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

Good afternoon and welcome to True Analyst Conference for the third quarter of 2022. I'm Yupa Leewongcharoen, Group CFO. And together with me today is our core President, Teeradet Dumrongbhalasitr. Now let's start with the highlights. The macroeconomic factors such as rising inflation, interest rate and utility costs, so you pressure consumer spending in the third quarter while market competition in both mobile and [ broad ] band remain high, but similar to prior quarters. Despite these challenges, our revenue from growth the [ white sand ], so it increased with the growing number of subscriber base in both core telco and digital business. Our ongoing cost optimization effort yield positive results, contributing to higher EBITDA despite additional expense relating to network and service expansion to better serve our customers. In the mobile segment, customer base grew well, especially from 5G, reaching 4.5 million users with more availability of affordable 5G device both inter band and house band. Also the improving tourism industry drove additional revenue from international roaming service and tourism. Expecting more contribution in the high season like Q4. TrueOnline performed in terms of customer base expansion, mitigating the impact from industry-wide decline in ARPU. As personalization with content and smart device bundling campaign received positive market response. Our digital business continue after a top farm operation with double-digit growth into IT and digital solution revenue, fulfilling on demand for both B2B and B2C segment. TrueID once again record new high MAU at 36 million and being ranked among the top 5 streaming platform in Thailand according to the New Vision Digital Rating Report this year. Now let me briefly summarize on the Q3 financial performance. Consolidated service revenue improved from Q2 to THB 26.2 billion due to growing subscriber base despite lower we expect for economy and competition, as mentioned. Product sales revenue exceeded to THB 5.2 billion, driven by the new iPhone model, which has launched earlier this year as well as positive response to the device campaign along with more likely of device, particularly 5G with affordable price. Product sales margin improved and remained positive this year. Our focus on personalization provide a fruitful contribution on segmentation proposition, more to get new customers and to enhance stickiness to the current ones. We expect this positive team to help monetize additional revenue. On the cost side, operating expense declined Q-on-Q and year-on-year due to continued cost discipline and restructuring efforts despite higher electricity costs on 5G expansion. More importantly, we reached an agreement with NG on the 850 Megahertz spectrum to reflect the actual network at later than big network capacity in the past. This result in a drop in both network rental revenue and wholesale fee under product service line with a net positive effect of a few hundred million per quarter. This drove EBITDA up 3% Q-on-Q to THB 14.4 billion, with margin of 55% while flat year-on-year. Higher depreciation, amortization and interest stemming from network and service expansion to accommodate customer growth as well as foreign exchange loss. However, will pressure the bottom line in the third quarter. We have laid out more cost measures and are now implementing them strictly to be leaner and drove profitability up in more meaningful and sustainable manner. Let me hand over it to Dr. Teeradet for the performance of business segment. Thank you.

Thank you, Khun Yupa. For the mobile segment, service revenue picked up by 0.4% quarter-on-quarter and 1.3% year-on-year to THB 20 billion, supported by subscriber expansion offset ARPU decline phrasing by all players in the industry as competition remained high in both prepaid and postpaid. In addition to the economic impact, particularly on enterprise sensitive to low to mid-income segments. Prepaid acquisition was limited during quarter 3 but we see positive trends on the True H side in fourth quarter with good traction, some packages that match their usage and lifestyle, while uplift ARPU at the same time. Meanwhile, postpaid segment remained strong, representing 66% of -- in terms of revenue mix with a key campaign aimed to offer more varieties of affordable 5G devices, especially the house brand to entice the 5G device bundle purchase. The TrueMove H ended the third quarter with total subscriber base increasing to 33.6 million, of which 35% in postpaid and 65% in prepaid. We will continue to focus on enhancing customers' usage and experiences, adding benefits, and we will adjust to increase longevity as well as responding to specific needs and lifestyles of each customer group for better monetization. Let's move on to 5G. For 5G, the acquisition 5G was very good in quarter 3 with the campaign to accommodate the launch of the new 5G devices, including our house brand True H 5G facilitating the wide range of times to enjoy 5G experiences. This 5G campaign received excellent response, both in high tiers and also mid-tier segment. Allow with more varieties of affordable devices moreover we are penetrating more into gamification, semi sports market, which has high growth potential with the numbers of gamer of roughly 32 million, half of it being in the eSport ecosystems. In the past quarter, we organized the eSport competition event where participants used the True 5G SIM with eSport packages. This wider monetization opportunities and enhance stickiness as the gamer packages leverage the key features of our gamer are looking for including special data usage, solely for playing games tend to have faster speeds than 4G as well as smoothness, lag-free gameplay with low latency. Also, we have never started developing to provide the best proposition and expand our ecosystem into new sector. Recently, we have collaborated with Zepeto. They were a leading metaverse platform from South Korea. The collaboration will leverage the platform insight to develop and create lifestyle campaign that enable everyone to connect it to the metaverse world and the real world in the future. Our solid foundation of 5G ecosystem ranging from comprehensive spectrum portfolio synergy and to distribution channels privileges, along with ecosystem expansion will definitely ensure the future growth. Let's move on to the broadband Internet segment. Broadband revenue was relatively flat for Q2 and around THB 7.3 billion as continued subscriber growth to 4.9 million offset an ARPU decline. Across the industry where discounts and lower tier price plan, we're still only the key to both attract and retain subscribers to mitigate such impact. We are focusing on service quality and propositions that match specific needs of customers, serving our family members. Our focus rely mainly on speed, home technology services and content where each packages provide speed and data usage customized by customer activities. The launch of True unlock TV feature, the content lead privilege, getting very favorable feedback and [indiscernible] from purchasing each content separately. Moreover, additional monetization is done through advanced technology device upselling like Mesh Pro Wi-Fi and CCTV with cloud services, for example. As we made a presence into the home, cross-selling other products and services of True Group is the next step for growth. Despite the competitive landscape, we believe that there is an ample room for broadband growth in Thailand. The country broadband penetration still lower than 60% is expected to increase to 70% by 2026. To be more on private other developed country in Asia Pacific. For the stock business, TrueID accelerated its monthly active user to the new high of 36 million increased by roughly 4 million compared to quarter 2. While TrueID TV Box expanded to 3.5 million along with rising demand for viewing content through digital and OTT platform. These were achieved as a result of our continued focus on response to customer preferences, providing quality content while driving engagement on the platform at the same time. Content sales grew well for both quarter and year-on-year to 969,000 transactions driven by continued popularities of entertainment content on TrueID+ and the magnet spot content like EPL, NBA and golf. The average we get our views also saw upward trend year-on-year with Thai's and Chinese exclusive content, gaining more traction in addition to sport content as mentioned earlier. The True Unlock campaign adding benefit to True Group's customers to watch their favorite EPL team. Together with plenty of entertainment content has received positive market response as mentioned, and drove highly traffic to TrueID. All this results in another quarter of double-digit revenue growth for TrueID being ranked as the only Thai in the top 5 of streaming platform in Thailand will position us to capture high growth of the strong media platform business. Digital solutions business also delivered consistent growth, increasing revenue by 85% year-on-year in the third quarter with continued strong responses to our smart living and residential CCTV and connectivity offering. We have been scaling and extending our products and solution to larger client base in varieties of industries covering agriculture home and living, real estate, retail and restaurant as well as logistics. In the third quarter, we have launched True Farm, an end-to-end smart agricultural technology to help farmer enhance the efficiency, quality and quantities of agricultural products. True Farm provide solution for crops, livestocks and fisheries with the data wiser platform for precise farming in-depth analysis and uplift real-time farm management from upstream to downstream. Last but not least, we recently invest in Start-up called Seekster. We launched Home Services into TrueLiving tech application, provide more convenience and secure home services aim to be leading home digital ecosystems. This will expand our presence and a cross-sell for products and services for both B2B and B2C. Looking to the digital business, the Digital Health business has delivered consistent growth and its full potential is yet to be unreached. Our integrated digital health platform True Health, provide easier access to medical services and medicine delivery more application as well as physical True Health corners, that seamlessly connect client online via application to offline primary health services. Our health platform has received positive response with MAU increased 23% from the previous quarter. We also continued to expand partnerships with the recent developments include core developing the Smart EMS platform with the Siriraj Hospital in order to enhance the efficiencies of emergency care outside of the hospital which will be further replicated to other customers in the future. Partnering with National Health Security Office or NHSO for serving remote treatment to the green group of COVID-19 patients who hold Universal health care coverage. Signing MOU with PTT to develop technologies and the sell health care innovation, increased Telemedicine, connecting with online and offline services and integrated with health services to improve accessibilities of medical services. And last but not least, we received Telemedicine platform initiative of the year from Healthcare Asia MedTech Award 2022 in Singapore, showing the potential of Telemedicine platform developer in global stage. This concludes today's presentation. Now let's go to Q&A sessions.

Now let's start with the first question. Actually, the first question is on the NT 850 Megahertz agreement. The first question is, could you please explain why your total revenue dropped both Q-on-Q and year-on-year despite increase in both service revenue and product sales? Actually, this was driven by certain mandate on the 850 Megahertz SPA agreement. As communicated earlier that we were negotiating with NT, of which we end the agreement to be payment per actual usage instead of capacity and we have recently laid the conclusion with NT, to pay per usage not per fit capacity anymore. This results in the decline in network rental revenue as well as the wholesale fee in record of service line. On the net basis, the saving to the company is a few hundred per quarter onwards. And one other thing that I would like to highlight here is that, according to the trend, the usage on 3G, 850 Megahertz continue to decline. So we expected to see higher savings in the future. And one other thing that I would like to also highlight is that the whole agreement or the whole payment will be gone after 2025 when the contract ends. Next is on, please explain the new payment scheme of 850 Megahertz wholesale agreement with NT. As mentioned earlier, now the payment is on the expected network usage instead of the capacity. Net is similar under the usage based payment scheme. Does it have the minimum guarantee that you must pay in NT, despite no usage on 850 capacity? The answer is quite similar to the first 2 questions. The payment this year is based on the expected network capacity usage stipulated in the contract, which should gradually decline this year. Next, please. We're waiting for the next question. The next question is the settlement result in lower revenue for NT. Why did they enter into such new agreements? What payoff for NT to accept the lower paid deal with True? My answer is very simple. This is aligned with what they have done with other operators where the wholesale is based on usage, not fixed amount. We just get the same treatment as others and the removal of feed capacity order is also in accordance with the ruling for Supreme administrative costs. Apart from that, the remaining usage -- unused capacity should be available for those who need and facilitating promoting [ MVNO ], which would be would like to enter into the market. Basically, this is to promote the competition, promote new entrant into the market. Next question is on how much did you pay NT on this wholesale agreement prior to the new deal? On the net basis, I mean, net between the network rental revenue and wholesale fee. On the net basis, we pay somewhere between THB 4 billion to THB 5 billion a year. Okay. The next question is still on the 550 Megahertz. How much and how fast you save from this cost item, if you can merge with DTAC by first quarter '23. Actually, we will get the saving, the [ tally ] of the merge with DTAC or not. Based on our business as usual and customer usage the reline on 850 Megahertz 3G is less than this. Next is still on 850 megahertz arrangement, who owns the 850 Megahertz network equipment either NT or TRUE? Actually, it's our subsidiary on the network equipment, not NT. Next, can the 850 Megahertz equipment be compatible with other banks, i.e., 700 Megahertz or 900 Megahertz. Actually, some can and some can't, it depends on equipment. Next is on the amalgamation. Can you update the timeline of the amalgamation what and when will be your next book? Actually, we are in the process of assessing the measures whether they affect the synergistic value and then how much. Once we release the conclusion, we will proceed with the amalgamation process and will announce through the profits accordingly. Next is on -- is there any remedy condition that will affect your expected synergy of total remedy measures? What are the toughest measures in your view that may affect potential synergy value from the merchants? Actually, based on ours and our legal adviser understanding, we expect the impact from the announcement of NBTC remedies to our expected synergy is manageable, and we are still busy assessing it. That's all we can say at this point. Next is on the amalgamation as well. What is your view on the lawsuit filed by the Thai Consumer Council last week to revoke the NBTC resolution on the amalgamation deals and asked for the injunction? My answer is very simple that the opposition and the lawsuit and the cost is not a surprise at all. But we believe that everything has been proceeded in accordance with the [indiscernible] law and regulations. And in the fact to the benefit of both consumer and the country. With all this, we do not expect is also to have any effect on our amalgamation process. Next still, pretty much the same as the previous questions. When will you expect the Central Administrative Court to make a decision on the injunction request. Frankly speaking, we cannot speak on behalf of the court. But based on precedent cases, it can be ranged from 1 week to a few months. Next question, other than the injunction ordered by the Central Administrative Court, what could be the other legal entity that can suspend the deals? My answer is that other than the regulators, the net process for amalgamation involving the registration with Ministry of Commerce and the SEC for relisting the new company. So those are the regulatory body involved in the amalgamation process. The next question is, is it necessary for TRUE to wait for the board -- the court injunction decision before launching the VTO process? Will the SEC allows the VTO to kick off during the court decision on the injunction? Legally speaking, we can proceed on the amalgamation process right away, once we get been right for the regulator. Next, it is a decision of both companies to decide whether to proceed. But at this stage, we are positive about it. Next is what would happen to the deal if the Central Administrative Court issues an injunction to cease the merger process? My answer is that if that is the case, both TRUE and DTAC as the interest party has the right to appeal to the Supreme Administrative Court. This is normal process. Will you wait to see whether the court will issue any injunction or not before proceeding on next step? My question -- this question is quite similar to the previous question. My answer is pretty much similar as well, that legally speaking, we can proceed with the amalgamation process right away if the 2 party. I mean, TRUE and DTAC decide to do so. And we are now busy assessing the impact and finalizing the business plan whether with those remedy the amalgamation to create value to the customer and the countries so that we can decide to move forward. But at this stage, I would say that we are very positive. Thank you. Next is on the operations. I would like to ask Dr. Teeradet to address this question. What caused lower prepaid net adds in third quarter '22? And what is our expectation in the fourth quarter?

Sure. We focus on the quality subscriber growth for both prepaid to postpaid migration and on the acquisition whereby campaign that we have been boosting encouraging subscriber to top up or buying the topping packages. Q4 should be better along with the high season of tourist arrival in the country, and we're also doing well in Micron segment. We are doing more segmentation to offer the right proposition to the customers and induce small usage and ARPU, which I trust that you help to enhance that longevity as well as the ARPU usage as well. Yes. So that's to address these questions.

Okay. Next is on between the economic slowdown and the unhealthy competition, which factors have bigger effect to your prepaid revenue shortfall in third quarter '22? [Audio Gap]