly, our 5G ARPU remained 2x that of our 4G, demonstrating the value customers continue to place on our premium network and service experience. Our key growth drivers maintained good momentum. Consumer outbound data roaming revenue increased by 6%, while 5G Home Broadband revenue grew by 10% and EBIT increased by 31%. At the same time, operating expenses decreased by 6% and capital expenditure declined by 21%. Service EBITDA margin improved by 0.5 percentage points to 55%, demonstrating the benefits of disciplined cost and capital management. Our full year dividend per share is $0.32, same as last year. SmartTone total revenue increased by 5.6% to approximately $6.6 billion. Market competition remains very intense. Our underlying service revenue remained steady, while growth from more diversified revenue streams, including Enterprise Solutions, 5G Home Broadband strengthened the overall revenue mix. We will continue to make progress in scaling growth areas beyond traditional mobile connectivity. We continue to focus on growing a high-quality customer portfolio rather than pursuing volume at the expense of value. Our mobile postpaid customer base increased by 2% year-on-year. Mobile postpaid ARPU was $220, representing a modest decrease. This was achieved by both strengthening the proposition of our SmartHome priority premium customers at the top end as well as offering value for money bundles to retain and acquire new customers. Our 5G stands at a premium to 4G. It proves that what we are offering as a superior network experience and service are well valued by our customers. Our strategy is not to compete on price alone, but to give customers clear and tangible reasons to move to higher-value plans. During the year, we introduced targeted propositions, including our 5G family sharing plan and Gen SmarT AI Plan to address the different connectivity, lifestyle and digital needs of our customers. This value-driven approach paid off, effectively doubling our year-on-year 5G plan upgrades. By translating our network strength into clear service tier benefits, we provide reasons for customers to upgrade. This supports ARPU resilience, deepens customer relationships and creates potential for more sustainable revenue growth over time. We also revamped our premium membership program to SmarTone PRIORITY, which contains more personalized service designed around customers' evolving digital connectivity and lifestyle needs. All SmarTone PRIORITY members are supported by dedicated relationship managers who can provide tiny and customized solutions together with more personalized and attentive services. For customers traveling overseas, we have curated premium 5G roaming services across 23 destinations, covering more than 95% of our customers' travel traffic. We work with leading overseas network providers to provide reliable connectivity and consistent SmarTone quality experience. We have strengthened emergency support for customers who lose their SIM card or mobile phone while traveling. Our assistance include SIM replacement and loan phone delivery in Tokyo and in Mainland China, helping our customers restore connectivity quickly when it matters the most. Together, these initiatives create a scalable premium service platform. They strengthen engagement and differentiation. Beyond individual customers, we are developing a more integrated proposition for the entire family. The SmartTone Family Plan consolidates household connectivity under one account, allowing family members to share high-speed 5G data while simplifying account management through a single monthly bill. Customers can allocate data flexibly across connected SIM cards and upgrade to the Family Lite Plan as the household requirements grow. This has been one of our most successful propositions and customer acquisition channels. This will be a strength that we'll continue to build on. We further expanded our family connectivity ecosystem with Kids Watch, a SmartTone exclusive solution that combines secure communication, seamless connectivity and greater independence for children. With a built-in SmartTone eSIM, children can stay connected at home, on the move and while traveling. Through our proprietary applications, families can create a private communication circle without relying on open social media or third-party messaging platforms. Calls, conversations and photo sharing remain within an approved group of family members. This gives children greater freedom while providing parents with more control and peace of mind. Together with our other family services, Kids Watch strengthens SmarTone's differentiated family proposition and creates a scalable platform for future connectivity, safety and digital lifestyle solutions. We also have Kids CARE. This proposition is complemented by helping parents manage their children's digital health across different devices and operating system across both iOS and Android. Through one application, parents can stay connected with and protect the children even when the family members are using a mix of iOS and Android. The service supports up to 20 devices, allowing parents to manage digital assets across the family in a simple and a coordinated manner. Customers also have access to expert support when assistance is needed. Together, Kids Watch and Kids CARE enable us to serve families beyond basic mobile connectivity, supporting safer digital habits, closer family connections and greater peace of mind. Building upon our kids-related services, our Family segment becomes much more complete when we expand our ecosystem to support elderly care. We recognize that modern households manage multigenerational needs, so we have to build a comprehensive safety and wellness network for seniors. Through our SmartHome Solutions, we enable the older family members to stay connected with their loved ones anywhere. To address critical safety concerns, the platform features automated emergency response triggers for physical accidents paired with continuous remote health monitoring to detect health risks. Lastly, intelligent location mapping provides a dependable safety net if they ever get lost. By covering both child care and elderly care, we deliver total household peace of mind and significantly deepen our value to the entire family unit. 5G Home Broadband remained one of our key structural growth engines during the year. Revenue increased by 10% year-on-year, while EBIT rose by 31%. The strong profit growth reflects the attractive incremental margins and scalability of the business. The segment benefits from the accelerating adoption of premium 5G connectivity, synergistic customer acquisition through our existing subscriber base and a capital-efficient operating model. The strength give us confidence in the continued growth potential of 5G Home Broadband. The sustained momentum was supported by continuous improvement in both our product and customer proposition. Wi-Fi 7 accounted for 45% of new subscriptions during the year. This supported ARPU growth and demonstrated strong demand for premium home connectivity experience. We also expanded our home service portfolio by introducing AI Connect on 5G Home Broadband, enabling families to access ChatGPT or Claude without a VPN. Together with Disney+ entertainment and Home Phone Plus, which is a fixed line substitute, this creates a more compelling and integrated proposition for the household. In addition, we deepened our strategic collaboration of Sun Hung Kai Properties through tailored mobile and broadband offerings, enhancing the overall customer experience and supporting efficient customer acquisition. Taken together, these initiatives reinforce the competitiveness of our home proposition and its role as a scalable and profitable growth driver. For Mainland newcomer market, our strategy moves through 3 phases. We build awareness before departure by engaging specialty students at the Mainland orientations and highlighting our Call Guard anti-scam protection as a key differentiator. Second, we strengthened post-arrival engagement by providing Mandarin language in-store support and launching dedicated cross-border plans tailored for the demographic. Furthermore, we expand our strategic partnerships by deepening ties with student housing operators and leveraging our group Sun Hung Kai synergies across the properties to offer exclusive onboarding privileges. Roaming. Our Roaming business continued to deliver solid momentum during the year. Consumer outbound data roaming revenue increased by 6% year-on-year, while the consumer roamer penetration rate reached 72%, representing an increase of 5 percentage points. This performance was driven by our continued focus on effortless subscription and meticulous services designed around customers' changing international travel needs. Our objective is to support the customer throughout the entire travel journey rather than provide connectivity alone. For frequent and long-stay travelers, we introduced larger multi-day roaming passes, reducing the need for repeated purchases and making the experience more convenient. We also created a more complete travel proposition by combining roaming with year-round travel insurance, payment benefits and airport food and beverage privileges. This provides customers with greater value throughout their journey. When unexpected incidents occur, our support teams also help customers restore the connectivity quickly. At the same time, we accelerated the expansion of our VoLTE Roaming footprint in response to the retirement of 2G and 3G networks in the overseas markets. This helps safeguard voice service continuity and to maintain a reliable experience for customers while they are abroad. These initiatives demonstrate our commitment, taking end-to-end ownership of the customers' Roaming experience. Beyond connectivity, we're driving digital adoption by bringing top-tier AI right to our customers' fingerprints. With AI Connect, users enjoy seamless high-privacy access to leading tools like ChatGPT right over our network. To complement this, our one-on-one AI consultation service provides personalized guidance while our information hub provides and delivers real-world use cases for AI, making it truly accessible, safe and actionable for everyday life. I will now pass over to Stephen to take you through the Enterprise Solutions initiatives and our latest network developments. Thank you, Stephen.

Thank you, Fiona. I will now walk you through our latest progress across Enterprise Solutions and the network developments. During the period under review, Enterprise Solutions revenue increased by 17% year-on-year, reflecting growing demand for integrated connectivity and smart technology solutions. Building on our network capabilities, SmartHome Solutions continue to support the digital transformation of enterprises across Hong Kong, leveraging on 5G, AI as well as IoT technologies. Our Enterprise Solutions team continues to unlock the digital potential of Hong Kong industry. This is essential to support digital transformation and have to position Hong Kong as a leading innovation and technology hub. Over the years, we have expand our Enterprise Solution portfolio to different sectors, ranging from SmartHome, SmartMall, SmartTransport to Smart Construction. Tapping into this smart living trend, our SmartHome Solutions bring automated convenience to everyday living, while our SmartMall applications drive footfall and customer engagement for commercial clients. In the construction sector, our 5G-enabled smart site safety system, what we call 4S, allows site teams to monitor workers, equipment and environmental conditions in real time, upholding strict safety standards without compromising operational efficiency. This versatility allows us to address specific industry demands while deploying scalable capabilities across the wider market. During the year, we deployed these capabilities around diverse sectors, enabling Telemedicine in health care, upgrading hospitality with smart guest experiences. Power boosting residential developments and bringing 5G monitoring to critical infrastructure and primary industries. As shown in the slide, our solution continue to empower enterprises and transform city operations. For the Pui O project, SmartHome Solutions deployed an end-to-end 5G smart monitoring setup to overcome harsh environmental and power constraints along the South Atlanta Road. This solution delivers secure, high-speed connectivity and real-time video oversight, ensures continuous operational resilience, faster response time and effective risk management. In hospitality, we partnered with the Bauhinia Hotel in Central to brand luxury with a smart technology. SmartHome Solutions built a carrier-grade Wi-Fi backbone that powers high-speed guest connectivity while running critical operations like PMS and CCTV surveillance. We also allow guests to seamlessly control lighting and curtain with a single touch while optimizing energy efficiency behind the scenes. In the health care sector, we newly launched the Telecare Smart Hub, serving as the technology enabler to Gleneagles Hospitals, Hong Kong's telemedicine services. These projects demonstrate how our network, IoT and digital capabilities can be adapted to different sectors and improving customer experience, operational efficiency, safety and service accessibilities. Going into AI and to complement AI connect individual users, we developed SmartTone AI workspace specifically to meet the needs of SMEs operations. It integrates top international and mainland multimodel LLMs with powerful content creation and document tools. Designed for seamless access across web and mobile, it caters to everybody from individual power users to commercial and enterprise operations with the added convenience of direct Telco billing. By delivering target solution for both individual power users and SMEs, we certify SmartTone as a complete technology enabler, which clearly differentiates us from all our competitors. Our network strategy is purpose-built around the locations and moments where performance matters most to customers. During high demand occasions such as Fireworks over Victoria Harbour, the Lunar New Year Fair at Victoria Park and major event at Kai Tak Main Stadium, customers are actively uploading photo and live streaming at once. Having a fast, stable and seamless network during these moments is extremely critical. Therefore, we have deployed our exclusive SmartTone small cells at critical hotspots and high-traffic venues to strengthen capacity and service assurance, supported by our advanced 5G capabilities and intelligent network operations. This targeted investment allow us to deliver best-in-class performance and reliability even during peak demand periods. This is how we translate network leadership into a consistent and differentiated customer experience. Our collaboration with Sun Hung Kai Group continues to create unique opportunities across its flagship developments. from International Gateway Center in West Kowloon, Cullinan Sky and Cullinan Harbor in Kai Tak to Go Park and Sierra Sea in Sai Sha as well as YOHO West, we are integrating all the advanced connectivity into the next generation of living and working environments. Our 5G advanced solution provides comprehensive coverage across the entire properties from car park, deep lobbies, office, clubhouse to all the private residents. SmartConnect 5G WiFi also offer fast, stable and cable free assets, allowing every user to connect immediately without the limitation of traditional wiring. At the same time, 5G smart IoT enables real-time security management and automated fault detection while connecting devices such as lighting, climate control system, cameras and smart mirrors through one intelligent ecosystem. We continue to expand our 5G footprint across the infrastructure and development areas that will shape Hong Kong's future. We deployed the Golden Spectrum 3.3 and 3.5 gigahertz in the key urban locations and all the transport hubs to maximize capacity and ensure faster download and upload data speed for our users. Across the MTR station, we prioritize high-capacity 5G spectrum at 24 major stations, strengthening coverage and performance as well as a sufficient capacity to accommodate their daily needs. We also expand coverage across major developments, including, again, GO PARK, Hong Kong International Airport, Kai Tan Sports Park and also the Northern Metropolis. In parallel, AI-enabled network operations allow us to monitor the network around the clock, predict potential issues and optimize performance dynamically. Our investment approach remains targeted and disciplined, focusing resources where they have the greatest impact on customer experience and Hong Kong future's connectivity needs. To further expand our network leadership, we are empowering the future by unlocking more 5G capacity by reallocating spectrum from our 3G sunset directly into our 5G network. We maximize spectrum efficiency to deliver superior data speeds, low latency as well as enhanced overall customer experience. To ensure service continuity and safeguard customer retention, our dedicated team are proactively guiding clients step by step through the device and SIM upgrade while targeted communication channels. Ultimately, this transition will allow us to deliver a seamless, high-speed network experience for our customers. Looking ahead, this migration set the foundation of our next stage of network evolution, pioneering AI native technologies to deliver an unmatched hyper-optimized experience to our customers. We also continue to advance our ESG efforts with a focus on responsible technology, community inclusion, employee well-being and environmental protections. Cybersecurity remains a priority. Through the Anti-Scam Consumer Protection Charter 3.0 and adaptive machine learning models, we are strengthening our ability to identify and block cyber threats, malware and network intrusions. In the community, we support youth development through the Strive and Rise mentorship program. We also promote digital inclusion and safety among senior citizens through training on smartphone use and scam prevention. For our employees, we continue to foster an inclusive and supportive workplace through various wellness and ongoing health awareness initiatives. This year, we organized sport event to bring our team together alongside health seminars to support everyone's physical and mental well-being. We also use high-speed connectivity and smart technology to support sports, arts and cultural activities, helping to strengthen connection across the community. These efforts reflect our commitment to applying technology responsibly and creating sustainable value for the communities we serve. At the core of our business, our ultimate goal is to continuously provide premium service to our customers. We strive every single day to give our customers the absolute best experience where they are interacting with our frontline staff or using our network services. At the same time, we know that a premium experience require complete peace of mind. We deeply concern ourselves with cybersecurity to ensure our customers and their data are fully protected in an increasingly complex digital landscape. We are incredibly happy and humble that our ongoing effort across customer service, team excellence and cyber safety have been recognized by the industry. It gives us our stakeholders clear confidence that SmartTone remains a trusted premium brand in the market. I will now pass the presentation to Ada for the financial review.

Thank you, Stephen. I will now take you through the financial performance for the fiscal year 2026. SmartTone reported a growth in both revenue and profit. Total revenue increased by 5.6% to $6.6 billion. Excluding the prior year one-off income from our Macau operations, underlying revenue increased by 6.5%, driven by our diversified product portfolio that is mentioned in the beginning of our presentation as well as increasing demand on the handset. Underlying EBIT increased by 6.9%, reaching $749 million, while the underlying EBIT margin remained stable at 11%. Reported profit after tax increased by 9.6% to $525 million. Capital expenditure, it's decreased by 20.9% to $464 million, reflecting our disciplined and targeted approach to investments. At the same time, net cash increased by 29% to $2.5 billion, further strengthening our financial position, bearing in mind that we have a committed obligations in spectrum cost of around $2.6 billion. As a result, the Board was pleased to propose a final dividend of $0.175 per share, making a full year dividends of $0.32 per share, which is consistent with last year. We maintained a strict cost and capital discipline throughout the year. Operating costs decreased by $94 million or 6% to $1.5 billion. This improvement was driven by targeted optimizations and AI-enabled efficiency programs across the organization. Importantly, these savings were achieved while we continue to invest in customer experience, digital transformation and future growth. Capital expenditure reduced by 21% to $464 million. This reflects a more efficient and selective approach to investments without compromising the quality and consistency of our network. Spectrum costs decreased by 2% to $526 million. We also expect a further full year benefit in the coming year as these costs continue to decline. Together, these results demonstrate our continued focus on improving efficiency and directing capital towards areas with the strongest strategic and financial returns. Now as you can see, the benefits of these efficiency initiatives are reflected in our profitability. Our underlying service EBITDA margin increased by 0.5 percentage points to 55% in fiscal year '26. And our profit after tax increased by $46 million or approximately 10% to $500 million. And again, this improvement was achieved while we continue to improve in network quality, customer experience and our key growth platforms. Operating cash inflow increased by 5% to over $2.2 billion, supported by our core business as well as results from our diversified product portfolio and disciplined working capital management. This financial strength provides us with flexibility to sustain our network leadership and invest selectively in high-return growth opportunities. At the same time, we keep in mind a prudent and strong balance sheet is important to meet the future spectrum obligations. Dividends amounted to $352 million, which will be paid to the shareholders with a full year dividends of $0.32 per share. I will now pass the floor back to Fiona to take us through the outlook.

Thank you, Ada. Now looking ahead, the operating environment remains highly competitive. We do not expect market conditions to become any less demanding. However, we remain confident in our proposition, and we are clear about our priorities. On the growth front, we will continue to pursue value-driven growth rather than volume expansion. Our focus remains on delivering differentiated services and quality customer relationships, not competing on price alone. When it comes to operational excellence, we will maintain diligent cost discipline and deepen the adoption of AI to deliver further productivity gains and optimize capital expenditure. Furthermore, we will accelerate the growth of 5G Home Broadband by strengthening our premium home proposition and leveraging the scalability of the businesses. We will also continue to make targeted network investments that reinforce our market leadership through consistent quality, particularly in the locations and moments where performance matters most to our customers. From a customer experience standpoint, we will advance AI-powered transformation across our operations to improve customer engagement, sharpen business insights and enhance productivity. We will continue to tailor our product suite to serve emerging customer segments and deepen our relationship with the premium customer base. And finally, we will continue to leverage the strength and the ecosystem of our Sun Hung Kai Properties Group to deliver value to customers. SmartHome strategies is built for durability, balancing growth, efficiency and disciplined capital management. We are building a sustainable competitive advantage and will remain committed to delivering consistent earnings and long-term value for our shareholders. This concludes our presentation today. Thank you for your attention, and we will now move on to Q&A session.

Thank you, Ms. Lau, Mr. Chau and Ms. Lam. Now we will have the Q&A session. [Operator Instructions] To make the best use of time, similar or repetitive questions will be grouped together for management to answer. [Foreign Language]

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