True Corporation Public Company Limited (TRUE) Earnings Call Transcript & Summary

Good afternoon and welcome to True analyst conference for the third quarter result of 2020. Together with me today, Khun Vichaow Rakphongphairoj, Executive Vice Chairman of Executive Committee; and Khun Anat Mekpaiboonvatana, Co-President. I myself, Yupa Leewongcharoen, Group CFO. Let's start with the presentation.

Good afternoon and welcome to True analyst conference for the third quarter results of 2020. Let's start with the highlights. True Group has grown EBITDA consecutively and maintained both top line and cost discipline despite a prolonged economic and COVID-19 impact, pressuring consumer spending and behavior in the third quarter. As our cost structure remains high compared to peers, we still have room to improve and are implementing various initiatives to grow margin and bottom line further. TrueMove H continue to grow its postpaid base while driving postpaid revenue up in double-digit rate year-on-year, and the recent commercial 5G launch should further push this positive trend. TrueOnline delivered another solid quarter for both acquisition and revenue growth, while TrueVisions show a pickup in core subscription revenue and premium base. True Digital Group continued to gain traction and expand its ecosystem, which boosted digital content subscription and advertising revenues up nicely. As Thailand is rapidly progressing toward full digital adoption, true Group is at prime position to reap the benefit from this new S curve and utilize more digital sales and services to further increase our competitive strengths and profitability. Now moving on to the financial performance. Consolidated service revenue was flat in Q3, with prolonged impact from weaker economy and COVID-19, lowering overall domestic spending and tourist arrivals. Excluding event-based and noncore business, core service revenue increased 3% year-on-year, driven by both mobile and broadband Internet growth. Core operating expenses continue declining trend for the third consecutive quarter, although certain activities resumed after the lockdown policy was lifted. At the same time, we placed importance on quality acquisition, with low subsidization resulting in net product loss dropping by more than half. This drove EBITDA up 19% year-on-year and 2% quarter-on-quarter to THB 9.4 billion pre-TFRS 16 and THB 13.4 billion post-TFRS 16. We have put tremendous efforts and laid out major initiatives to revive to new cost structure that aligns with digital transformation, while enabling us to better fulfill consumers' needs with greater productivity. We expect these measures to bear fruit and significantly improve our margin and bottom line performance in the near future. For the cellular segment, TrueMove H continued to grow its postpaid base, with industry highest postpaid net adds of 269,000 in Q3, driving postpaid revenue up 13% year-on-year. Its postpaid revenue contribution increased from 56% to 61% of the sales gross service revenue in Q3 of this year. And we expect this upward trend to continue. The slow economy recovery and prolonged COVID-19 impact, however, resulted in consumers becoming more prudent in spending, especially in the price-sensitive prepaid segment and loss of tourist arrivals. This caused lower prepaid and international roaming revenues as well as subscriber loss, the same trend as the overall industry. The recent commercial launch of 5G with higher price point compared to 4G will help drive our premium base further, continuing from our positive postpaid ARPU development this year. Our comprehensive digital content, privileges and platform are key differentiators to attract more customers to join True family. Our 5G network is ready in key areas of all 77 provinces, and we should get continued windfall of premium customers. For the broadband internet segment, TrueOnline delivered another solid quarter, where revenue increased 2.7% year-on-year and 2.3% quarter-on-quarter to THB 6.8 billion, thanks to continued demand for home broadband connectivity. Our ongoing focus on enhancing consumer experiences resulted in strong subscriber gain of 111,000, expanding total broadband customer base to 4.1 million. Providing value-driven products and innovation has been key strategy for TrueOnline. In addition to 1 gigabit per second Internet speeds and matched WiFi, the TigerTec modem is equipped with band-steering technology that combines all WiFi frequency bands and chooses the best signal automatically. This together with bundled offerings with multiple products and privileges of True Group to continue to drive growth under this new normal. Next is our digital-related businesses or the new S-curve. True Digital Group continue to expand scale in both consumer and enterprise segments, driving revenue up in double-digit rates, particularly digital content subscription and advertising revenues. On the consumer side, TrueID reached the new high of content transaction of 311,000 transactions and 240 million monthly video viewers. The English Premier League remains one of the platform's key attractors, selling 3x higher pre-sale season passes than last year, at the same time nearly 1.8 million TrueID TV boxes at customers' premises. This widens cross-selling potential for subscribing additional products of True Group as well as increasing customer engagements along with privileges campaigns under TrueYou. On the enterprise segment, True Digital Solutions keep expanding and further introduced smart leading solutions such as home center application, home IoT sensors and other home care devices to accelerate growth in this segment. Currently, digital businesses account for less than 5% of our revenue profile, and we expect their contribution to increase to over 10% in the next few years, given progress we have achieved towards digitalization for both consumers and enterprises. This concludes today's presentation. Now let's go to Q&A.

Sorry, let's start with the first question on TrueMove H. The latest economic data show a decent recovery in private consumption and likely to recover further in the fourth quarter 2020. However, True mobile revenue including [ IR ] are lower 1% Q-on-Q, similar to your competitor although in the lesser magnitude. What actually happened in third quarter 2020 for your mobile business as well as the industry? Will this negative -- can be continuing in the fourth quarter? If you think not, what will be the factor to reverse the trend from third quarter? May I ask Khun Anat to address this question?

Okay. Thank you, Yupa. [Foreign Language]

Let me help Khun Anat to translate is that it's primarily because of the economy in general. Consumer spending is weakened, particularly in the mass market. But related to the prepaid markets, the purchasing powers, as you know, also dropped significantly. So it reflects not just in our case, but in the industry in general.

[Foreign Language]

On the contrary, the postpaid portion actually performed very well. If you look at the combined growth in the Q3, we actually have almost 3 -- we have 269,000, subscriber growth in the postpaid area, which translates into about a 13% growth overall.

[Foreign Language]

As for Q4, the outlook is actually brighter. As economies start to recover, the prepaid area will improve as well. On the postpaid area as I mentioned on earlier quarters, with tools, strategy of synergized with CP Group's sister companies, we can leverage all those channels to further grow postpaid.

Let's move on. Next question. Setting aside 5G 700 megahertz, what will be your 5G 2600 megahertz population coverage target for the end of 2020 and 2021? And how many 5G customer do you expect to have by the end of 2020 and 2021? How much 5G ARPU do you expect to be higher than your existing ARPU?

Before I answer that question, I'd like to share with you the general background information first. The licensing requirement for 5G is actually not very strict in terms of public and coverage. It basically just like key areas and then on the industrial estates in EEC. However, we are expanding our network, not just simply invest for no good reason. We focus on invest this year, in high-density subscriber areas. So by the end of this year, I would suspect that we probably get to 20 plus/minus percentage in terms of coverage. The 700, as you know, has not come into play yet. Because the 700, the refarming and the licensing will be granted early next year. In terms of 5G subscribers, as of today we can -- we already see that there are tens of thousands of 5G handsets available in our network already. So by the end of the year, it's likely that we might go through [ 100-day ] range plus maintenance. And in terms of the 5G ARPU, if you look at our current offerings in the market, we are offering 5G ARPU ranging from THB 700 to THB 1,200. Comparing the brand ARPU for postpaid about THB 400, THB 500, so these are substantial premium. So the upside is tremendous.

Next question, please. Next is on the iPhones. How much is the iPhone customer as the percentage of total customer in your system at this point?

Since quite many years ago, we were the first mover in terms of embracing Apple iPhones, so our position in terms of iPhone percentage is actually higher than the industry norm. I don't -- I believe that Apple has very strict requirements in our contract to disclose information, unless we got their prior approval. But it's suffice to say that our iPhone customer is higher than the industry norm.

Next, please. If I were dtac's customers buying 5G device and looking for 5G operators [ either Edwards ] or True, what will be the single most prominent factor to attract me to [ part fund with the dtac group ] to True's 5G network instead of advanced 5G network?

First of all, we believe our 5G network is equal, if not better, than our competitor's 5G network in that scenario. However, the ones that we definitely is on our game is there were a digital ecosystem. We've been pushing on the new S-curve on the digital offerings for quite a while. And we've built that ecosystem for quite a while, so that is definitely our strength. Meanwhile, as you know, that 5G is basically vertical industry based. And with that in mind, it is the vertical industry solutions, whoever can provide more and whatever industry has the intention to help embrace the new technology will gain. So in both areas on the digital ecosystem and on the vertical industry solutions, we believe that we are very competitive in those areas.

Next question, please. Previous page. Next question is also for Khun Vichaow as well. Between dtac having 5G 2600 -- sorry, 2300 megahertz and not having 5G 2300 megahertz, what will be different in 5G competitive intensity and your 5G customer target?

I think it's probably not going to make much difference. 5G is 5G, but the key point is absolute customer user experience. With our 5G network, we believe we can provide the kind of 5G experience which is a competitive advantage.

And this is still on dtac's network. dtac 4G network will be stronger in 2021 from the activation of 700 megahertz and 900 megahertz spectrum. Will these factors intensify the 4G price competition next year, in your opinion? And what will be your strategy to maintain your mobile revenue growth momentum under the circumstance?

I just want to point out that dtac's 700 and 900 meg frequencies are basically replacement frequencies for the entry team. dtac has a rather extensive 850 base network, and they have to roll out a brand-new 700 and 900 network. So I don't believe it's actually an advantage. It's actually a disadvantage. It is such that it depends on how dtac can fast roll out those 2 to be equal to the existing [ effective ] network. So in that scenario, I don't believe that they're going to make any difference in terms of price competition. And then -- and also the industry is also very keen. As the only 3 competitors, the PO price competition alone may not be beneficial for all 3 operators.

Next one is what can be your revenue visibility from the government and enterprise [ assessment ] from 5G Internet 1 to 3 years in terms of percentage of your mobile revenue? And what will be the most popular application in both segments?

I am unable to answer very specifics, but I just want to share with you that as you know that 5G is -- the industry believes that is for the enterprise and the government segment, essentially not for the consumer segment. Obviously, at this moment, with the mass increase of bandwidth, it benefits the consumer segment quite a bit, but the overall picture is for the enterprise government segments. When 5G and, particularly, IoT, come to maturity in terms of mobile penetration, today for example in Thailand, we probably have about 140% mobile penetration plus/minus. When IoT come to fruition and become mature, the mobile penetration can easily go up to 200%, 400% or even 1,000%. It all depends on the vertical industry applications that come into the marketplace. And when would that happen? It's actually not very predictable. But with China as an example, the expectation can be very fast. So when that time comes, I believe that it will be within 1 to 3 years, when that time comes. Imagine that if the market go from 140% mobile penetration to 400 market penetration, the upside is tremendous.

Next question is, I have never heard your strategy about the fixed wireless access using 4G or 5G. What are the reasons, more technical and commercial issues behind that? May I ask Khun Vichaow to address this.

I think for FWA or fixed wireless access, it makes sense for operators which do not have an extensive fixed wireline network. True is the market leader in fixed broadband, and our fiber coverage is very extensive. So it provides a much better service and using a very expensive frequency band on the mobile side. For operators who has no fixed network, obviously there's the option for them to consider. However, at this very moment, the customer premise equipment or CPEs are relatively expensive on the 2600 band, which is quite expensive. On the 26-gig band, it's not existent yet. So we are closely watching the development with these market development and technology development. But at this very moment, there is not really a very compelling commercial reason to proceed in the large scale deployment.