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

Hi. Good evening, everyone. I hope you can hear me well. Welcome to True Corp's Second Quarter Financial Publications for 2023. My name is Naureen. I'm the Head of Investor Relations. With me today, I have our CEO, Khun Manat, our Deputy CEO, Khun Sharad; and our co-CFOs, Khun Nakul and Khun Yupa. Along with the presentation, several other documents are available on Investor Relations website for you to look at. [Operator Instructions] We will now start our presentation with Khun Manat.

Okay. What do we say, good evening to the analysts. Welcome to this Q2 conference. I just like to give the highlights from the -- since the March. I and Khun Sharad travel around the country to listen and hear the employee and the customer feedback from the Better Together campaign which we get a very good feedback and very good satisfaction from the customer, which they're very delightful on the network quality and also with the [indiscernible] from the True and dtac that have combined together. Definitely, the 2.6 and 700 megahertz that we already combined together with the roaming technique provide the best and very satisfying world-class quality for the customer. This quarter, we have a pretty good positive momentum on the quarter-on-quarter, which normally from the market rationalization that start from the improvement from the macroeconomic situation, also the -- we say, sorry, the market rationalization pricing some [indiscernible] the integration and the synergy realization is on track, and I will explain maybe next page. The integration and the synergy realization that we have done. The first thing was the network integration vendors has been appointed through our RFP process. We spend for 4,5 months. This is our [indiscernible] on the amalgamation network is pretty good news for us and we're really delighted that this process is already done, THB 3 billion savings from the CapEx optimization has been done and the impact from the customer also have seen from the higher customer survival, which as in stands, we have the lowest of the shed rate for the dtac brand customer. Some number that I'd like to give to see the delighting from the customer from -- like on the dtac brand, 12% usage more from the roaming network to the 5G, speed increased 2.3x and also the customer that roaming shared from to dtac reached 29 million, which we will also be very happy on that as well as customer be able to utilize the best quality of our network there, okay? Let me pass to Khun Sharad.

Thank you, Khun Manat. And I just now take it further. So what it means for us in terms of subscriber growth and that momentum we are picking up. So I think needless to mention that the combined forces of dtac and True have boosted our market execution capability as well as strength, which is turning into positive contribution momentum from the last quarter. If I look at on the network side, as of quarter 2 2023, True Corporation is privileged to be the largest 5G provider in Thailand by population coverage of 90% and additionally, 4G population coverage reaching 99%, which boosts indoor coverage and quality, which means that customers are getting better network experience. True Corporation registered 8.3 million 5G subscribers, which is a growth of 32% from the previous quarter, which is a result of improved network experience for the customers. And you heard Khun Manat talking about when we were traveling down in regions, customers were expressing the similar sentiments. 5G ARPU continues to witness an uplift of 10% to 15%, mainly driven by device bundling and higher usage from enhanced network experience. Both dtac and True brand continue to be the leading operator of choice for tourists and migrant segment. as a result of personalized and tailored content encompassing localized entertainment and social media propositions, along with many bundled offers. Transactions under the privileged loyalty programs increased by 17% quarter-on-quarter, mainly driven by the Better Together campaign, which also resulted in 9% high retention of high-tier customers quarter-on-quarter. And this is getting better and better, and we are quite proud of this moment that customers are able to use a better network experience, and that's the reason why they are sticking on. As of quarter 2 2023, the active digital user base of True Corporation, which encompasses the combined app as well as that platform, along with digital channels and stores, reaching approximately 14 million -- 14 million, which is quite a good number, and that gives us confidence to move on from here on progressively. If you look at noncore service revenue, that grew by 20% from last quarter, and that's really encouraging for the team, get a lot of motivation to even work more effortlessly for the next [indiscernible]. If I talk about True Digital Group that continues to expand the reach of these products in both online and off-line channels allowing the wider population to access the encompassing advancement of smart living products while continuing to enhance efficiency and sustainability of business in various industries, including agriculture, real estate, retail investments as well as logistics and industrial segment. True Digital Group and China Mobile International announced a strategic partnership to establish a global IoT machine-to-machine platform through the implementation of True's 5G network that enabling seamless connectivity between the sensors, intelligent devices, machines or machine-to-machine communication. Thereby, True Digital Group registered at 27% year-on-year growth in digital monthly active users, MAU, reaching 36.4 million at the end of quarter 2 2023. Then I move on to the other part, which is equally important as we do business in the country, is how are we empowering digital adoption and inclusion of societies through digital services offerings. So if you look at on the left-hand side, True Digital Health continues to enhance healthcare experiences by seamlessly connecting patients, users with healthcare professionals to Mordee platform, which I'm sure most of you are familiar with. The Telemed consultant provides a comprehensive range of services, which are available 24/7 with more than 500 doctors and access the expertise of over 20 specialists while enabling direct medical expenses claim with insurance companies. As an online health form, the digital health enables doctors to issue e-prescriptions for time saving. And we promise to deliver medicine right to doorstep within 1.5 to 3 hours after the consultation is done. Recently, patients and users can consult with doctors instantly through line application, which is Mordee official account even without downloading Mordee application, which is a unique phenomenon. And that allows a wider population to access and adopt Telemedicine. If you talk about this quarter, True Digital Academy collaborated with Tourism Authority of Thailand, TAT, to come up with tourism management program for executives. Apart from knowledge in tourism management, the program is introducing new digital technologies and digital transformation to uplift the proactive marketing plan strategies as well as tourist promotions. True Digital Academy also announced the MOU with the top Thai universities for codesign promotions. Both elective courses and joint degree empowering individual students with the necessary digital skills to be ready for future employment in the digital world. So what we are talking about that we, as a corporate citizen, we also do take care of many programs and initiatives with our empowering society. And that's what we just tried to explain to you guys. Now I would like to hand over to our Co-Chief Finance Officer, Khun Nakul, to walk you through our financial performance for the second quarter in detail.

Thank you so much, Khun Sharad and Khun Manat. This is Nakul. I'll walk you through the financial performance. Good evening, good afternoon, good morning, whichever part of the world you are. As far as the financial highlights for Q2, '23 for True Corporation is concerned, as already mentioned, there is a strong momentum that we are carrying from Q1 into Q2. The service revenue has seen a 1.1 percentage point improvement, while the OpEx, excluding depreciation and amortization, has seen a 16.7 percentage point decline quarter-on-quarter. As a consequence, the reported EBITDA is almost 15 percentage point higher quarter-on-quarter. Looking at the performance that we have on the bottom line, specifically on the EBITDA, we are revising our guidance for the year 2023 to as far as EBITDA is concerned from flat to low-single-digit decline to low- to mid-single-digit growth. So it's a couple of notches improvement as far as the guidance for the full year is concerned. If I walk you through the performance in a little bit detail, I'll start with the service revenue and the total revenue development first. We see positive momentum in service revenue Q-on-Q, which is driven mainly by the mobile and online segments. As far as the total revenue is concerned, it declined about 4.6% Q-on-Q primarily due to the lower product sales from seasonality, Q2 is, as you know, is less seasonal as far as hands in sales are concerned as compared to quarter 1. The service revenue, on the other hand, has improved to 1.1% Q-on-Q, which is driven by market rationalization as Khun Manat mentioned and also our effort towards selling converged products with respect to cross-selling and continued subbase growth. The interconnection revenue declined Q-on-Q due to a onetime benefit that we got in Q1 '23, from a favorable settlement of a litigation, and this is something that you guys are already aware of. If I move on to talk about the different segments, and first, I'll take mobile first. As far as mobile is concerned, the service revenue improved 0.8%, driven mainly by subscriber growth. But let me first talk about the ARPU because that's something that we have been focusing on for quite some time. As far as the blended ARPU is concerned, that has remained stable Q-on-Q, but it's important for us to see that the efforts of market rationalization and working towards improving the price proposition in the market is starting to bear some early fruits. Prepaid ARPU has improved 0.5% Q-on-Q, and the postpaid, on the other hand, has also improved about 0.4 percentage point. We've also added subscribers in this quarter, and the addition in subscribers is about 1.9%, which is mainly driven by tourists and also migrants while the postpaid subscribers have remained flat. True Corporation continued to be one of the leading providers as far as the segment of tourist and migrants is concerned. And as a consequence of the improvement in ARPU and also with respect to the improvement in subscribers, the mobile service revenue has improved 0.8% on a quarter-on-quarter basis. Now if I move on to the online business, this is another good story for us. For the first time after quite a few quarters, we see a significant improvement in the ARPU. If you see on the slide, it's about -- from 463 levels that we saw in Q1, the ARPU as at Q2 is about 475. Our focus on quality subscriber acquisition by removing discounts, and utilizing the cross-selling opportunities has actually resulted in an ARPU and service revenue improvement for this business, which is about 2.5% on ARPU and 3.2% on a Q-on-Q basis as far as the service revenue is concerned. As you can see from the slide, we are talking about multiple cross-selling initiatives. Basically, what we are trying to do is we are cross-selling the dtac customers to the converged offering that are now available as far as the True brand is concerned, and that is starting to bear some fruit. So we see a positive momentum on a month-on-month basis as far as our customers who are taking these attractive offers. Then if I move on to the TV business, the PayTV revenue is impacted by lower Q-on-Q subscription revenue. And the ARPU that you see in this quarter is kind of relatively stable. But you see a decline as far as the service revenue is concerned, that's basically on account of the slight decline in the subscribers. As far as TrueVisions is concerned, the mitigation plan is definitely to drive inflow revenue through various strategies, which are being employed already. such as EPL and UEFA season passes upselling existing customers and accelerating TrueVisions now through tailored pricing. So that's our initiative as we are going forward as far as this business is concerned. Then if I move on to the OpEx pictures and allow me to explain this in a little bit more detail. The total OpEx, excluding depreciation and amortization has significantly reduced Q-on-Q on account of ongoing efficiency measures that both brands or both companies, dtac and True, have been historically doing. At the same time, what we've been able to achieve is we've been able to achieve some quick win synergies. And that's something that we could focus on because combining the strengths of the 2 companies, we were able to see what are the areas of the costs that we can effectively drive downwards. To explain in a little bit more detail, the SG&A has decreased Q-on-Q due to optimization in marketing spends, improved collection, which is also resulting in the lower bad debt. So these are the 2 things that clearly stand up. As far as network cost is concerned, it has decreased Q-on-Q due to the reduction in energy price tariff as you are all aware of, but that wasn't the only factor that resulted in this decline in the network cost. It was along with the other efficiency initiatives that we were able to do that drove the cost down Q-on-Q. Cost of sales declined due to the lower product sales, as I had mentioned earlier, is due to the seasonality that's there. And the interconnection cost was benefited by a reversal of a provision which was pursuant to the litigation that happened in Q1 '23. So Q1 '23 had a positive impact on some line items. And Q2 '23, we've had a reversal of provision because of the same settlement that happened in Q1. Actually, you can see in the appendix, we have a list of one-off items that have impacted this quarter and the previous quarter for you to make a thorough comparison of the financial performance of the company. In this presentation, I will not walk you through those onetime effects, but you can definitely refer to the appendix. Now from revenue to OpEx and to EBITDA, we see a sequential growth in EBITDA, which is basically from higher service revenue, combined with the efficiency initiatives that we had. Q-on-Q, as you can see, the EBITDA has been benefited by OpEx reduction from efficiencies, equipment synergies and also the net positive impact from the settlement of the litigation. EBITDA in Q2 '22, and that's important for you to know as you draw your comparisons versus last year, it was positively impacted by deductible filter cost of THB 1 billion. So just please keep that in mind when you look at the Q2 2022 performance of the company. It's important to also highlight the normalized performance of the company. So even if I normalize for these onetime effects, the EBITDA grew about THB 1.6 billion to THB 21.1 billion in Q2, which is an improvement of 8.2% on a quarter-on-quarter basis. You can see the reported number is THB 22.3 billion. So the difference between that and THB 21.1 billion is the normalization that we've done to show comparable performance. EBITDA as a percentage to total revenue remained healthy at about 45.4% for Q2 2023. And if I move on to the net profit. Net profit is showing a loss of about THB 2.3 billion as far as second quarter of '23 is concerned. In this quarter, the net profit is impacted by a reversal of our deferred tax assets on carryforward losses of DTN due to a potential business restructuring that is happening within the group. So that's -- it's a noncash effect. It basically is a reversal of a deferred tax asset. The net profit was also impacted by higher depreciation and amortization expense that's basically on account of the higher rollout and also alignment of useful life between the 2 companies. And in this quarter, there was also some integration costs, which are recorded below the EBITDA of about THB 250 million to THB 300 million. CapEx in this quarter, as you can see, is significantly low. It's about THB 3.4 billion, and this is basically coming as Khun Manat was mentioning about THB 3-odd billion coming from the optimization that we've been able to do thanks to the combined strength of the 2 brands and the 2 companies. So in summary, if you look at the performance of the company, there is positive momentum, which is driven by the mobile and online segments, as you've seen in the top line development. The ARPU is something that is improving this quarter after the decline that we saw in the previous quarter, which was a concern that all of you had. Market rationalization is leading to a slow recovery, but sure recovery as far as ARPU is concerned, and focus definitely is the quality acquisition. There is a very strong focus as far as management is concerned on the efficiency and the initiatives contributing to the realization of these treatment synergies are the ones that are very, very high on priority for all of us. And most importantly, the synergy realization is actually the key focus for us in delivering value to our stakeholders, and that's something that we are monitoring on kind of a weekly basis in the management team. I will end my part of the presentation with giving you an indication of the guidance which I already mentioned in the beginning of the slide. The service revenue was indicated to be flat as far as the previous guidance is concerned, we still maintain the service revenue is going to be flat. This captures all impacts that may come on account of amalgamation or on account of the remedies. As far as the EBITDA is concerned, from a flat- to low single-digit decline, we are now indicating a low- to mid-single-digit growth as far as EBITDA is concerned. So it's like I said, it's a 2-notch improvement as far as the guiding on the EBITDA is concerned. The CapEx frame that we indicated last time, THB 25 billion to THB 30 billion, still remains to be THB 25 billion to THB 30 billion. And please keep in mind, these numbers are for a 10-month period of operations for True Corp. This is all I have. Now I hand it over back to Khun Naureen.

[Operator Instructions] I see the first one is Khun Pisut. [Operator Instructions].

This is Pisut from Kasikom Securities. Can you hear me well?

Yes, and can see you also.

For the first one, your upward EBITDA growth guidance. I have a few similar questions on this one. Have you included the legal settlement gain into the new EBITDA guidance. And related to that, what has changed so far from the new guidance which is better than the previous guidance. And also if my calculation is correct, you are trying to say that the second half EBITDA this year is going to be higher than first half EBITDA this year. That is my first set of the questions.

Okay. So thank you so much. Khun Pisut. So these are your 3 questions, right? If I understand correct?

No, no, this is just one question, sorry.

Okay. So these are 3 questions of the first question. Okay, I understand. Okay. As far as EBITDA is concerned, the legal settlement gain is already included in the EBITDA guiding because we're talking about the reported numbers as far as 2023 is concerned. But please keep in mind, these are 10 months numbers. In the MD&A, we've also indicated the March number if you would like to see because like we announced the results in the previous quarter, we showed the Q1 performance to you. So we have a March '23 and March '22 number that you can refer as far as MD&A is concerned, and then you can do the modeling for the 10 months. But at the same time, let me take the third question first. The second half EBITDA will definitely be better than the first half. So that's -- you're absolutely right as far as estimating that is concerned. And then like I mentioned, you can look at the March numbers that we've indicated and do your excel calculations. What has changed from what we indicated. Like we mentioned in the previous call, it was one month of operations for the company. We were quite new as far as management was concerned. There were definitely some early signs of market rationalization. Now in this quarter, we have definitely seen things improving. The competition scenario has remained stable. I'm sure you're going to talk about it, but I'll leave it for that part. But at the same time, we have done a good realization of the quick win synergies, and that has helped us to get the confidence to give a good set of results for Q2, which will gradually carry on as far as Q3 and Q4 are concerned. I can talk a little bit more about the quick win synergy, but broadly, the answer is that, yes, there is confidence and momentum going from Q1 into Q2 as far as good development on the synergies are concerned, whether it's on the top line or in the OpEx and this we expect to carry as far as third and the fourth quarter of this year is concerned.

My second question is regarding your depreciation and amortization expense. Because you say that you can save some CapEx from the business integration, but your depreciation and amortization keep rising, the amount that we saw in the second quarter is going to be any one-off or this can be the best for us to project your depreciation and amortization in the future?

Yes. Can I request you to take the third question as well. Let me take it in one short, please.

Okay. My third question is regarding the DIF. It will be great if you share us a little bit about what your strategic directions are for the DIF. I think if you see the market value of DIF has come down quite a lot over the past few months, which may affect the market concern over your direction -- your strategic direction on this one. What your optimal holding state on DIF in the long run is going to be -- still be your funding alternative in the future. And also what's your thought on the lease renewal from when it's come probably in 2032 or '33? Yes. And also another set of the question on the DIF is that regarding your plan on the tower optimization. How can you decide which tower will be dismantled? And as you know, True has engaged with long-term lease contract with DIF. So if you have -- for example, 2 towers sitting together, dtac tower and DIF tower, what's your thought, what's your determination on this one, it would be great if you shared with us.

Thank you for a long list of questions. Let me take the second one first. This is on the depreciation and amortization. The high DNA in this quarter is basically resulting from CapEx investment that has happened in the last quarter and maybe the last half of last year. This is basically coming on account of network expansion and the capacity enhancement that we have had to do to cater to the needs of the customers. There is also in this quarter, we see an impact on alignment of useful life between the 2 companies. So dtac and True are having 2 different lives and then we have done our effort to make sure that there is alignment on the useful life of the assets of the 2 companies, and hence, there is some impact of higher depreciation on account of that. As far as the trend of depreciation and amortization is concerned, and you are absolutely right here because of the fact that the CapEx investments that we are indicating for 2023 are lower than what were there historically. Like if you remember, historically, CapEx was THB 50 billion to THB 60 billion as far as the 2 companies are concerned, and now we are talking about THB 40 billion levels. So there is a 25%, 30% CapEx reduction in the first year itself. So this basically augurs well for us to optimize the depreciation and amortizing going forward. However, as far as the next -- the trend in the short term is concerned, maybe you can look at Q2 as the one to base your modeling on depreciation and amortization. But very soon, these trends are going to go down because the CapEx investments are going to be lower as you have seen as far as 2023 is concerned. Then on DIF, I hand it over to Khun Yupa.

There's many questions with DIF issues. First of all, the percentage holding, you are asking about optimal percentage holding of our policy about the DIF. I will say that we don't have any specific optimal percentage holding in DIF. We will always look at returns or if we take the DIF, we have the dividend -- as an investor, we have the dividend. So we need to look at that. The second question is on whether we will keep DIF as a funding vehicle. So definitely, DIF is a funding vehicle. So if we believe that we have asset and we would like to monitor the asset to the fund, we may consider that in the future when we complete our network, single grid optimization, we know how much asset we have left. And then at that time, we also need to look at the [indiscernible] as well compared to other alternatives. Regarding the renewal of the contract, as you may have heard that our rental contract with DIF has another 10 years to go, 2033, which True Corporation has committed a lot to rent from DIF is firm commitment. So it's now too early to decide about the renewal of the contract because it's another 10 years go. Then how do we decide which tower to keep, which tower to dismantle, so according to the DIF contract, if we dismantle DIF contract -- tower, we need to find replacement tower to the DIF, which means that we need to keep a number of tower -- actually, those towers that we already sold to DIF is DIF tower. So if we would like to move the equipment and move to other towers, we would consider replace the tower so that we can pay the rental and use that tower at the same time. And which tower to remain or maintain, which tower to dismantle is based on the, first, the optimization, the signal optimization, right? And secondly, on the land lease expense, because if the high landed cost, it is likely for us to dismantle that tower, if we have [indiscernible], those are the considerations that we will consider which tower to keep. But bottom line is that if we decided to move equipment out of the towers, we will not lend the tower without using it, so we'll try to replace the tower to DIF so there will be no impact to DIF. But at the same time, we pay the rent and we use the tower. Hope I have answered all of your questions regarding DIF.

We move on to Arthur.

Several questions for me. Firstly, can you just clarify on the EBITDA out of -- are you able to itemize which cost areas you expect to reduce into the second half of this year? Any quantification that would be useful and the target? Second question was with regard to the taxes booked in 2Q, have all the deferred tax bookings been linked to the amalgamation been cleared out? Or are there more charges to be incurred in the following quarters? And also related to that, do you need to book any further amalgamation cost into the following quarters on your G&A? And lastly, you mentioned rationalization within the market. I'm just wondering, are you able to provide color of what's happening on the industry price plan? Has that affected you in going up? I do know that you've increased 1% Q-on-Q. But when you look at it pre-COVID, 1% seems to be far for the part. So is there more to be seen in the subsequent quarters? Thank you.

Yes. Thanks for the questions, Arthur. Let me take these 4, right? So the first one was -- so which areas do we foresee that are going to be optimized as far as the future is concerned, because of the guidance. Yes, because of the guidance that we've given. So what you can safely assume is the ones that you see where the trend is towards the reduction are the ones that we want to continue to focus as far as the future is concerned. As far as the numbers is concerned, if I just go back, we've seen that the SG&A has seen a decline, the network cost has seen a decline as well. So these are the areas that we'll continue to focus on going forward as well. The efficiencies are definitely going to come from internal operations and also because we take the benefit of the pricing difference that is between dtac and True, so that helps us in optimizing our cost. I can talk a little bit more about the synergies a bit later. Your second one on deferred tax assets. So the write-off that we've done on deferred tax assets pursuant to an internal restructuring is all that is going to happen as far as this item is concerned. So there is nothing more expected in the subsequent months as far as write-off of the deferred tax asset is concerned. So it's a one-off effect. It's done and dusted. Your third question on amalgamation cost, I think the amalgamation costs that we've historically maintained is the cost of basically bringing the combined entity into shape, legal fees, consultants trying to work on reamalgamation, trying to work on the synergy models and integration and so on. So this is the last that you will see as far as the significance of this amalgamation related spends are concerned. So nothing is expected in the subsequent months. Our focus in the subsequent months will be on integration-related expenses. So the amalgamation is out of the picture. Any focus that we have in the future is on integration expenses, and that has to be looked at along with the benefit that we can get from the spends. And the focus that we will have is the net benefit should be a positive for us. So that's how we will go and look at the integration-related spends are concerned. Your last question on the pricing. Yes, you see that there is an improvement in ARPU, but the improvement seems to be a little bit small as far as you are concerned. Please note that, I mean, to do a significant shift in the market on pricing takes a little bit of time because a lot of customers are sitting on unlimited data packages that are there. What has been done so far in terms of price rationalization is the removal of unlimited data as far as the lower tariffs are concerned, specifically on the prepaid and the postpaid, we have worked extensively on the online business to reduce the discounts. We've also introduced entry fee to make sure that we get to a quality acquisition of subscribers. And that's why you see specifically on online, there was a significant 2.5% improvement in ARPU, which is about THB 13 that you saw. So all of these are early signs that the market is moving in the right direction. We are hopeful that this ongoing positive momentum in the business environment, in the macroeconomic situation, more tourists coming in, the inflation being low, overall economy is improving, the GDP is improving is going to help us in establishing strong baseline as far as the improvement in ARPU is concerned. Please also keep in mind the 7%, 8%, 9% ARPU reduction that you've seen historically have been on account of 3 factors. One, of course, it was coming on account of aggressive competition. Second one was that the macroeconomic situation was quite bad because of the pandemic. And the third one was that there was high inflation. So all of these factors, these are relatively under control now. So the headwinds are not there. So now it's about the focus of the operators to make sure that they try and monetize from this. I hope this answers your questions, Arthur.

Sorry, just to clarify, were there any price changes implemented in the second quarter? Or is that only expected in the subsequent quarters?

There was some price change that was done with respect to -- specifically with respect to the fair usage policies that are there. So that have been made less lenient. So -- and that obviously helps in improving the ARPU as well. And once you take out the unlimited tariff from the market, it takes a little bit of time for it to go to a wider base. So that has carried on this quarter.

What percentage of your base are still on unlimited that you need to roll over to the new pack?