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 Half 2021 Analyst Briefing Call. [Operator Instructions] I will now hand over this 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] Greetings to everyone. Welcome to TM's 2021 first half results briefing, and thank you all for making time attending the session. So we have seen the pandemic is getting really challenging by the day, and a lot of us have been affected, including us here at TM. Clearly, our hearts go out to all who have been in any way distraught and adversely impacted by COVID-19. Let's together pray and support all our country's efforts, the vaccination efforts that would hopefully see us through this challenging and unprecedented pandemic. At TM, our priority remains the well-being and health of our stakeholders, especially our customers and our people, our team members who continue to serve our home, business, public sector and telco customers, to continue serving them with enhanced SOPs. I will first start with a brief review of the first half 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 our Q&A session. Let's start the first half review on Slide 4. The current nationwide movement control order, MCO, has certainly influenced the business and the operating landscape for TM, but we are delighted with the momentum that the team have shown, especially as we accelerate our transformation program through our various value programs that we've identified across the various value drivers of revenue, of costs, of customer experience as well as the organizational transformation. We're happy to report that we have recorded a solid performance in the first half of the year coming off, as you remember, an exceptional first quarter. We had continued to record a notable improvements in our revenue and profitability against the same period last year. This was driven by higher revenue achieved by all of our product lines, voice, data, Internet and so forth. And also, from the customer segments, this unifi, TM ONE and TM WHOLESALE on a year-to-date basis, comparing against first half of last year, and also with the cost efficiency and the cost improvements that continue to yield results for us. CapEx investment for the first half of 2021 was at MYR 597 million or 10.7% of total operating revenue. Maybe less on the committed investment basis, it is higher at 15.8%, which is well within our guidance of 14% to 18% of revenue. And in the past few months, we managed to cross several milestones for unifi. Q2 2021, for example, recorded the highest unifi net adds for the service. And in May 2021, we achieved an important milestone of crossing the 2 million unifi customer mark. And at end of June, we recorded both the highest number of unifi subscribers. We are primed and eager to move forward from our 2 million unifi customers to reach the next milestone of 3 million unifi customers and bringing faster Internet to many more Malaysians throughout the country. Together with the existing service, the current number of total fixed broadband customers is also the highest recorded by TM to date. This is taking to unifi as well as the whole legacy Internet service. And we do understand this is a huge responsibility, and we are committed to ensure our customers have the best uninterrupted Internet at their homes during these trying times. Notwithstanding the above, our focus on enterprises under TM ONE and WHOLESALE to us, under TM WHOLESALE continue to be solid and remained equal priorities for us at TM as we continue to be the digital enabler to our nation. To demonstrate our commitment to shareholders, we are declaring an interim dividend of 7.0 sen per share with a total payout of approximately MYR 264 million, and this is in line with our dividend policy. And this dividend amount is marginally higher than the interim dividend that we have declared last year. So at this point, I would hand over to Razidan to take you through the financial as well as the operational details. Over to you then.

Thank you, Imri. I will now take you through the key items for first half 2021 as compared to the same period last year. Looking at our operating revenue. Revenue in the first half of 2021, we recorded an increase of 8.2% at MYR 5.6 billion against MYR 5.1 billion in the same period last year. And as mentioned earlier, this was driven by revenue growth from all the business segments in comparison with the first half of 2020. Despite the increase in total costs, our EBIT has increased by 30% from MYR 752.4 million in the first half of 2020 to MYR 977.3 million in the current period. And move on to depreciation and amortization. This slightly rose by 5.3% from first half of 2020 at MYR 1.18 billion, and this was due to the increase in asset impairment and also higher amortization of intangible asset impact in the current period. Excluding the ForEx movement, our net finance costs increased by 30.6% at MYR 234.6 million in the first half of 2021, and this was mainly due to the early redemption premium from the IMTN buyback exercise, which we did last quarter. And taking into account all of the above, our PATAMI for the first half of 2021 soared to -- by 27.3% to MYR 544 million from the MYR 427.2 million in the same period last year. By normalizing the impact of one-off nonoperational items, our normalized PATAMI stood at MYR 586.4 million in the first half of 2021. Let's just move on to the year-to-date performance by our lines of business. For unifi, the overall revenue was higher by 9%, driven by the higher cumulative unifi subscriber base and also IPTV content revenue. And at TM ONE, TM ONE has recorded a 1.8% revenue increase, and this was largely due to the growth of customer projects revenue during the period. At TM WHOLESALE, revenue has grown by about 20.1%, and this was primarily due to the higher IRU sales and also international revenue and also domestic data revenue increase, especially on the HSBA revenue. For others, we saw a slight revenue contraction of about 3.3% year-on-year -- year-to-date. This is mainly due to the lower revenue at MMU and also at Menara KL, both directly impacted by the movement control order for COVID-19. Let's just move on to Slide #9. This is our typical comment. We continue to see encouraging expansion for fixed broadband in the year as our total broadband customers at the second quarter 2020 grew by 14.7% to more than 2.55 million customers from 2.22 million in the same quarter last year. And this very strong growth is contributed by the highest quarterly net additions of our unifi recorded, and the unifi customer base has now increased by 37.9% from 1.55 million in second quarter last year to a record high of 2.13 million in the second quarter this year. And we are quite confident to further grow the subscriber base in support of the JENDELA program and also aspire to further improve the customer journey while fulfilling their needs in the current digital era. I'll now elaborate on our operating costs, which is shown on Slide #10. Even though we look at the year-to-date total cost, this has slightly increased by 4.9% from the MYR 4.44 billion to MYR 4.65 billion. The percentage of total cost to revenue needs to measure the cost efficiency, and this has improved from 86.2% in the first half last year to about 83.5% in the current year. So let's take a look at each of those cost line items. For direct costs on a year-to-date basis, it was higher at first half, and this is mainly due to the high international outpayment, largely corresponding with higher international voice and data revenue for the same comparative period, and it's also attributable to the higher customer installation and acquisition costs. And this is both in line with the new higher new sales during the first half of 2021. The increase in direct costs was anticipated, and this is in line with the revenue growth during the period. If you look at manpower costs, this has also increased in the first half, and this is due to 2 things; one is on the higher manpower optimization costs; and secondly, higher tax benefit, which is now directly linked to the EBIT performance. Nevertheless, other OpEx has recorded encouraging improvement on a year-to-date basis, and this was due mainly to the lower utilities, traveling expenses due to the MCO, decrease in maintenance expenses from various cost-saving initiatives as well as the lower A&P expenses. And as mentioned earlier, looking at the depreciation and amortization, this has slightly risen by 5.3% for the first half 2020 stands there MYR 1.18 billion, and this was due to an increase in asset impairment in the current period and also higher amortization of intangible assets. Moving on to group CapEx. This is shown on Slide 11. Our CapEx for first half 2021 was at 10.7% of revenue or MYR 597 million. And out of this amount spend, 65% was for access, 16% was made for core network, and the balance, 19%, was made for support systems. Our CapEx spending in 2021 is focused primarily on ensuring that business growth. And as mentioned earlier by Imri on the committed level, the first half 2021 CapEx per revenue -- on revenue percentage was higher at 15.8%, which is well within our market guidance. And finally, our cash position. This is shown on Slide #12. If you look at cash and bank balance, this was lower at MYR 1.82 billion, and this was mainly due to the repayment of the early redemption of the IMTN, which we did in the first quarter and also the increase in CapEx for the first half 2021. This was partially offset by higher receipts from customers, resulting in higher cash flow from operating activities and free cash flow for the period. And we continue to strive for enhancing shareholder value more efficiently, evident by the improvement in our return ratios, including the ROIC as well as managing our work in the current period. That's all for the financial and operating highlights. I'd like to hand the session over back to Imri. Over to you, Imri.

Thank you, Razidan. And aside from our financial performance, we acknowledge the importance of sustainability. ESG has been part of our DNA moving forward, and we are progressively seeking to improve on this front. We have initiated various programs to reduce our electrical energy consumption through retirement of our legacy network equipment and implementing an efficient cooling system of our buildings, contribute towards reducing the overall carbon emission to the environment. On the social front, we strive to bridge connectivity to our commitments in JENDELA and also other investments that was shared earlier by Razidan in sharing the CapEx profile and also to provide the best service to customers whilst contributing to a much more seamless customer experience during this challenging period, while at the same time, protecting our people with strict SOPs and the necessary prefers as well as our customers and the mission in support of the planned Pelan Pemulihan Negara, our national recovery plan through the various vaccination centers throughout the country. And uncompromising integrity has been at the heart of TM's values, our crystal values. And we continuously remind all of our employees as well as our suppliers to ensure that the integrity is upheld at all times. Corruption risk continuously assessed and our corruption mitigation practices independently certified to ensure our standards remain high. We are continuously improving our efforts towards creating more value, not just for our shareholders, but to continuously to grow in a sustainable manner. And which brings us to the final slide for today, the key takeaways on Slide 14. See that 2021 will continue to be challenging over the remaining months as the macroeconomic conditions brought about by the pandemic remain challenging. Nevertheless, at TM, we remain positive and optimistic that there is light at the end of the tunnel and should continue to support all the various efforts, the vaccination efforts to improve the current spreading as seen from other countries. Notwithstanding the headwinds that we continue to face, our role remains to continue to serve the nation by meeting the necessary demand for Internet and data to all innovations, at the retail or the enterprise, public sector as well as the wholesale fronts. We remain steadfast that we'll leverage our comprehensive connectivity. That's our core business. And also, the investments remain into the digital infrastructure and other smart solutions to support the nation's digital aspiration, including MyDigital so far. And over the last 6 months, we have seen the various programs that we've set forth as part of our New TM Transformation Programme, making a solid progress. And then based on the current performance momentum, we, the management and the Board of Directors, believe that TM is on track to achieve our 2021 targets and our market guidance. With that, I thank you for your attention for these -- for the briefing. And we shall now move on to the Q&A session.