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 Third Quarter 2021 TM Group Analyst Briefing. [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 evening to everyone. Welcome to TM's 2021 third quarter results briefing, and thank you all for attending this session. I trust everyone is keeping well as Malaysia moves into the recovery phase of the pandemic, with the economy opening up. That said, let's continue to be vigilant in adhering to the said SOPs. I'll start the session today with a brief update of the quarter and our current 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 the Q&A session. I'd like to start the session with some updates on TM since our last briefing. In August 2021, TM had pointed Tan Sri Azlan Hashim as our new Chairman. He brings on board really a wealth of corporate and [indiscernible] experience. And the Board and management remain committed to serve all of our customer segments across homes, businesses, public sector as well as the industry with digital connectivity and solutions towards a more digial Malaysia. TM, we have contributed significantly to [indiscernible], the national [ authorization ] program, and will continue to support the technology thrust in the 12 Malaysia plan, Including MyDIGITAL and the recently announced 2022 budget. During the quarter, we have entered into several collaborations with nation enterprises, including CyberSecurity Malaysia [indiscernible] and Astro at -- from wholesale, in this expanding Malaysia and digital ecosystem. In addition, we've also partnered with international players, including SAP and Tata to improve the offerings of TM ONE and TM WHOLESALE. For our unifi customers, we provided the Tokyo Olympics on our unifi TV, and we've also introduced 12 new channels alongside the 7 new streaming applications which will provide more options to our discerning viewers. All in, our focus on all 3 business units in TM will strengthen our position as the digital enabler for all Malaysians. During this quarter, we are also proud to receive several accolades. TM WHOLESALE was recently awarded the best Asia Pacific Zero Outage Supplier by T-Systems, the renowned subsidiary of Deutsche Telecom. Particularly on it, with the [ war ] considering the intense competition from other established telcos in the region. TM R&D, research and development, our innovation hub, recently bagged the [indiscernible] Most Innovative Digital Infrastructure Service Provider in Malaysia. Our solution that we developed in-house called CAMELIA from the U.K.-based GLobal Business Outlook Awards. These distinctions are really a testament to our commitment to innovate and continuously improve in delivering high-quality experience for our customers. We've also fully backed the national COVID-19 vaccination program. We're proud that they are connected and provided internet access to more than 400 vaccination centers nationwide. Our Multimedia University campus in Cyberjaya and Melaka also became a vaccination center for the local community. Our foundation arm, Yayasan TM was also active in supporting humanitarian efforts during these trying times, including the [indiscernible] device contribution, an initiative to [ install ] more [ long ] food banks under the Malaysia [indiscernible] program. I will now provide some overview of our performance in the third quarter 2021. Headwinds from the lockdown has persisted throughout the quarter, but we are happy to report that the positive momentum beginning from the start of the year has endured. This is a direct result from our value programs that we've initiated throughout the company, which continue to reap -- yield favorable results. We recorded a solid year-to-date performance in terms of revenue growth, driven primarily by unifi and TM WHOLESALE. And couple this with the continued cost efficiency and improvement, this resulted in our year-to-date profitability to maintain its positive trajectory. unifi continues to break records as third quarter 2021 recorded the highest number of customer net adds. As such, this will be the third consecutive quarter of record-breaking net adds for unifi. The continued and increasing bandwidth and data demand from Malaysia and international telcos, including hyper scalers, contributed positively to TM WHOLESALE's performance. We expect the demand to continue with the further rollout of [indiscernible] as well as the higher bandwidth demand driven by video as well as games content. However, TM ONE was adversely impacted from the movement restriction, as you could imagine, with delays to customer projects and drop in voice revenue. These challenges are seen in both the corporate as well as government segment. The [indiscernible] solution by new contracts as well as renewal of contracts from the data services. We continue to optimize and modernize our network and IT platforms. Total CapEx investment for year-to-date third quarter was at MYR 959 million or 11.5% of revenue. On a committed spending basis, it is higher at 16.2%, which is well within our guidance. And TM has evolved from a fixed telco company in the past to becoming convergence provider with fixed mobile cloud. And now TM, we are in the midst of our next evolution and to a human-centric technology company. As TM moves beyond this connectivity, convergence, to various innovative digital solutions and applications, we clearly aim to unlock the value of technology to make customers' lives, workplace and businesses better and realize the aspiration of digital nation. I will now have Razidan to take us through our financial and operational details, but I will be back to provide some color on our 2021 guidance and to conclude the presentation.

Thank you, Imri. I will now cover the other key items for year-to-date September 2021 as compared against year-to-date September 2020. On the revenue, we recorded an increase of 6.8% at MYR 8.4 billion against MYR 7.8 billion compared to the same period last year. And this was mainly driven by revenue growth from all product lines in comparison with year-to-date September last year. This has continued to boost our profitability from the previous year. And our reported EBITDA improved by 9.6% from MYR 2.9 billion in September 2020 to MYR 3.2 billion in the current year-to-date quarter. Despite the increasing total costs, including depreciation and amortization, you'll notice that our year-to-date reported EBIT is now moving closer to our guidance at MYR 1.4 billion, which represents a 17.1% jump from MYR 1.2 billion recorded in the same period last year. Excluding the forex movement, our net finance cost expanded by 10.6% from the previous year, and this was due to the early redemption premium from the IMTN that we bought back in 2021. Taking into account all the above, our reported PATAMI in year-to-date September 2021 increased by 7.7% at MYR 115 million from MYR 756 million in 2020. We also like to note that our quarterly performance has been encouraging for all line items, and we are determined to further intensify our efforts to improve the business and serving the customers. I will now take you through our revenue breakdown. As mentioned earlier, from a product perspective, we see encouraging growth in all our product lines on a year-to-date basis. Voice revenue has increased by 1.5%, and this is mainly driven by the higher contribution from unifi and interconnect revenue. Internet was higher by 6.8%, and this is in line with the higher cumulative unifi subscriber. Data 10% -- 10.2% revenue growth in year-to-date September 2021. And this was largely due to the IRU deal from the OTTs that we did in -- especially in the first quarter and domestic data revenue mainly from HSBA. Other revenue also saw an improvement by 9% from the same period last year, and this is attributable to the higher device revenue at unifi, higher customer projects at TM ONE, higher colo revenue and content delivery or CDN revenue at TM WHOLESALE. Now let's move on to the year-to-date performance by our lines of business. For unifi, the overall revenue was higher by 9.6%, and this is driven by the record-breaking cumulative unifi subscribers. However, TM ONE has recorded a relatively flat performance of negative 0.2% from the same period last year. And this was largely due to the lower voice and Internet revenue correlating with more people working from home and delays in project rollout. We have [ done ] in the performance as we are progressively arresting the decline of COVID in previous years. Nevertheless, the TM WHOLESALE revenue has grown by 13.5% and this is higher because of the IRU deal through the OTTs, as I mentioned, and also the domestic data revenue, mainly from HSBA. For others, we saw a slight revenue contraction of 2.2% in revenue by year-to-date, and this is mainly due to the lower revenue at MMU and Menara KL, both [ barely ] impacted by the movement of order in 2021. Now let's move on to our physical performance side. As mentioned earlier, we are very happy to again break our record for unifi which you see in quarter 3 2021, recorded the highest quarterly net add, resulting in a highest number of unifi fixed broadband customer base recorded to date. Our unifi customers now stand at 2.3 million, which is 42.4% growth from quarter 3 2020 and 9.7% increase from last quarter. With this, our total fixed broadband customers is now north of 2.6 million customers. This record-breaking growth is fueled by high demand for connectivity and digitalization tools, which have become an important necessity into the current conditions. To deliver this demand, TM has been adding a higher number of broadband pulp and also delivering a wider fiber network coverage. And this expansion has exceeded TM's committed target in the JENDELA action plan. The fast network rollout together with very strong frontline support, steady marketing push and [ freebie ] installation has cemented customers' confidence and trust. I will now elaborate on our operating costs, which is shown on Slide #11. For September 2021, the year-to-date total profit slightly increased by 5.4% from MYR 6.72 billion to MYR 7.08 billion. Nevertheless, the cost efficiency, measured by the percentage of total cost to revenue, has improved from 85.7% year-to-date 2020 to 84.5% in the current year. Let's now just go through each line item. Starting with direct costs, on the year-to-date basis, it was higher in 2021. And this is due to mainly higher customer installation and acquisition costs, increase in dealers and sales commissions, [indiscernible] which have been through the highest subscriber growth. And the third point is on higher customer projects that are on direct costs, mainly at TM ONE. And the increase in direct costs was anticipated, and this is in line with the revenue and customer growth during the period. Moving on to manpower costs. You see that the cost has also increased year-to-date, and this is mainly due to 2 items: one, with the higher manpower optimization cost, our [ separation ] costs and also the higher staff benefits. Nevertheless, other OpEx has recorded an improvement on a year-to-date basis, mainly due to the lower general overheads like utilities, reduction from electricity costs, lower traveling expenses due to the MCO, and also reduction in network and system maintenance costs from various cost savings initiatives. Depreciation and amortization slightly rose by 4.3% from year-to-date September 2021 at MYR 1.77 billion, and this is due to the higher amortization of intagible assets in the current period. Moving on to the group CapEx slide. Our capital expenditure for year-to-date September 2021 was at 11.5% of revenue or MYR 959 million. And out of the amount spent, 64% was for access, 15% was made for core network, and the balance, 18%, was made for support systems. And as mentioned earlier by Imri, on the committed basis, the year-to-date September 2021 CapEx on revenue ratio was higher at 16% -- 16.2%, which is well within our guidance. And we are expecting CapEx to accelerate over the balance of the year with easing of the movement restrictions and as we move towards the end of the year. Moving on to the next slide on group cash flow and financial ratios. Our cash and balances were lower at MYR 1.7 billion. This was mainly due to the repayment of the IMTN and sukuk, and the increased CapEx in September -- year-to-date September 2021. Nevertheless, our free cash flow is higher as at September 2021 due to the higher EBITDA, which has contributed to the increase of receipts from customers in the quarter. And as shown, our group ratio has also improved from 2020, indicating healthy returns and solid financial standing for further growth. We would also like to note that unifi has managed to reduce their ARV by [ 8 days ] in comparison to the previous year. That's all for the financial and operating highlights. I'd like to hand over to -- pass it back to Imri. Over to you, Imri.

Thank you, Razidan. As we move to the closing stages of 2021 and take into account the current trajectory of our business performance, we would like to take this opportunity to update our 2021 guidance. Based on our current momentum, we are projecting higher revenue growth and higher EBIT levels for 2021. We are guiding our revenue growth from flat to low single-digit growth to low to mid-single-digit growth. And our EBIT from more than MYR 1.6 billion to a range of between MYR 1.7 billion to MYR 1.8 billion for 2021. On CapEx, we are standing by our early guidance and expect investment to still be at 14% to 18% of revenue. This revision is like the success and confidence in the ongoing value program and transformation initiatives at TM as we continue to strive forward capturing the market opportunities amidst the challenges ahead. And next, I'd just like to quickly cover on ESG. We do acknowledge the importance of sustainability as being part of TM's DNA moving forward. Whilst the development of our ESG blueprint is still ongoing, we are continuing it various programs to reduce our energy consumption through retirement of legacy [ network ] equipment and implementing efficient green system at selected [indiscernible]. On the social front, we strive to bridge the connectivity divide towards greater digital inclusivity. Operationally, we will ensure our workforce is also fully vaccinated to provide a safe environment for our customers during our interactions. And uncompromising integrity has been at the heart TM's values. We continuously remind all of our employees as well as all of our suppliers to uphold such integrity values. Corruption risks are religiously assessed and our corruption mitigation practices are independently certified to ensure our standards remain high, coupled with the [ floor ] that's been set from the Board's side as well as management. We are consistently improving our assets towards sustainable [indiscernible] while at the same time upholding our commitment to our shareholders. And the final slide for today, the key takeaways, yes, on Slide 17. We are beginning to see signs of recovery from COVID-19 now in -- pandemic in the country as well as for the region. TM will continue to lend our full support on all recovery efforts, and we remain optimistic can sustain the current improvement as we move closer towards [indiscernible]. The endemic has clearly brought changes in consumer behavior and the requirements of the more digital lifestyle, which is now more prominent. Usage of data during the period has increased by 60% to 470 GB from 205 GB pre-COVID. And we have adapted to meet those escalating demand for internet and data of our customers. We also [indiscernible] and support the nation-building is currently underway, including JENDELA, MyDIGITAL, the [indiscernible] Malaysia plan as well as the 2022 budget. So we further enhanced the digitalization of Malaysia, and we are ready to capture the rising demand and opportunities. The 5G rollout that has commenced under -- sorry, excuse me. Yes. The 5G rollout that has commenced under a single wholesale network model is also expected to change Malaysia's telecommunications industry. At TM, we shall continue to assess and review the impact of this on our future business operations and our financial performance. We process, including the 640,000 kilometers of fiber cables, the 200,000-square feet of data center space are timing way to serve all of our customers whether it's a retail enterprise with public sector as well as a [ social front ]. We remain steadfast and we'll leverage our comprehensive connectivity, digital infrastructure and other solutions to support the nation's digital aspirations. As we move from convergence into more innovative digital solutions and applications, we want to be more than what we are now. And our next evolution has become that human-centered technology company. We shall share more details on this in the near future. And with that, I thank you for your attention, and we shall now move on to the Q&A session.