Taiwan Mobile Co., Ltd. (3045.TW) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to the Taiwan Mobile's conference call. And our chairperson is Mr. Jamie Lin. Mr. Lin, please begin the call, and I'll be standing by for the question-and-answer session.

Thank you so much, operator. Good afternoon, everyone. Welcome to Taiwan Mobile's Second Quarter 2025 Results Conference Call. Before I start our presentation, please do refer to our safe harbor notice on this page. Now let's take a look at our business overview. Please turn to Page 4 for highlights of the quarter. In second quarter 2025, mobile and home broadband, our 2 main growth engines, as well as new telco plus tech businesses, a third growth engine we're introducing this time, delivered healthy top line growth. In terms of profitability, telecom EBIT, which includes contribution from the new Telco+Tech segment that I just mentioned, rose 13% year-over-year, driven mainly by cost savings from network consolidation completed in third quarter last year. As a result, consolidated operating income grew by 4% Y-o-Y, while net income increased by 2% Y-o-Y. Now let's take a closer look at our mobile business on the next page. Our sustainable growth foundation strategy continued to underpin the solid growth of our core telecom business through exclusive customer-focused offerings. In 2Q '25, smartphone ARPU rose by 2% year-over-year and monthly churn rate of postpaid users dropped to a record low of 0.59%. 5G penetration reached 42.5%, up 4 percentage points Y-o-Y, supported by ongoing upselling efforts through our unique bundles. Contract renewals saw a 6% uplift in monthly fees, while 4G to 5G conversions continued to deliver a 45% uplift. This fueled 10% Y-o-Y growth in 5G revenues and lifted its contribution to mobile service revenues to 66%. The mobile market remained rational in 2Q with total MP volume down 24% Y-o-Y, reflecting continued shift from price competition to value competition for the core telecom business since the consolidation. In the first half of this year, we rolled out several innovative unique bundles, including momobile plus, which is [ mobido plus ] in Mandarin that combines momo's moPlus annual membership with Taiwan Mobile's 5G unlimited data services. A free 1-year Perplexity Pro subscription for Taiwan Mobile's postpaid users on TWD 5.99 or above free plans, and all-in-one streaming package featuring Netflix, Max and MyVideo offered at highly competitive price points. These bundles are designed to strengthen stickiness and drive upselling via unique customer value. Next, let's turn to Page 6 for updates on our home broadband business. Our broadband business sustained its healthy momentum, delivering a 6% Y-o-Y revenue growth in 2Q '25, driven by 4% increase in subscribers and 2% uptick in ARPU. This reflects sustained demand for high-speed connectivity, especially given our competitive pricing. For example, our 1 gigabit plan offers consumer 23% to 42% savings compared to the market leader. Growth was further supported by the traction in our bundled offerings, which cover cable TV, broadband mobile and OTT content, including MyVideo, Disney+, Max, Netflix and YouTube Premium. Notably, the number of broadband subscribers on speeds of 300 megabits or higher, including double play bundled users grew by 32% Y-o-Y during the quarter, which is over 2x the market leader's growth rate in this segment. Overall, EBITDA rose by 4% Y-o-Y as the strength of our broadband business more than offset our softness in the cable TV segment. Next, let's take a look at our new Telco+Tech businesses on the next page. Building on our core Telecom's gifts, including AI, cybersecurity, network infrastructure, 10 million users, billing systems, trusted brand, data and omnichannel reach, we developed a Gift-as-a-Service platform, what we call GaaS, that powers both our enterprise clients and also our first-party tech ventures. We call this segment new Telco+Tech businesses, which captures all of our telco plus tech businesses, except for momo. Our e-commerce services for brand business, for example, harnesses our customer base and strong presence in last mile retail channels, including momo and MyPhone stores to operate as an OMO enabler for top-tier brands, including Philips, Royal Canin and Temple. GMV grew by 25% quarter-over-quarter in 2Q '25 for e-commerce services for brands as we broaden retail channel coverage and client acquisition. We aim to deepen these partnerships and scale the platform's capability to fuel brand digitalization and growth. On the other hand, on May 22 this year, we launched the crypto exchange platform, TWEX, in response to growing interest in virtual assets, both globally and locally. While participation in Taiwan remains relatively low at around 5% of the population, we see significant market potential, especially around users seeking a secure, trusted and user-friendly platform. Lastly, our direct carrier billing and gaming businesses continue to deliver healthy revenue growth. We've been actively expanding our service portfolio to drive recurring usage and deepen integration across more digital platforms. This steady progress reflects the rising adoption of carrier-based payments across our user base. Now let's take a look at our momo business on the next page. Despite muted retail environment and broader economic uncertainty weighing on momo's top line performance, customer engagement remained solid in 2Q '25. Active users grew by 5.1% year-over-year and GMV continued to expand, driven by the scaling of its third-party business, mo-shop+. While momo's take rate was largely stable Y-o-Y, its EBITDA margin declined due to increased investments in marketing technology and new growth initiatives, including mo-shop+, its retail media network business that is called momoAds. As mentioned earlier, we partnered with momo to launch the momobile plus or mobido+ plan in May, which bundles unlimited 5G data with moPlus membership for TWD 1,399 per month. The membership is valued at TWD 2,399 per year while purchased separately. The plan offers up to 8% momo coin rewards and a suite of exclusive perks, leveraging group-wide synergies to differentiate Taiwan Mobile from peers and enable user stickiness. Since launch, the plan has driven an 8% Q-o-Q increase in adoption of the TWD 1,399 plan under the momobile lineup, contributing to ARPU growth for Taiwan Mobile. Now let me pass the virtual mic over to our CFO, George Chang, for financial overview.

Thank you, Jamie. Good afternoon. Let's start with the performance by business. In 2Q '25, telecom delivered 3% Y-o-Y revenue growth and accounted for 44% of consolidated revenue. As for profitability, telecom EBITDA also grew by 3% Y-o-Y and contributed 81% of the consolidated EBITDA for the quarter. The Y-o-Y increase was more pronounced on a pre-IFRS 15 basis, driven by rationalization of marketing expenses during the quarter. Hindered by lower revenue and margins, momo's EBITDA and net profit contribution fell to 11% and 9%, respectively, in 2Q '25. Its net income declined by 10% Y-o-Y in first half '25, partly offset by tax credit associated with the Southern distribution center. Let's go to results summary. 2Q '25 consolidated operating income grew by 4% Y-o-Y as a solid 13% growth in our telecom EBIT helped offset subdued performance at momo. The Y-o-Y and Q-o-Q increase in nonoperating expenses were mainly driven by translation losses in our U.S. dollar-denominated long-term investments amid the sharp appreciation of the NT dollar during the quarter. For the first half of the year, operating income went up by 7% Y-o-Y in spite of a flattish revenue, thanks to network consolidation synergies. On the nonoperating side, while interest expenses rose as we refinanced, around 70% of the $88 million Y-o-Y increase was noncash, accrued for the convertible bonds issued early this year. Net expenses from equity income, investment valuation and FX translation accounted for just 1.3% of our pretax income. Supported by tax credits recognized in first half, net income and EPS grew 12% Y-o-Y. Let's move on to the balance sheet. The Y-o-Y decline in cash balance was primarily attributed to momo's use of internally generated cash flow to fund capital expenditure and dividend payments while maintaining a debt-free position. Long-term investment increased Y-o-Y, mainly due to strategic investment in enterprise IT service provider, Systex in third quarter '24. Long-term contract assets also rose Y-o-Y, driven by continued growth in mobile bundle plans aimed at increasing mobile ARPU through contract renewals. Gross debt decreased by TWD 3 billion year-over-year, reflecting our disciplined capital allocation and healthy cash flow generation. Shareholders' equity declined Q-o-Q following AGM's approval of dividends, which became a dividend payable on the liabilities. The Y-o-Y increase in dividend payable was mainly due to Taiwan Mobile raising its DPS to $4.5 from $4.3. Supported by healthy cash flow, our net debt-to-EBITDA ratio declined both Y-o-Y and Q-o-Q, while solid profitability kept ROE steady at 15%. Lastly, let's look at the cash flow on next slide. Both telecom and e-commerce business recorded Y-o-Y increase in operating cash flow during the quarter. Operating cash flow rose by 4% Y-o-Y, outpacing EBITDA growth, supported by: one, favorable working capital change from the sustained sales of the iPhone 16 series; and two, lower tax payments for momo due to the aforementioned tax credit. Investing cash outflow tapered off in 2Q '25 as spending on mobile infrastructure returned to a more moderate level following elevated investments in the previous quarter. Backed by healthy free cash flow generation, we repaid bonds payable and long-term bank loans in the quarter, leading to a Y-o-Y increase in financing cash outflow. With lower cash CapEx quarter-on-quarter and year-over-year, pre-IFRS 16 free cash flow for 2Q '25 rose by 17% Y-o-Y to TWD 5.26 billion, translating into an annualized free cash flow yield of 6%. Let me turn the presentation back to Jamie for event update and key message.

Thank you, George. So on Page 15, we are honored to share that Taiwan Mobile ranked #1 across all 7 categories of the 2025 Asia ex Japan Executive Team survey by Extel, formerly known as Institutional Investor. These include our best CEO, CFO, IR Professional, IR Team, IR Program, ESG and Company Board, both in overall Asia and rest of Asia Telecom rankings. We are especially proud to be the only telecom company in Taiwan named the most honored company for 3 consecutive years. And this year, we also achieved the highest overall score among all Taiwanese companies. On behalf of the leadership team, I want to thank you for your trust and recognition. This honor will, for sure, strengthen our resolve to keep raising the bar in transparency, governance and long-term value creation. Thank you very much. In addition, during the quarter, Taiwan Mobile earned multiple recognitions across governance, innovation and network excellence, reflecting our ongoing efforts to lead in performance, accountability and digital innovation. We have summarized these results on the slide for your reference. Finally, on Page 16, to wrap up our presentation for today, here is the key message we would like for you to take away with. Taiwan Mobile is committed to a clear 3-part strategy designed to drive sustained growth and enhanced free cash flow. We are fortifying our Telco core while aggressively expanding our Telco+ services and Telco+Tech businesses. Our recent initiatives are not just isolated projects, they are a direct reflection of the strategy in action. Our exclusive OTT bundles are effectively lifting customer spending and deepening engagement. The launch of TWEX firmly positions us at the forefront of the Web3 space. Our new AIDC is critical foundational step in our artificial intelligence road map. These efforts are integral to our long-term vision. We have deep confidence in our fundamentals and believe our strategic execution will continue to create significant value for our shareholders. All right. With that, let's open the floor for questions. If you are participating online, you're more than welcome to send your questions via the chat box. And we will begin by addressing the phone line inquiries before moving on to the web. So operator, please go ahead.

[Operator Instructions] Our first question has come from [ Simran ] from JPMorgan.

I actually have 3 separate questions. So maybe let me just take them one by one. Firstly, I appreciate your ending message on how Taiwan Mobile is trying to fortify the Telco core as well as expanding Telco+ and Telco+Tech businesses. But I just want to understand a little bit more on how do you actually balance on your incremental investment and operational focus on telco and also non-telco business. Any further breakdown or elaboration will be appreciated.

[ Simran ], do you want to finish all of your 3 questions before we answer?

Yes, sure. All right. My second question is actually more of like a follow-up to my first question. You have been expanding your Telco+ business portfolio. I think I'm just wondering, going forward, what would be our focus? Are we going to continue enriching the portfolio by opening up more business lines? Or is there any criteria that you'll use to, let's say, double down on certain areas? And if so, what are the criteria? Is there any KPIs that we're looking at? And then lastly, my last question will be, I just want to understand a little bit more from the management that what will be the road map for second half of this year for Taiwan Mobile to achieve its full year '25 guidance?

So in terms of the first question in balancing investment, like George mentioned during the financial overview section, our CapEx on network is tapering off sort of post network consolidation. And so we do have some extra liquidity to invest in growth strategies. And this is also related to your second question. So in terms of our Telco+Tech ventures, we're taking bullets before cannonball approach, meaning that we would launch MVPs, and only when we see there's positive flywheel will we put in a sizable capital to really grow the business. So right now, most of the Telco+Tech businesses, the capital requirement is really minimum. So that's that. And for example, our game publishing business, really, it's profitable from year 1 and really didn't take a lot of CapEx. That's one of the examples. In terms of road map for the second half, we will continue to enjoy sort of the benefit of synergies from consolidation -- network consolidation, that's number one. Number two, our upselling of both existing Taiwan Mobile customers and Taiwan Star customers are going quite well. And lastly, a few of our -- like we disclosed today, our new Telco+Tech businesses, the growth is accelerating, and we are expecting for a few of them to be contributing meaningfully in the bottom half. So I hope those answer your questions.

Yes. Can I just have a very quick follow-up?

Of course.

You mentioned cost synergy. Is it possible for you to quantify how much synergy that we have left from the consolidation?