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

Good afternoon, and welcome to analyst conference for the first quarter of 2022. I'm Yupa Leewongcharoen, Group CFO. And together with me today are our Co-President, Dr. Teeradet; and Khun Manat. Now let's start with the highlights. The first quarter was still a challenge, with a slow macroeconomic recovery given rising of Omicron cases, the Russian-Ukraine war and inflation concern. These continue to affect consumer spending while the market competition remained high in Q1 for both mobile and broadband. However, cost measure help stabilize EBITDA compared to the same period last year. We see good targets from the cost restructuring effort made towards the end of 2021 and expect higher contribution in the coming quarters. On the operational side, we continue to see strong quality subscriber expansion, given our focus on superior network and service, as well as value-driven proposition that match consumers' needs. TrueMove H 5G users continued to grow to 2.6 million while broadband subscriber base increased to 4.7 million. For True Digital Group, TrueID and Digital Solutions unit, once again deliver double-digit revenue growth and [indiscernible] telco products. As we keep expanding ecosystem, strengthening our distinct digital portfolios and utilizing AI to better provide personalized offering to both consumer and enterprise, we are confident to be #1 choice for consumer and put higher growth. Now moving on to the financial performance. Consolidated service revenue softened in the first quarter to THB 25.9 billion, given the macroeconomic pressure, as mentioned earlier, mainly to the mobile business. Tourist arrival were also slower than expected despite the country reopening. Extend above EBITDA continue to be well under control, declined nearly 8% year-on-year and 1% Q-on-Q, while the wide margin maintained in a positive territory. EBITDA was THB 14.1 billion as a result from Q1 of last year, with the margin on service revenue of 54%. Network depreciation, license amortization and unrealized foreign exchange loss, however, pressure bottom line performance for the first quarter. We are putting all efforts to improve productivity and drive innovative offering to create higher scale. At the same time, we have restructured our business to be more lean and adapt well to change in both consumer behavior and market situation. We've not only paved the way for accelerating our quality subscriber growth, but also health in terms of cost savings, more to [ realized ] in the coming quarter. Next, our presidents will touch on performance of our core business starting with Khun Manat on the mobile business performance.

Thank you, Khun Yupa. For the mobile segment, the impact from the prolonged Omicron and macro economy, as Khun Yupa mentioned, continue to be seen in the first quarter. This weaken the mobile industry service revenue by 2%, while the TrueMove H service revenue declined around 1% Q-over-Q and year-over-year in the first quarter. Competition in the market remained intense. We see a question area by area, which continue to put a picture on the industry ARPU, yes, both pre and postpaid markets. We need to defend to be competitive in certain areas as a result. But in general, our strategy is to drive quality subscriber growth with value-added offering to generate higher app selling and cross-selling across our products. The prepaid has remained limited at around 107,000 as we focus on quality acquisition, while our postpaid position continued to be strong, with 207,000 net adds representing 45% of the industries in the first quarter. This drove TrueMove H to a total subscriber base to 32.6 million, of which 21.4 million were prepaid and 11.2 million were postpaid. Our postpaid revenue mix remained the highest in the industry at around 66%. And our 5G offering, to further strengthen our solid position in this market. I may have next slide. True 5G development continue to be seen both in the consumer and the enterprise sectors, continued popularity of 5G device, and it could see model along with our attractive campaigns help induce the hike in 5G users stood to 2,6 million. TrueMove H continue to provide top-notch lifestyle contents to everyone at our [indiscernible], strengthened with the True 5G exquisite package with an immersive experience of over 200 XR, VR and accretive content. Price values previous from to group financing to pay next as well as extending customers' outreach for both off-line, online channels. This value-driven offering, together with coming of affordable model of 5G device and increasing number of population who attach themselves to the digital lifestyle expedite 5G adoption and ARPU further. For enterprise sector, in addition to our continued collaboration with existing partners, we signed MOU with [indiscernible], aiming to create a new economy -- ecosystem and develop digital innovations for the energy sector, increasing competitiveness for the private sector and start-up. True 5G network would play a crucial role in terms of connecting IoT device to support a complete solution for energy saving, buildings and smart city. Moreover, the MOU intends to study about this market, which will enhance quality and stability of energy supplies from tight power plants by developing True 5G network. We hope that this forthcoming innovation will meet the rising needs of energy consumption in the household business and industrial sectors while taking care of society and environment at the same time. For the broadband internet segment. Broadband revenue was THB 7.3 billion in Q1, increasing year-over-year, but softening Q-o-Q due to the market competition as pricing strategy was required to gain the market share. This causes ARPU to decline to THB 491 in the first quarter, still above the low entry price plan in the market of around THB 400. TrueOnline's broadband subscribers continue to grow along with license demand for home internet. Over 90,000 net adds in Q1 growth is broadband subscriber base to 4.7 million, maintaining the #1 position with 36% subscriber market share. TrueOnline has always determined to fulfill every single need of the customers, differentiating a variety of packages that can suit individual need and lifestyle at the most. This includes the 2 gigabit per second fiber broadband innovative router Gigatex PRO flexible speed that can be adjusted based on lifestyle and so on. We also have professional technicians and indicated for personnel to provide superior services with rapid response and we solved any problem within 24 hours. This acuitive customer care will ensure that our customers can rely on our promise to experience the ever-changing online lifestyle at any time on top of increasing the fiber network efficiency. The Smart living Bundle with cloud is TV to be touched or the net create greater value and meets today's digitalization need in the home. Okay. Let me hand over this to Dr. Teeradet for the digital part.

[Foreign Language]. For digital business, TrueID continue to enhance user entertainments experiences and engagement with more selections of sports and video on the demand content. With this progress, the average video view grew to 459 million per month or 93% growth from quarter 1 of last year, driven by the popularities of an Asian series and anime as well as live TV streaming. Both TrueID+ and EPL subscription package received strong market responses and drove the content sales to over 760,000 transactions. As a result, TrueID generates a strong revenue growth of 86% year-on-year and 13% quarter-by-quarter, achieving high monthly active user of 30 million. The old TT box or TrueID TV also consistently grew, with 3.2 million boxes at the customer premise, adding roughly 200,000 during the first quarter. Moreover, TrueID application was introduced in the addition of 5 countries, including Cambodia, Indonesia, Myanmar, Vietnam and the Philippines. User can also change the country based on their location without new application downloading. That's why we get quite a good attraction from the customer in these countries. On the next slide, I will be covering on the Smart Living. As the COVID outbreak has also changed the lifestyle of most consumers to spend more time at home, advanced technology, smart device and IoT platform can turn an ordinary home living into a smart home living. The innovative living tech application was created to facilitate consumer to control our smart devices and electrical apprehends via smartphones. Now, consumer can turn on and off their connected device with one touch even from [ remote ] earlier. With TrueOnline and TrueMove H power for network and superior connectivity, home living can be enhanced with safety, convenience and hygiene, plus many more entertainment from TrueID TV. Yesterday, we just launched more value packages, including cloud CCTV, where massive memories can be stored with extra privileges for True Group customers. We hope to report a good start to you about this next time we meet. Our continued improvement to provide superior services with more smart IoT devices such as [ Draw-Loc ], LightBox, outdoor [indiscernible] Purifier and Nemo. This can assure that smart home living in this digital age can enhance the quality of life and serve its rising needs. Digital Solutions business continued to deliver healthy double-digit growth in the first quarter of this year. The majority contribution come from the excellent responses to the Smart Living and Residential segment along with increasing demands of IoT devices and connectivity at home, as well as expanding partnership with real estate developers. Higher subscriptions of smart transportations and vending machine revenues from the digital advertising and beverages also helped to push growth in this first quarter. We also expanded into a digital gas solutions business through partnership with Centara Hotel & Resorts, providing intelligent QR codes which guests can enjoy the hotel services more conveniently via their fingertips. We will tap into more vertical industries with tailored digital solutions that better match their needs. As for digital health businesses, TrueHealth rebranded to MorDee application, a personal physician in your phone that provide easier access to medical services for doctor and -- from doctor and medical experience, as well as medications delivery without going to the hospital. This services via video call voice call and also online chats. We will expand collaboration network with new leading partners across industries such as insurance and health care providers to help fulfill the rising needs of the telehealth care services and capture its high growth potential. This concludes today's presentation. Now let's go to Q&A session.

The first question is how is the creditor uptick in process. So this is concerning the amalgamations. I would answer that, up to now, it had been progressed as planned. So far, we haven't heard or haven't seen anything negative from creditor and do not expect any bad outcome from the process at all. Second is on the -- concerning the amalgamation as well. Please tell your view on the allegations against the NBTC and the right to amend the announcement to the 25:51 BE versions. I would say that the filing -- actually, the filing was against the NBTC. We shouldn't say anything on their behalf. The NBTC announcement has been in place for a long time, and there have been many mergers taken place during its effects. As such, we believe that we had proceeds in accordance with our [indiscernible] law and regulation and the objection on descending opinion from individuals do not affect our proceeding at all. Next is on the amalgamation as well. The first public hearing from True -- for True and the TECH transaction. It said that it was legal for you to merge and [indiscernible] to receive some compensation should you succeed? Do you have any comment on this? What we can comment is that as the competitor in the market, other operator can oppose the module transaction as they might think that they will lose some benefits. We are not surprised with this objection. However, we are not in the position to make any comment whether any party should get any compensation. But we are confident that we have proceeds in accordance with all relevant law and regulations. Next is on the amalgamation as well. Can the tender offer price be changed? Legally speaking, it can be a test, but it is up to the tender offer to decide. However, particularly, we don't expect to see such change. Next is on the cellular segment. Given weak cellular revenue numbers for 3 operators, what would be key reason for that in [indiscernible] through i.e., economics competition or something else? May I ask Dr. Teeradet to...

Sure, let me take this one. Well, in our point of view, we believe that everything is really all connected. It was all start with the COVID-19 outbreak, then the economy was [indiscernible] affected. Then the war, sign of inflation came into place. This definitely vacant our consumer spending and resolve purchasing power. And that also somehow led to competitions, although this is not that new and the lower tier price plan being offered in the market in order to attract more customers. However, we believe that our operators are really well aware of the price war, eventually hurts the industry with the lower margin and same market share. So we believe that it shouldn't be continued for long. Our main focus is to create value-added proposition, certainly cross-sell and upsell products and service. That will also help to really answer and also meet the customer needs. We believe that we'll be able to monetize the national income while the fulfill of the changes and needs in the market. Our analytics capabilities to provide such personalization is the key to make our step ahead of the competitions, and I believe that this will also help us to grow the revenue further.

Next question is for Dr. Teeradet as well. Is it accurate that the price competition has been intensified as true has cut the price to retain customer who want to swing out to other network? If not, what is your insight in the state of the competition at this point?

I think this approach has been done by our operators and for True, just to be competitive. And certainly, the price competition has always existed in the market, and it might vary areas by areas. Our strategy is to really retain our customers is to actually more toward personalization, added benefit privileges to the customers. We also seek, we tend and expand the customer base through our superiors, and we show second-to-none services.

Thank you. Next one, what different in the competitive situation between prepaid and postpaid segments? In Q1 '22, which segment has more competitive than the others? May I ask Khun Manat to help on these questions?

I would say that there are 2 segments different in nature, so it might not be able to compare directly. Competition in the prepaid is quite dynamic, but that's now -- it's not new. Prepaid customers are relatively price sensitive than some short-term customer like [ TrueLife ]. So competition has been pretty much on the unlimited data plan with more data usage, and you might see some -- a question here and there. In the postpaid segment, customers are long term with certain contracts and looking for some additional -- added proposition. More propositions can be deployed, there might be some discount, but its target and more specific to each type of customers, whereby we can get other things in return, like higher engagement upsell and not cross-selling. And 5G is now play a more crucial role to monetize additional revenue with quality subscriber growth here in the postpaid.

Thank you. Next, we will -- second quarter '22, there are revenue situation be better or worse than Q1. What will be key reason for that in your view? May I ask Khun Manat to help again?

The [indiscernible] circumstance is not that certain. But so far, we believe that Q1 already reflected the pressure from the mentioned macro factors. We are seeing a good sign of recovery in Q2 with the countries reopening, the people are getting back to normal life despite Omicron. Revenue per day has improved. [indiscernible] issue has resolved, the 5G and derived bundling campaigns had received a positive response. In addition, we believe that additional 5G device with affordable price will open opportunity for us to monetize revenue from additional 5G adopters, not only from the product sales, but also from the service bundling as well.

I would take this one. What was the tourist and migrant-related revenue as a percent of mobile call with revenue in 2019? Is this sort of revenue making higher or lower EBITDA margin than domestics for the last week? Well, actually, for this statement, it accounts for less than 5% of total mobile service revenue, excluding the [indiscernible] roaming which already included the prepaid and postpaid revenue. And normally, this revenue generating a higher margin than normal cellular revenue. Next, regarding the churn. What was the churn rate situation in Q1? Up, down or [indiscernible] comparing with the premerger announcement? Dr. Teeradet, can you help?

Sure. The churn rate has improved nicely. We are utilizing the AI analytics capabilities. We have introduced a couple of hundred analytics model, which called the propensity to churn and the predictive model. That also helped us to really identify those customers and help us to better personalization to the customers. And certainly, would really help to improve our CRM engagement and also the privileges campaign to really increase customer loyalties and also customer retention. That's really helped us to improve the churn rate.

Thank you. Next one. One operator said that the entry level of 5G package is now much lower than last year's 5G entry-level package, and it's lower than postpaid ARPU. So the postpaid ARPU has been trending down. What is your view on this? Dr. Teeradet?

Sure. The commercial 5G, I would say, we have launched this for a couple of years already. And so now, it's much more expanded to a second and or so third tiers of 5G adapter. It's really not unusual to see lower tier price plan to accommodate it to a wide range of the 5G users adapter. The entry level and lower tier 5G package are strategically designed for a specific customer segment, including mass tier 5G, M&P customers, pre to post customer and those are upgrading from 3G or 4G and so on, with a special privileges under the CP Group ecosystems. The higher 5G price plan are still there and sell different -- to different customer group. Our focus is actually rely much on the quality subscriber growth and leverage synergies from the CP Group ecosystem to really serve customer demands and better -- and also not to really compete on price.

Thank you. Next one. If new Bangkok governor succeed to provide quality free Wi-Fi service for all, what would it affect your cellular and fixed broadband revenue? Can Khun Manat help against one?

I think the free WiFi would be complementary service and not need to reduce our revenue. Also, the free Wi-Fi initiative is not a new thing. We have supported with Bangkok government for the free WiFi campaign by using our True WiFi network. We also bundle our WiFi service to TrueMove H packages so that the customers get the best experience everywhere anyway. They go wild offloading our 4G, 5G traffic.

Thank you. Next one is on the broadband as well. Your FDD revenue decline Q-on-Q, while your competitor's increased. Can you provide the explanation about this [indiscernible] FDD revenue should have increased when market demand is rising? Do you have any strategy to make the FDD revenue rebound? Can Khun Manat help address this one?

They were revenue from certain contract business in prior quarter, excluding this True Alliance revenue was flat Q-o-Q. Additionally, the market has been competitive and pricing strategy was deployed to gain market share. We see a question in various area and had to match in certain areas, but not all. ARPU was pressure as a result in Q1, but still in the near THB 500, compared to the low entry price plan being offered in the market at around THB 400. We have very high hope for the differentiated package. Just launched it like the Gigatex PRO Life, which provides a unique fit to new normal life type feature, where customer can experience to the Smart Living home starting at THB 599. The package offers IoT device bundle such as CCTV and cloud, enhancing their home service security to match digital lifetime. TrueLife customers are also entitled to special offering and subscriber to the WES topping package and mechanized by for the CCTV cloud services, creating additional upselling and ARPU improvement growth opportunity to us.

Thank you. I will take the next 2 questions. What was the impact from not having the broadcasting live of Thai Football Premier League? I would say that the impact from no longer have the TPL is quite insignificant. The decline in Pay TV revenue is actually from the consumer we have achieved, which we already introduced or already have to IGTV and to VisionNow to serve such trend. Next one is what will be the cost of EPL, which is the English Premier League required for the next 3 years. Is it higher or lower from the past 3 years? What will be key change to the after term? Actually, we cannot disclose the term of the English Premier League. This is commercially confidentiality between the party. But what we can comment is that the term is quite similar with the expiry terms. Thank you. Next is please update your corporate account as the hotel industry is getting better. How much was the revenue contribution in 2019 as a percentage of Pay TV revenue? Is the EBITDA margin higher or lower from this segment? Khun Manat, can you help?

I can help to address on this. The revenue contribution is in the high single-digit range. And I think [indiscernible] from this segment is quite high and the business model for certainly the content provider is really on the revenue sharing model.

Thank you. Next, I understand that one-off if [indiscernible], I mean, our [indiscernible] contract with DIF got expired last year and didn't get renewed. How much was the savings to go from in this quarter? I would say that for the expiry context, the saving is around THB 300 million to THB 400 million per year. Next, how much did you recognize the merger-related cost in this quarter? How about the following quarter? Well, actually, the expense related to the amalgamation are mainly expenditure on due diligence, legal fees, pro forma and IFA fee. Some options was already booked in Q1. That will be extend-related to amalgamation in the coming quarter as we continue to embark on the amalgamation profit. Thank you. Next one, I will take this one as well. How much did the rising electricity costs affect your overall cash OpEx? How much was the electricity cost as a percent of total OpEx? Actually, the electricity cost is less than 10% of our operating expense and we do not expect much impact from the higher electricity costs, of which we already have various cost measures to reduce electricity costs, i.e. the site consolidation, renewal energy and so on. Next, please update your financial guidance for 2022. Are you still confident to achieve it? Let me start first, and our Co-President can help. Actually, our guidance this year is mid-single-digit growth for service revenue, positive core earnings and bottom line and lower cash CapEx than last year. I would say that the pressure from internal circumstance mentioned earlier that cost is lower economic recovery. We can -- our revenue and profitability in the first quarter. And we believe that we already passed the lowest point. We have to admit that revenue target of mid-single digit is quite challenging, but we are working very hard to achieve that. Although it depends on macroeconomic factor as well, we hope for higher contribution from the reopening of the country and the return of tourists. Do we have anything to add?

As for the strategy to reach revenue target, cost synergy revenue continue to adhere to -- is to innovate and be the first mover in providing superior and personalized offerings. [indiscernible] analytics and AI capability will be further utilized to serve that, including for proactive sales and after sales. Regional approach is another important factor that help us adapt well to customer needs and competitive dynamics. More awareness on our views across our 2 groups. CPG ecosystem as well as business partner, we further enhance customer engagement and up and cross-sell potential. For mobile business, we did mean to grow from additional new 5G users and migrating existing subscriber to 5G with attractive 5G device bundling impacted as 5G users can naturally provide higher ARPU in nature. For the online business, our key focus is also on innovative device and product bundling that match customer rising needs for home internet, for Smart Living and entertainment. The Gigatex PRO Life campaign just launched is a clear example of that [indiscernible] China. All this should make us enhanced quality subscription, I believe, ARPU and revenue per household.

Let me enhance it on the digital business. Is really a step ahead to really continue double-digit revenue growth as digitalization become more prevalent. I think there are 3 key areas on the digital business, that's been really focused. Number one is on the digital platform. Of course, TrueID and also TrueID+, it's accreting key content proposition to differentiate the TrueIDs and grew this not just locally, but also internationally as well. Second, the digital solution, we really expand the client base with the various vertical partners in the pipeline for the smart transportation and logistics. And of course, Smart Living, as mentioned earlier, properties and hospitalities, agritech, retailer and also vending machines are really key focus that we want to serve on these digital platform. The last part of this is really on the integrated digital health, expanding user in both business and also consumer segment riding on the new normal trend. And obviously, on this digital business, cybersecurity is also the newcomer, which certainly can see -- we can really see the high potential growth on this revenue.

Thank you. May I add a little bit more. On the cost side, I believe that we have done well. We have been doing well on the cost. But we are still putting more to become evenly [ now ], i.e., continue to focus more on quality subscriber growth, restructuring project to bear fruit further from outsourcing their channels in solar and focusing on improving our core business or more contract negotiation, etc. And also, we are prudent on investment and use more analytic capability for expanding as needed, i.e., in the earlier with significant demand back sell network contest. Our CapEx spending is pretty much on track to achieve the full year target. Key driver to achieve our profit target is actually revenue generation. We hope that various revenue initiatives put in place, we boost revenue growth throughout the rest of the year, which you deliver for to the bottom line. Thank you. Next, your 5G user goal for 2022 is to double from last year of 2 million. Do you still insist on this target? What is the strategy you will use to reach that target? Dr. Teeradet?

Let's talk about the target after the first quarter. We have over 2.6 million 5G users with our 5G extended network and coverage nationwide being able to reach mass market as well as to proposition to bundle more affordable 5G devices and with superior services package. We do believe and we're very confident that we'll be able to reach our target. Additionally, the [indiscernible] problem has gradually resolved. Therefore, more variety of 5G model devices should be available for sales, adding the opportunities for the customers to really adapt into these 5G facilities. Moreover, the 5G network will play a crucial role of the Smart Living, stabilizing and also speedy connectivities from the fingertips of your smartphone and easy -- the new normal life at home, enhancing securities, convenience. Our proposition to bundle the IoT devices with service will be another tool to put the adoptions of this 5G. In terms of enterprise customers, we have consistently expanded to 5G ecosystem with what they call industries, collaborations with the different kinds of industry will definitely bring about the innovations and also technological infrastructure that required to support the 5G connectivities, and we really see the positive sides of this.

Thank you. Next one. Post merger with dtac, is there a possibility of asset divestment into DIF and could dtac have an incremental tendency with DIF? Well, actually, we cannot comment on behalf of the new company, I would say. As the post merger, there will be a new merged core and a new management team. So the policy of the asset divestment or the funding plan of the new core will be according to the new management. So we cannot comment at this point. However, on the question, could dtac have an incremental tendency with DIF, of course. Because DIF is the challenging infrastructure. And if the dtac see that, it is better to rent the slot in the DIF tower is more effective than view that -- on tower, definitely, they will take that. And also in terms of the rental of DIF tower time to market is really quick as compared to build on tower. So if I were dtac and if there is a vacancy on those tower, so definitely, they will do that. If that thing that there's available slot that match the network expansion requirement. That is what I can comment at this moment. Thank you. Seem like there is no further question. Right. So there's no further questions. So we end today, first quarter analyst conference. And thank you very much for your participation and looking forward to seeing you guys next quarter. Thank you. [Foreign Language]

[Foreign Language]