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

Good afternoon, and welcome to analyst conference for the second quarter of 2022. I'm Yupa Leewongcharoen, Group CFO. And with me today are our Co-President, Dr. Teeradet and Khun Manat. Now let's start with the highlights. The global economic circumstance, heightened inflation and continued pandemic remained a major pressure on consumer spending. However, we saw an upward trend on our service revenue in Q2 despite quite intensified competition. The easing tourist restriction has also showed early sign of improvement, and we hope it will help those grow further in the second half. EBITDA margin was stable. The effort on optimizing costs are going to balance the impact from network and service expansion. Efficient spending will continue to be strictly implemented to improve operating performance and productivity across the board. Mobile revenue showed a positive recovery with strong subscriber growth, particularly 5G subscribers reaching 3.4 million while maintaining positive margin on device sales. Our continued focus on smart bundled products and improving service also helped expand broadband subscriber base to 4.8 million although competitor used heightened strategy to attract customers. As for our digital business, True Digital Group kept building up its revenue base with double-digit growth. TrueID recorded new high MAU, while Digital Solutions saw a rising contribution from smart home solutions and connectivity. With our relentless effort to improve service quality as well as providing personal offerings and solutions for both consumer and enterprise system, we hope to see a strong pickup in the second half of this year. Now let me recap our Q2 financial performance. Consolidated service revenue improved slightly to THB 26 billion, led by mobile business with growing 5G and the returning tourists testing the rising inflation that affects consumer spending as well as market competition. Core operating expense was flat year-over-year as lower SG&A expense offset costs relating to network expansion and content-sharing cost to book various platforms. Q-on-Q expense increase was driven by sales activities to gain additional subscriber, extend customer longevity and retain existing one while device margin remain positive. EBITDA stayed around THB 13.9 billion with margin on service revenue at 54% as a result. Higher depreciation and amortization along with expanding 5G and digital infrastructure still put pressure on bottom line performance in the second quarter. But we had really a good foundation to accelerate scale, monetize and secure recurring income in the future with opportunity to build new form of growth into various industries as well. We are also implementing a stricter cost control policy, of course, on those recurring revenue impact, improving productivity across the board with KPI monitoring and outsourcing with better efficiency. We -- this should be key to put growth in the second half. Next, our presidents will touch on performance of our key business starting with Khun Manat on mobile business performance.

Okay Thank you, Khun Yupa. For the mobile segment with the business activity resuming and returning tourists, although still less than expected, not to the pre-COVID level yet, our service -- mobile service revenue picked up 1.3% Q-o-Q to THB 19.9 billion in the second quarter. This was achieved despite the competitive intensity in both prepaid and postpaid market pressuring ARPU for the overall industry. Our key focus is on creating value for customers with better experience and proposition that match their needs. The campaigns launched in second quarter were -- they were divided in terms of service bundle and high spend to attract different customer segment. And they obtained a favorable response. Extra privilege offered for the True customer base, whether they be content or within bundle, or has a coupon to be used across synergy channels and so on. All this drove our acquisition in second quarter with strong net adds of 542,000 for prepaid and 237,000 for the postpaid. We are still seeing a good momentum here. True H subscriber base expanded to 33.3 million, 34% postpaid and 66% prepaid in terms of subscriber mix, while revenue mix is in reverse order with postpaid contributing 66% and 34% of the prepaid. The TrueID unlock feature was introduced in late July, aiming to better monetize revenue from the new season of EPL as well as selected content of TrueID+. This is expected to help push revenue to the higher level in the coming quarters. For 5G, our 5G user base grew very well to 3.4 million as our extending 5G enabled with better usage, experience and privilege continued to attract high-value customers as well as inducing migration from 3G, 4G customer to 5G adopters. The improvement in quality of service and network has been incrementing all the time to reflect the ambition to provide better services, faster connectivity and stronger signal. As tested both internally and by international third parties, TrueMove H 5G networks show superior advantages compared to 4G with more than 10x higher download speed and 3x higher upload speed. Our 5G customers can watch video seamlessly in 4K or 8K resolution, not just the HD. Subscribers with 5G-compatible device are encouraged to use and enjoy the real 5G sensation, further uplifting service experience, especially when involving the AR/VR content. Eventually, they become the actual 5G adopters. The exclusive program with inter-brand device showed a positive result, and value-driven campaign helped attract new subscriber with longer contract too. For 5G B2B, we were awarded a new project from the State Railway of Thailand to modernize the Bang Sue railway station with our 5G network infrastructure as well as our technological innovation and solutions, expanding our ecosystem into transportation sector. This includes the 5G MEC, CCTV analytics, service robotics and automation wheelchair. The station's security is further enhanced with the analytics and face recognition. Customers can communicate with robot to find their destination route in multi-language, while the wheelchair users can go anywhere in the station with the advanced navigation system. This collaboration is just starting point with more opportunity to expand our 5G service and IoT solution at the station in the future. Okay. Let's go to the broadband segment. Our broadband revenue was THB 7.3 billion, relatively stable both year-on-year and Q-on-Q. Has continued subscriber growth, adding 95,000 in second quarter to 4.8 million. Offset ARPU decline with operators using low-tier price plans to attract new subscribers and retain existing one. We needed to respond to that area by area. We put our customers first and make sure they are satisfied with our products and improving Internet experience from both superior fiber network and bundled with innovative and smart device. True Gigatex PRO campaign, which continued to receive strong market response after the second quarter launch. The offering serves our customer base on their lifestyle with 5 core pillars: reliable speed for fast connection of up to 2 gigabit per second, which doubled the speed experience and improving latency by 20%; home check for those who are digitalizing their home with smart living such as CCTV cloud; content bundled smart set-top box to enjoy all the segments on TV screen; flexi for a multi-testing person, who can modify speed based on their activities and services, delivering fast and expert service around the clock. The starting price plan of THB 599 for this campaign aims to push higher ARPU on top of existing level at THB 469. We always seek for opportunities to fulfill our customers' demand, while being able to monetize additional income. The True Unlock TV campaign is now added to provide subscribers with more enjoyable content from TrueID. We hope to [indiscernible] footfall contribution next time. Please allow me to hand over to Dr. Teeradet for the digital part.

Thanks, Khun Manat. For the digital business, TrueID continued to strengthen customers' engagement through various sports and exclusive content as well as video on demand surrounded by the other activities such as privileges to enable digital lifestyle for our users. This, together with continued focus on customer experience improvement, drove TrueID monthly active users to the new highs of 32 million, while the TrueID box consistently grew to 3.3 million, riding on higher demands from home entertainment trend. The content sales transactions and average content views surged to 893,000 and 481,000 (sic) [ 481 million ] respectively, resulting from the popularities of entertainment [ in app ] on TrueID+, live sports, Thai and Chinese series on the platform. As a result, the TrueID had maintained the double-digit revenue growth, increasing it 49% year-on-year in quarter 2 of this year to capture higher growth and expand TrueID Group's ecosystem from superiority content platform that we have, while adding more benefits to consumers. The True Unlock campaign for TrueMove H and TrueOnline customers were recently launched, as Khun Manat mentioned earlier, to allow the consumer to enjoy certain sports and entertainment content from TrueID and TrueID TV. The initial response is quite promising, and we hope to update you a good progress from the campaign next time we meet. On the Digital Solutions, our digital business also continued to grow at a double-digit rate of 126% year-on-year with smart living and residential as well as connectivities as main drivers. The Smart Living campaign launched for B2C segment has received positive market responses. And to further build on this success, True Digital Group expanded into the B2B segment to offer the total smart residential solutions to developers such as in-home automation, common area bookings to property, visitor and parking management and so on. And also expanded further to B2B2C to offer our smart -- our new smart living products to residents of the partner developers. As far the smart cars connectivities, we also saw a good pickup rate with nearly 20% increase of registered SIM compared to quarter 2 of last year. Model work, we have seen high growth potentials of B2B advertising business. And to capture this, True Digital Group partnered with GroupM to enhance the effectiveness of in-TV advertisement through programmatic integrated solution, helping marketeer plan addressable TV for brand building and driving key action for creating sales, while making advertisement relevant to the end users without negative effect on the watching experience. For cybersecurity business, we built up a service compatibility to become the end-to-end service provider. Our key service includes security operation center services, provide security surveillance services with real-time monitoring, modification and protection. Managing and operating particular security operating system to prevent cyber attacks and operation efficiency. Personal Data Protection Act, or PDPA, consulting services has been introduced. And risk assessment with gap analysis and penetration testing to detect sensitive office systems. Given rising cyber attacks trend, we believe that our comprehensive services serve out to the needs of the business. This concludes today's presentation. Now let's go to Q&A.

Let's start with the first question on the 2022 guidance. Given challenges on revenue and profitability, are you revisiting your financial guidance for 2022? May I ask Dr. Teeradet to help address this question?

Sure, Khun Yupa. let's start with the first questions on the financial guidance. On the cash CapEx, we are pretty much in line, even better than the guidance. Cash CapEx on PPE dropped by 18% compared to the first half of last year. And the full year 2022 should definitely be lower than THB 40 billion level like 2021. The revenue and profitability are quite challenging, but we are working extremely hard to significantly improve performance in this second half. We expect the service revenue to grow at a low single-digit range if the economy and the competition remain as is. But if the situation is improved, we hope to reach mid-single-digit growth per earlier guidance. This, combined with our tighter cost cutting and the margin improvement policy cascading to our BUs, I hope this will also have a positive core earnings in the second half of this year.

Thank you. The second question is on the DIF. What are the reasons behind disposal of DIF? How much will be the minimum holding pricing on DIF at this point? As the investor of DIF, we might consider selling the unit if the price and the timing is right and we see benefit from it. While we have various other plans and our debenture issuance received a positive response from the market, reserving cash is also another alternative under uncertainty surrounding the pace of the economic recovery. We, however, have no plan to sell more DIF at this moment. And we aim to continue to be the anchor tenant of the fund and remain significant use further. Next question. Is it possible for the most core retail subscriber base to rent more tower slots from DIF? My answer is definitely yes. But the priority of the word core is on the network optimization and consolidation as well as improved customer experience. We will utilize our existing slots first, which currently, we are underutilized. However, if you look into more detail and we see the need to improve our network, so we will expand the network. And using the DIF available slots and -- which mean that -- the short answer is that it is possible to rent more slots from DIF if we see fit with our network expansion plan. The next one, with DTAC tower sale and [indiscernible], will the merged co funding alternated? Actually, we cannot say on behalf of the new management of the merged co. In general, if it is value equity to the new company, then it could be a viable alternative. Next question is on competitive environment. Please update the competitive environment in first half of Q3 '22 for both mobile and broadband in comparison with the environment in Q2. Is it better, stable or worse? In what extent? And may I ask Khun Manat to help on this.

Okay. I will say the competition has been quite stable for Q2. Mobile competition in Q2 show a sign of actual improvement, particularly in the prepaid market. While unlimited price can remain key attraction, more efforts have been put towards upgrading of the 5G -- the customer to 5G and adding more privilege and content for better monetization and stickiness on the subscription. Broadband still see discounts being offered. But as mentioned earlier, we only defend this area by area and from more value-driven products like Gigatex PRO with content and IoT cloud service bundle to better serve lifestyle for all the members rather than the -- offering discount. This is just early Q3, but we don't expect more aggression than this level of competition.

Thank you. Next question. How long will the shareholder approval on the deal be effective according to law? The answer is that according to law, the total period of the approval is 1 year from the approval on April 4 this year. Next question. In what possible occasion the [ KE Group ] and [indiscernible] will revisit the proposed VTO price? Actually, we cannot state on behalf of the tender offerers, but the possible solution -- the possible conditions to sharing the VTO price were already [indiscernible] -- such as if there is any material change to the company asset, the dividend [indiscernible], for example, that would trigger the revisiting of VTO price and detail of the conditions already being discussed. Next question, on the NBTC approval. If the NBTC disapprove the merger between True and DTAC, but approve Advanced takeover of Triple T broadband, what will be your legal reaction? And what is the competitive ramification supposed to be? Well, actually, this deal is completely different from our amalgamation. That deal is asset acquisition, will meet the regulatory approval for sure. But for us, we trust that we have proceeded in accordance with all relevant laws and regulations. The NBTC does not have any authority to approve or not approve the amalgamation deal as proven with various mergers under this announcement. But they do have the authority to issue certain measures to regulate the competition in the market. And on this point, we are willing to cooperate and work with them on the measures to achieve the amalgamation, really big benefit to the consumer and the country. This is our intention in the first place. Next question. What is your opinion about a proposed measure for the merged co to return some benefit to NBTC? If this is the case, which one will be least effect to True to let go? Can Khun Manat help address this question?

Okay. On this point, we would like to discuss with them first on the rationale and what we could do to alleviate their concern. We need to go through in detail their network optimization to see which one we could return, if any. We need to get the compensation back as well.

Thank you. Next one. If Advanced failed to take over Triple T broadband for any reason, will True be interested in Triple T broadband at this time, assuming no regulatory hurdle? Can Khun Teeradet help?