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

Good evening, and welcome to True Analyst Conference for the fourth quarter and full year results of 2020. I'm Yupa Leewongcharoen, Group CFO. Before I start the presentation, let me introduce the new 3 Co-Presidents, which actually are not new to True. On my far left, Khun Natwut Amornvivat, who has a long history and expertise in technology, has been President of True Digital Group and now become one of our Co-President, overseeing our digital-related business and corporate customer management; Dr. Teeradet Dumrongbhalasitr, previously, the Head of our Retail Business and Operation, who is now helping us leaping forward with AI-driven business and analytic management, along with our commercial business, including retail, e-commerce and customer relationship management. And last but not least, Khun Anat -- sorry, Khun Manat Manavutiveth, who has been with True for over 20 years, covering commercial part of all our Core Telco segment. He is now taking a leading role in core telecommunication and media business, operational network and regional management. Let's start with the highlight. True Group has consistently grown EBITDA in double-digit rate year-on-year during 2020, despite impact for economy and COVID-19, driven by continued revenue growth for both core telecommunication service and digital arm. Our effort on improving cost structure has shown positive results. Yet, we still have room for improvement, and we'll do a lot more this year to grow margin and bottom line sustainably. TrueMove H remain the only industry player with revenue growth, particularly in postpaid market. Our 5G services on 2,600 and 700 megahertz has received positive market response and will drive our continued growth in both consumer and enterprise segment this year. TrueOnline sustained broadband leadership in both revenue and subscriber acquisition as its value-driven offering and TrueID bundle gained traction riding on new normal momentum. TrueVisions was pressured by COVID-19 impact and consumer spending and client in hotel segment, but saw revenue picking up Q-on-Q in Q4. The progress towards online and rising contribution from the group influencer network will mitigate impact from consumer behavioral change. True Digital Group has differentiated and solidified the group competitive strength with its expanding scale and partnership. We are confident this new S-curve business will amplify our growth prospects going forward. Now moving on to the financial performance in 2020. Core service revenue exclude event based and noncore business such as outsourcing call center, which was sold in late 2019, grew 3% year-on-year as mobile and broadband Internet outgrow the industry, while revenue from digital platform and services continue to grow in double-digit rates. This growth consolidated service revenue and total revenue to more than THB 107 billion and THB 138 billion, respectively, despite COVID-19 and economic impact, as mentioned. Expenses above EBITDA declined as savings from cost optimization program outpaced higher network-related costs. This drove EBITDA up 18% year-on-year to THB 37.2 billion per TFRS 16 and THB 52.7 billion post TFRS 16. Net profit was THB 1.8 billion pre TFRS 16 and THB 1 billion post TFRS 16. We have identified major cost initiatives and are aggressively implementing them along with digital transformation throughout the organization through improved bottom line performance while better fulfilling customer need and experience. For a quick snapshot of Q4 performance, service revenue increased 1.4% year-on-year and 4.2% Q-on-Q, capitalizing on new normal with strong demand for broadband connectivity as well as digital offering and solutions. Expenses above EBITDA picked up Q-on-Q, along with higher content costs as live sports match resume, but 9% lower year -- than the year earlier due to cost controls. EBITDA continued to grow to THB 10 billion per TFRS 16 and THB 14 billion post TFRS 16. Core performance improved in fourth quarter, both bottom line square -- with bottom line square, excluding the TFRS 16 impact, and we are confident to achieve profitable growth this year onwards.

Let's take a look at the cellular segment. The TrueMove H still maintained the top line in the fourth quarter compared to a drop of the other operators. Its service revenue grew by 3% year-on-year in 2020, contrasting with the 6% contractions of the industry, excluding TrueMove H. The solid performance was driven by the continued strong growth in the postpaid segment, with the increasing revenue contribution to 59% of the cellular service revenue in 2020 and 62% in quarter 4. We expect this positive trend to continue growing along with the effort to upgrade prepaid to postpaid platform. On the prepaid market and international roaming, we're still under pressure by weakening of the consumer spending, competition and loss of travelers, the same trend as the other industry. On TrueMove H postpaid acquisition was strong throughout the year and outgrow the industry with 1.4 million net subscriber added into 2020, while prepaid market was affected by COVID-19 impact, as mentioned, result in the negative prepaid adds by approximately the same amount. The loss was still a lot lower than other industry players. We saw an improvement in second half of the year, especially with the Q4 reversing back to positive net adds. And activities resume after the lockdown peaked. In addition to our channel synergy with partners, we have been sharing traffic and adding convenience to consumers through an online and also self-service channels, which also help us reach customers in a more effective manner. TrueMove H, solid track record of revenue growth at the market gained especially when the technology change. We believe this positive trend will continue in this 5G and fulfillment era as our comprehensive digital ecosystem and strong partners give us significant competitive advantage. Since last year, we have expanded our 5G footprint in the key areas of our 77 provinces, particularly in the Bangkok and metropolitan areas, which already covered 98% of the population, combined the strength of the low bands in terms of the coverage and building penetration and mid-band in terms of speed, capacity, enable us to provide consumers with a superior 5G experiences with a peak throughput of 2 gigabyte per second, clearly far superior than offering on the single band alone. While 5G potential remains small on the vertical businesses, it also gives us an upside in the consumer segment to further gain more market shares and high-value users, especially from the operator within the superior 5G. We have seen the good 5G acquisitions on our network, adding more than 100,000 5G active users a month, and we expect to see this run rate to continue. Focusing on this collaboration, we have seen the collaboration with strong partners to provide the best 5G experiences to consumer. Our strategic partner, China Mobile, for example, helped us a lot in terms of the 5G knowledge and also experience. We also provide various exclusive XR and AR content on our platform as well as working with the partner on creating and sharing 5G compatible content, of which TrueID, you can enjoy this 5G experiences. At the same time, we extend our partnership with both government and also business sectors in developing 5G, cloud-based and also digital solutions. Our 5G robotics and solutions have continued to serve our partners in health care and retail, energy and most importantly, our government sectors. We hope to see a significant contribution from these offerings and also solutions continue into the future as well. Let's focus on the TrueOnline. For the broadband Internet segment, TrueOnline continue to record solid net adds of 90,000 in quarter 4 and 390,000 in 2020, boosting in total subscriber base to 4.2 million. TrueOnline broadband revenue grew well at 3.4% quarter-on-quarter and 5.5% year-on-year in the fourth quarter, driving full broadband revenue grew up by 4.6% to THB 27.1 billion. That's by competition and also discount being offered in the market. In the high-quality fiber network and service as well as value offering, with innovative devices and TrueID TV bundle match the consumer needs, well positioned through online to further capture growth under a new normal, especially through working, learning and also entertainment at home.

For our digital business, TDG or True Digital Groups continues to gain scale and enhance True Group's competitive edge and ecosystem with its quality platform services. Total video views on TrueID grew to 2.2 billion views in 2020, 3x higher than last year, driven by 256 million monthly average views in Q4, along with popularity of animation content. TrueID TV expanded further, with over 2.1 million TrueID TV boxes at customer premises. With EPL or English Premier League exclusive license, TrueID content transaction saw significant growth at 400,000 transactions in Q4, representing 29% growth Q-on-Q. The in-app communicator services for chats and calls grew its users by more than 4x to 1.1 million users since its launch. Meanwhile, True Digital Group introduced a new community-based called Online Station. The largest online gaming community and influencers network to boost up engagement and generate social media impact to the platform. Online Station has received more than 180 million page views and social media has reached across all platforms, of which 33 million views were on its original content. For the enterprise segment, True Digital Solutions continue to expand its client base and partnerships on various smart solutions, including the digital guest solutions that offer online-to-offline enterprise and residential service solution. We also added new life insurance clients for -- such as AIA and provide analytic solutions based on real-time behavior and location triggers to support their customer acquisition. Meanwhile, the digital solutions unit has connected over 380,000 IoT endpoints and devices, which is the increase of 60% year-on-year. We have seen progressive trend of digital adoption in both consumer and enterprise segments and expect accelerating growth of our digital business going forward.

As for the guidance this year, we believe the COVID-19 impact was already reflect in last year number and expect our consolidated service revenue to grow at a mid- single-digit rate. 5G to help add high-value subscriber base and mobile revenue growth, while emergence of new normal lifestyle view elevate digital adoption and demand for our broadband Internet as well as digital platform, cloud, IoT and digital solutions. This together with cost-saving initiative, which we basically look into every cost category to revise to the new cost structure, should help us achieve profitable growth with positive core earnings and net profit this year. The accrual CapEx was already peak and will continue to decline even with 5G as its investment will be in strategic and specific area with significant demand. This concludes today's presentation. We will now open the floor for questions.

The first question is that. Under TrueOnline service revenue, the other revenue grew by 14% year-on-year to THB 3.2 billion in Q4 2020. Could you please explain about this item, growth driver and this year outlook? I would address these questions. The significant growth in the TrueOnline service revenue, this item, is concerning the onetime contractual service, which have associated costs, meaning that we have revenue growth, we have costs associated to it as well. And the margin of this business is at a single-digit rate margin. So when you consider next year growth or growth prospect of TrueOnline, you may take this as onetime item, both revenue and cost and with single-digit margin for this onetime revenue. Second question is your Q4 '20 fixed broadband ARPU held up nicely at only 0-point -- minus 0.2% Q-on-Q to THB 533. I understand that your competitor aim to grow its subscriber market share more aggressively. What is your thought about the competition in the FBB space in 2021 versus 2020? May Khun Anat -- Khun Manat help answer this question?

Okay. Good afternoon, the investors. As we already know and aware in the market that the fixed broadband Internet competition is pretty high. And we're aware on that, and we aim to capture this growth market as well and also turn this one to be -- to make the cross-sell to our product to make it monetize our fiber footprint. We don't expect the competition to be more intense than what it is right now. This year, we expect the operator to push more value-added benefit to the customer as key attraction rather than cutting the price. We generally avoid discount and focus more on offering value-added products and our innovative devices such as the Gigatex fiber router, the Mesh WiFi, to improve the coverage and quality in the house, [indiscernible] as it stands. And also we would utilize and -- the content and TV bundle offering with TrueID. Okay.

Next question, please. Heard you just launched prepaid wireless broadband with micro pricing strategy. What are you expecting for 2021 to 2022, i.e., subscriber target, revenue target, etc.? Is it possible for True to introduce the real prepaid FBB service in the market? Manat?

Okay. Our prepaid wireless, high-speed service right now is on the trial phase. We -- it will be further expanded to serve demand for this untapped segment. We continue to utilize our asset fiber footprint and the innovation to come up with offering to serve customer in our segment. We see that there are certain customer groups that are willing to use this service and pay-per-use at their convenience for certain periods, say the pay per hour, pay per day, weekly pass. This service can be subscribed easily, on the -- adding more convenience to the customer. We are offering this service commercially in the market and hope to see it bearing fruit and help us penetrate this untapped market, but potentially growth segment. As the service was just launched, it is too premature for -- to pinpoint a target, but we believe that this is contribution and overall broadband revenue to continue to grow in the mid- to high single-digit.

Next question is on TrueVisions. Under the TrueVisions service revenue, the other revenue grew by 16.6% Q-on-Q to THB 1.1 billion in Q4. Could you please explain about this item growth driver and this year outlook? Khun Manat, again?

Okay. The fourth quarter was driven by the advertising and sponsorship revenue, as gradually resumed it. As for TrueVisions, we are happy to see the revenue growth trend in Q4. But our key focus in this year for TrueVisions is on the subscription basis, of which TrueVisions will progress towards more online, together with the TrueID as well as the local and ASEAN offering to match consumers' preference and lifestyle.

Next is on TrueVisions again. Your paid customer continue to come down for many quarters, and your ARPU is also in the same direction. What is your plan to improve the situation in 2021?

Okay. It's me again. Okay. As I mentioned that this year, we're focusing on the core subscription revenues, and we'll be progressing toward online sales and leveraging TrueID with increasing sales and traction as well as repropose our combination toward more local and ASEAN contents. In addition to our key events and sports, we expect this move to grow our subscription revenue both on the TrueVisions and the TrueID, while mitigation impact from ARPU decline as there might be more à la carte customized path to serve rising needs in specific segment that might pressure ARPU uplift opportunity, but generate additional revenue for us. Yes.

Next question, please. Next question is on TrueMove H. How many 5G subscriber do you have? Of your 5G customers, how much did it come from your own customer upgrade? What was the degree of ARPU uplift? May Dr. Teeradet help address this question?

Well, for this question, we have about 250,000 5G active users on our network, and we can see this progressing to run and grow so far. And we also have added about 100,000 of the 5G user a month. And out of this, about 2/3 is still our upgrading customer on all the existing customers. If we continue to see this proportion, I think, in the later year, with the new coverage of the 5G network and also the 5G device offering, it will also help us to grow. On the ARPU itself, we have seen about 10% ARPU uplift in comparisons of 4G package. And as the 5G ARPU are more than the THB 600. Then, we can still see a lot more room to uplift the customer, especially on over postpaid ARPU, which are currently about THB 471.

Next question is pretty much the same. How much do you target for 5G subscriber in 2021? What will be the delivery of ARPU uplift?

While we continue seeing about 100,000 customer on this momentum, we believe that we'll be expected to have about 1 million or over 1 million 5G active user by the year-end. And of course, with the experience that we have, 10% to 20% ARPU uplift would be something that we expected.

Thank you, Dr. Teeradet. Next one. How much was your 5G coverage in Q4 2020? And how much will it be in 2021? May Khun Manat help address this question?

Okay. For the coverage, right now, our 5G coverage has 98% BMA -- I mean, sorry, we have the 98% population coverage in BMA and 40% in nationwide. We believe that we have addressed all the -- most of the demand of the 5G in -- nationwide in Thailand. And we believe that our 5G capacity and coverage is sufficient to serve our customers with the high quality of service right now.

Next question, please. This question is for Dr. Teeradet. If I were DTAC customer, what would drive me to go for True 5G service instead of Advanced 5G service?

Very good question, indeed. Our 5G coverage is intense. And I think it's really strong potential area, especially in areas like BMA. And of course, we have coverage. And I think it's more than our peer, although the 5G network of us and their's is pretty much on par. We think -- I think we have a significant advantage, especially around the comprehensive offering on a digital ecosystem, including our TrueID, especially on content, that we have a very good content, a very unique and a very good movie and also music as well. I think we also have a very good TrueYou, engaging with the privilege program, adding more service to other products. We also have other True Groups and also digital services with convenient offering. For example, we have a very good tool called iService or True iService. We also synergy with our strategic partner. We have things like TrueMoney and also strong channel to provide convenience to the consumer, especially through 7-Eleven, Makro and also Lotus. We also have exclusive partner like Com7 and also Banana IT, adding into our retail outlet. So that's why I think we should be able to appeal more customers into our service.

Next question. For mass market, what would be your key proposition to persuade your 4G customer onto your 5G network and agree to pay more in 2021? And Dr. Teeradet?

Well, as we mentioned earlier, of course, we aim to have 5G ARPU higher than THB 600. And of course, the second-tier 5G adopter and mass market will be something that we focus on, especially through an upsells and cross-sells via bundled proposition with our mass-tier 5G devices coming along into later in the year, and perhaps we'll have more products -- device product coming into the market soon. And we have the plan to also push up more 5G topping, especially on the THB 199 for the 5-gigabit offering and also, the THB 399 offering for 15 gigabytes for the customer to experience our high-quality 5G speed. And of course, with that, we're also offering the content through our TrueID, and that would be turned into the right key strategy for the 5G price plan.

Next. What is your revenue market share target for 2021 and 2022?

Well, we have been gaining over 2% share in the year and also in the recent years, and we believe that we will at least maintain this run rate. And considering of this 5G, I think potentially, our distinct advantage in terms of comprehensive core ecosystem and also the channel synergy, as I mentioned earlier, we also hope to gain the higher share.

Next question is on financial statement. From your note to financial statement, your mobile unit was still making loss. When do you expect the net profit breakeven for the mobile unit, what will be key drivers? I would say that if you look at a particular segment in the note to financial statement, that might be misleading because we have a lot of intercompany transaction with -- and synergy among various segments in the group, which will not reflect in those segment reporting. However, that being said, the year-on-year bottom line decline on mobile segment, particularly driven by the amortization of the new spectrum on 5G and also bigger asset paid as we continue to invest in 5G networks. Together with the adoptions of new TFRS 16 that put a burden on the net loss of mobile segment as well. Apart from that, in the year before, we also have gain on asset sale to DIF lifted in mobile segment as well. So those add contribution as to why this year, mobile segment seemed to be in loss more than the year before. However, I would recommend you to look at the group as a whole because for True Group's as we continue to grow revenue and continue to reduce cost and improve productivity, we could be able to sustain our core profit and at the group consolidated level, we will make profit going forward -- sustainable profit going forward. So I would recommend you to look at the True Group consolidated number that would make more sense. Next question. Your competitor is building the enterprise business segment to leverage its 5G network, and it is repairing to partner with many verticals. What is your strategy comparing with your competitor? May Khun Natwut help answer this question?

Okay. Thank you, Yupa. I think as we have presented and communicated prior to this, we continue to partner with various verticals. And I think we look at our partnership and verticals in both ways, right, not just as a corporate customer, but also as a partner who built this 5G experience together. So I would want to maybe talk about maybe 4 examples. One is the media and entertainment. As you -- we have talked about, we have a lot of content business through TrueID and also through TrueVisions. So those media and entertainment content partnership as well as consumer who consume those content in our ecosystem, we will continue to enhance it with 5G experience, for example, AR and VR. So that's one example. Another one is through retail experience. We have retail connections and retail ecosystem that are quite strong. So we want to enhance our retail partnership and retail experience with AR and VR and IoT, for example. And those would be, I think, something quite unique to our group. And I feel that, that will be one of the differentiation point from our competitors. Another one that we have just launched is that we enter into a health-related business, and we continue to provide IoT, for example, some of the solutions that require 5G. For example, we -- one thing that we can disclose already is that we have partnership with Siriraj Hospital, the leading hospital in Thailand, who are showcasing 5G solutions and also edge computing. That allows a lot of new capabilities to happen. For example, hand-free operation using smart devices, smart glasses, where a person on the ambulance can operate and do some patient care by using their 2 hands, but through a smart glass using 5G. So those are the kind of things that's already a reality, and we feel that we have shown a strong strength in order to win that partnership through our Siriraj partnership. And the last one, last but not least, I think agriculture tech, right, AgTech is one thing that is utilizing a lot of drones and a lot of 5G-related solutions. And I think we are quite strong in that. So we will continue to provide solutions on agriculture tech as well. So I believe those 4 examples, should give some pictures of how we're going to differentiate from -- ourselves from pure telecom play competitor. Thank you.

Thank you, Natwut. Next question, please. Please explain your proposal to partner with National Telecom Public Company Limited on 5G. If True can win this project, what will be financial and nonfinancial benefit? As this deal has not yet been finalized and also is subject to the commitments of NT Board, so we cannot share the detail with you at this moment. What we can talk is on general terms that the state enterprise definitely have certain budget throughout. There are 700 megahertz network, which they are likely to let the private operator handle the lower part with the possibility of roaming and sharing resource with the private operator. As for the benefit, it would be in terms of resource or asset sharing, enabling us to have the opportunity to grow on their networks. And we don't have to additionally roll our network by ourselves and vice versa for NT Telecom as well -- for the National Telecom as well. And this is what we can share with you at this moment. So basically, it's in terms of the facility and network sharing. Next question, please. In Q4 '20, you cut cash SG&A expense by 20% year-on-year, but grow service revenue by 1.4% year-on-year. This was much better than your competitor in the same industry. Is it possible for you to cut cash CapEx further but target for service revenue growth in 2021? My answer is yes. As our -- as you may see, our margin is still lower than peers. And we have much more room for improvement. So as mentioned earlier, we will look into every single cost category and lay out various initiatives to further reduce cost. For example, we are improving our cell quality. We also rely more on the digital and online sales channels will help us service customer more efficiently with less spending comparing to the traditional advertising in the past. We also approach and monitor our manpower and save productivity as well. Also the work-from-home policy, enabling us to reduce office rental space, which means we can reduce admin expense further. We also repropose our content aggregation so as to taking into account the viewership and popularity of its content, with the aim to generate return on investment of its particular content. We also adopt and progress toward digitization of our process to help us become more lean and reduce paperwork, also reduce cost. For example, [indiscernible] tax. Those are the highlight of initiatives that we will continue to pursue in 2021 and going forward. Next question, please. Understand that 2021 will be the last year for hefty repayment of vendor financing for 4G network. What is 5G vendor financing term comparing with 4G? Can we expect a huge CapEx reduction in 2022 and 2023? I will say that our vendor financing term is in the range of 5 to 7 year. This is similar to the 4G vendor financing term. And as our accrual CapEx was already peaked in 2020 -- in last year 2020, as mentioned, so this year, cash CapEx is expected to be lower than last year. And we expected the year after, the cash CapEx will continue to decline. Next question, please. Share of results in subsidiary and associate grew 32% Q-on-Q and 14% year-on-year despite the lower DIF unit holding after you selling down unit in Q2 and Q3. What were key growth driver? And are you planning to sell more DIF unit? Or is there any threshold of holding in mind? I would say that -- the last question first. Do you have any plan to sell more DIF unit? I would say that DIF -- holding DIF unit is our definitely strategic investment, and we don't have any plan to sell down the unit at this moment. And as to why the share of results grew nicely in the fourth quarter. This is because of -- normally, the fund will appraised the fair value on an annual basis. And at the end of the year, they reappraised with the fair value, and we booked some gain on those appraisals, that drive the growth in the fourth quarter this year -- sorry, fourth quarter 2020. Yes, that is my answer to this question. Next question is how many 5G stations does True have by the end of Q4 '20? And what is the plan addition for 2021? I think Khun Manat already addressed this question. So next one, of the many 5G use case that True is pursuing, it is getting clear which would be -- would it be, especially in the business use case? May Khun Natwut help address this one?

Yes. I think this one is similar to the previous questions. So yes, we will continue to work with various verticals. And I think we will see a lot more application once the -- each vertical also start seeing the sort of the business use cases that take advantage of 5G. But the example of, as I mentioned earlier, those would be in retail, media, agriculture, health, and others will come as well. Yes. So this is -- we definitely will see the next era of how to use telecom service to support digital solutions for our customer.

Thank you. Next question. What does True see as the positive aspect in the potential cooperation with NT? This -- I think we already answered this question. Next one. What is True position in the upcoming spectrum bidding? We believe our spectrum holding is sufficient and we are not planning to get any more spectrum in the near future. Any other questions. I think there is no further questions. This one, okay. Learnt that True Digital has been expanding into ASEAN market. Could you explain your aspiration, business model and target from this overseas expansion for short-term and long-term? Khun Natwut?

Okay. I think on True on the ASEAN expansion, I think we're looking at, if we can categorize it simply, I think we can talk about 2 things. One is the content or media business, which is basically TrueID, as we talk about here. And we leverage the learning that we had on TrueID, which right now, we have more than 30 million plus MAU in Thailand. We expand this learning and expand this content relationship and content selection that we have to overseas, right? So one thing in summary is TrueID, the content business. Another one is we will leverage IoT solutions, will expand to the relevant countries. So basically, online, off-line, right? Content, TrueID; off-line, like, for example, IoT, Internet of Things for retails, for agriculture tech and others. So that will be the goals that we have for expansion into ASEAN markets. And we'll go into markets where we also have partners and also where we have sort of synergy within our group as well. The next one, digital media platform. Okay. The revenue model. The revenue model right now, mainly, right, what we -- what has been is that we do a lot of advertising revenue. Starting this year, we'll have a subscription. We did have some subscription revenue, which has proven to be quite -- have a good acceptance -- adoption by the market, which is the EPL, right, the English Premier League. But this year, going forward, we also launched a subscription-based content that is not just EPL. So I would say advertising and subscription.

Any more questions? So if no further questions, so this is the end of the fourth quarter and 2020 analyst conference. And thank you for your participation and looking forward to seeing you in a quarter. Thank you.

Thank you.