Telekom Malaysia Berhad (TM) Earnings Call Transcript & Summary

Ladies and gentlemen, good evening, and welcome to today's conference. You are now participating in Telekom Malaysia Berhad First Quarter 2021 Analyst Briefing Call. [Operator Instructions] I will now hand over the session to the conference leader, Encik Imri Mokhtar, Managing Director and Group Chief Executive Officer of Telekom Malaysia Berhad. Thank you, and over to you, sir.

Thank you very much. [Foreign Language], and a very good afternoon to everyone. Welcome to TM's 2021 First Quarter Results Briefing. And thank you for attending this session and also to those who took part in our 36th AGM on Tuesday. Firstly, I hope you, your family and colleagues are all well and keeping safe, that you have taken or will be taking the vaccine soon. Let's together pray and hope we come out of the pandemic soon as more and more in the country gets vaccinated. Our priority during these testing times remains the well-being and health of our customers and our people, key members who continue to serve our home, business, public sector and telco customers, continue serving with enhanced SOPs. I will first start with a brief review of the first quarter 2021 performance. Our group CFO, Encik Razidan, will then elaborate on the financial and operational details. At the end of our presentation, we will open the floor for Q&A session. So if you could just flip to Slide 4, let's start the quarter in review. 2021 initially began on a hopeful note for the country, but quickly took a different turn as the pandemic concerns spiked, resulting in the current nationwide MCO, movement control order. As shared previously, 2021 is year 1 in our 3-year transformation that drives TM, with our new TM compass providing us the strategic focus on enabling a more digital society, businesses, public sector and telecommunications industry. Building on our momentum in 2020, I'm happy to report a solid start for first quarter 2021. We have started the year well, recording a significant improvement in our revenue and profitability against the same period last year, first quarter 2020. This was driven by higher revenue achieved by all of our business segments, unifi, TM ONE, TM WHOLESALE, coupled with our continuous cost optimization. This indicates a clear traction of our value programs that's today headed and resourced by our top talent and high performers. CapEx investment for first quarter 2021 was MYR 247 million or 8.8% of revenue. However, on a committed investment basis, it is higher at 18% of revenue, which is within our guidance. I'll now have Razidan to take you through our financial and operational details. Over to you, Razidan.

Thank you, Imri. I will now take you through the key items for quarter 1 2021 as compared to the same period last year. Looking at the top line, our operating revenue in quarter 1 2021 recorded an increase of 9.9% at MYR 2.8 billion. That's against MYR 2.6 billion in quarter 1 last year. It's heartening to see growth from all segments. And the largest contributor was TM WHOLESALE, recording a double-digit revenue increase in comparison to the previous year. Together with the lower operating costs recorded for 2020, our EBIT has soared by about 81% from MYR 326.1 million in the first quarter 2020 to MYR 589.7 million in the current quarter. Depreciation and amortization has declined by 1.4% at MYR 575.5 million from MYR 583.6 million in quarter 1 2020. And excluding ForEx movement, our net finance cost increased by 71.3% at MYR 145 million. And this is due to the interest premium on the early full redemption of our Islamic Medium Term Notes, or IMTNs, in March 2021 this year. Taking into account all the above, our PATAMI for Q1 2021 rose by more than double to MYR 325.5 million from MYR 152.5 million in the corresponding quarter last year. I will now take you through our revenue breakdown. Let's take a look at our revenue by products from a year-on-year view. This is on Slide #6. Voice revenue has increased by 2.2% from Q1 last year and this is contributed by higher bilateral and hubbing revenue at TM wholesale. Internet was higher by 4.1%, and this is due to higher cumulative unifi subscriber base in quarter 1 this year. Data increased by 26% year-on-year, and this is contributed by higher IRU deals and domestic data at TM WHOLESALE and also contribution from TM ONE in the current quarter. Other revenue also saw improvement by 8.6% from the same period last year, and this is mainly from ICT customer projects from the public sector recorded in the current quarter. Data shall be the main growth driver moving forward, followed by Internet, while voice revenue is expected to follow declining market trends. Let's move on to the performance by our lines of business. This is on Slide #7. For unifi, the overall revenue was higher by 7.5% compared to the same quarter last year, and this is due to higher cumulative unifi subscriber base. And we hope to maintain this current subscriber growth trajectory as we continue to expand the network and improving the quality of our offering. After many, many years of decline, TM ONE has recorded a 2.5% revenue increase. That was contributed by higher customer projects and also broadcast revenue in the current year as compared to Q1 last year. TM WHOLESALE revenue has jumped by 35.4% in quarter 1 this year against the same quarter on the previous year. This was driven primarily by higher IRU deals, domestic wholesale and also international voice revenue recorded in the current quarter. For others, however, we saw a contraction of 8.8% in revenue year-on-year comparison, and this is mainly due to lower revenue at Menara KL and also our university MMU, both attributed to the impact of the pandemic. Let's move on to Slide #9, which is our physical performance. Unifi, our total fixed broadband customers continue to be on a growth momentum with 11.9% increase compared to the same quarter last year at more than 2.44 million. This is a result of consistent improved unifi subscriber net in the last 12 months, and our cumulative unifi customer now stands at more than 1.9 million, which is actually a 31% increase from Q1 last year. Based on this, the convergence penetration rate for 3P and above products now stands at 63%. We remain optimistic to further grow the subscriber base and aspire to further improve our customer journey and experience fulfilling their needs in the current digital era. Now I will elaborate on our operating costs, which is shown on Slide #10. Our total operating cost has reduced from MYR 2.25 billion in Q1 last year to MYR 2.24 billion in the current quarter, a slight decline. More importantly, the cost efficiency ratio has improved to 79.7% in Q1 this year from 88.1% last year. And this is a direct impact from our ongoing value and transformation programs, as mentioned by Imri just now. And we are proud that we are able to generate better revenues from approximately the same amount of spending in the same period last year. However, direct cost was higher year-on-year, and this is due to higher IRU and international voice out-payments and also higher ICT direct costs during Q1 2021 and contributed by various customer projects. The increase in direct cost is anticipated, and this is in line with the revenue growth during the period. Manpower cost has also increased in the current period, and this is due to higher staff benefits. On the other hand, other OpEx, which is the main driver for the cost improvements, has recorded significant contraction, mainly due to decline in maintenance expenses, lower A&P costs, lower traveling costs and also lower utilities billed from our electricity cost-saving initiatives. Moving on to low depreciation and amortization. It's lower in quarter 1 compared to quarter 1 2020. And this was mainly because of lower depreciation expense for property, plant and equipment coming from the lower asset base. Let's move on to group CapEx. This is on Slide #11. Our CapEx for Q1 2021 was at 8.8% of revenue or MYR 247 million. Out of the amount spent, 69% was for access, 12% was made for core networks and the balance, 18% was made for support systems. Our CapEx spending in 2021 is focused primarily on ensuring business growth and as mentioned earlier by Imri, on the committed level, the Q1 2021 CapEx on revenue percentage was higher at 18%, which is well within our guidance. And finally, on our cash position on Slide #12. Cash and bank balances were lower at MYR 1.84 billion. This is attributable to the sukuk buyback in March 2021. Despite the lower cash balance, we would like to highlight that cash flow from operating activities has increased in Q1 this year compared to the same period last year. And we have ample financing facilities and headroom to support the business. That's all for the financial and operating highlights. I'll now hand over the session back to Imri. Over to you, Chief.

All right. Thank you. Thank you very much, Razidan. TM acknowledges the importance of sustainability. ESG has been part of TM's DNA moving forward, and we progressively seek to improve on this front. We've initiated various programs to reduce our overall carbon emission and to ensure we are 100% in compliance to the Environmental Quality Act of 1974. On the social front, we have initiatives ensuring the safety of our people. Developing future leaders and contributing to the socioeconomic growth of the targeted communities. In TM, we also have a diverse workforce and inclusive practices that benefit everyone regardless of race, gender, age, disabilities or beliefs. Uncompromising integrity has always been at the heart of our values. Corruption risks are continuously assessed. And our corruption mitigation practices are independently certified to ensure our standards remain high. We are continuously improving our efforts towards creating more value towards sustainability, while at the same time, upholding our promise to our shareholders. The final slide for today, the key takeaway is on Slide 15. Notwithstanding the challenges brought about by the pandemic, we believe that the digital adoption by individuals, homes, businesses and the government will continue to play a vital role in the economic recovery and growth of the country in years to come. The Board and management at TM are committed to enable a more digital Malaysia, serving the digital connectivity and solution needs of the various customer segments we serve today, homes, businesses, public sector customers, telcos and other licenses through our TM WHOLESALE. We remain steadfast in our efforts to realize the national digital aspiration, MyDIGITAL, and as a significant contributor to JENDELA, the national fiberization implementation plan, TM, we believe, is in a prime position to support Malaysia's digital aspirations. We have announced our new TM transformation programs earlier, and we are confident based on the current performance momentum that we are on track to achieve the 2021 market guidance that we had announced and shared in February. We also believe that 2020 will be a new dawn for TM as we move forward with greater purpose and execution focus to reach further for our customers and all of our valued stakeholders. And with that, I thank you for your attention, and let's move on to the Q&A session.