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

Good evening, everyone. Welcome to True's Third Quarter 2024 Results Publication. My name is Naureen. I'm the Head of Investor Relations. With me today are our CEO, Khun Manat; our Deputy CEO, Khun Sharad; and our Co-CFO, Khun Nakul. Our presentation and additional materials are already available on our website and has also been emailed off to you. [Operator Instructions] So I would now like to welcome Khun Manat to start his presentation.

Thank you, Naureen. Good evening, and I'd like to thank you, everyone joining our Q3 2024 financial update. Today, we are pleased to share the key developments and progress as True Corporation continues to drive connectivity, digital growth and sustainable value for all the stakeholders. Despite external challenges, we achieved 7 consecutive quarters of EBITDA growth, reaching THB 25 billion in Q3. Our disciplined focus on profitability result in a 30% Q-o-Q rise in PAT, totaling THB 3.1 billion this quarter. Our effort to modernize the network have reached 64% completion, with 10,800 site upgraded, strengthening our leadership in 5G. However, prolonged flooding has impacted economic recovery. Our commitment to operate the excellent operation ensure we remain on track to a sustainable growth. Next slide, [Foreign Language]. Our accelerated network upgrade now covers 92% of Thailand with 5G. With modernized [ cluster ] driving improved user experience and churn reduction, this solidify our position as the preferred 5G provider, serving 12.4 million 5G subscribers with fast, reliable connectivity nationwide. Our modernization effort have significantly enhanced customer experience, with over 60% of users enjoying speed 2.5x faster. We also achieved a notable improvement in the CSAT score, with 10,800 upgraded ahead of the schedule. We are well position to maintain uninterrupted service and seamless experience for our customers. Our growth extends beyond connectivity to strategic expansion into high-impact digital and cloud-based solution. AI-powered smart IoT, our smart home ecosystem, continued to grow along with online, achieving the #1 most download smart home app in the market, with 18% Q-o-Q growth in app downloads. We are meeting the evolving digital lifestyle needs of modern households. AI-powered cybersecurity through our security operation centers, so called SOC, we extend our service, not only for large enterprise but also provide affordable AI-driven cybersecurity solution for SME. This quarter, we achieved an 8.4% increase in SOC capacity and delivered 24% year-over-year revenue growth in cybersecurity, meeting the rising demand for mid-market protection. Our AI-first strategy and focus on ecosystem partnerships position us as a leader in Thailand's digital transformation journey. The recent flooding crisis challenged communities, but True's network team respond quickly to maintain the connectivity. Critical infrastructure was elevated, and water levels were monitored to prevent outage. Deployed generators, mobile WiFi unit and SMS alert in collaboration with the government. Provided free 10-gigabit data packages and extend bill payment deadline to affected customer to support them. Our fundraising effort with the Mirror Foundation delivered essential life supplies. And our employees joined cleaning mission to restore the flood-hit areas. Just as our team never gave up providing uninterrupted service under pressure, we encouraged those affected by the crisis to stay strong. Together, we will rebuild and emerge stronger than ever. At the heart of our strategy is a commitment to the sustainability, social responsibility and strong governance through the ESG initiative. We secured Thailand's largest sustainability-linked syndicated loan of JPY 141.3 billion tied to reducing GHG emissions and expanding solar capacity. These initiatives support our goal of achieving carbon neutrality by 2030 and net-zero emission by 2050. For the fourth consecutive year, we were recognized by the National Innovation Award of the Autistic Application, which support children with autistic in developing communication skills. MorDee, a telemedicine platform providing easy health care access anytime and anywhere. True become the first company in Thailand to adopt the responsible AI road map, ensuring our AI solution align with international standard from OECD, UNESCO and GSMA. This position us a leader in the ethical implementation of AI. This ESG initiative showcase our commitment to driving responsible and sustainable growth into every aspect of our operations. Thank you for continue to support us. Now I would like to hand over the presentation to Khun Nakul, who will walk you through the financial performance of this quarter. Khun Nakul, [Foreign Language].

Thank you so much, Khun Manat. Good afternoon, good evening, good morning, everybody, from all over the world. Allow me to walk you through the financial performance, starting with the highlights of Q3 '24. We have seen a service revenue growth of 4.2% on a year-on-year basis, which, on a quarter-on-quarter basis, is flat. The EBITDA growth, as Khun Manat mentioned, is the seventh consecutive quarter of growth, 7 quarters of amalgamation for the company, at a 16.5% growth on a year-on-year basis and a 2.7% growth quarter-on-quarter. So even with the flat service revenue development, the EBITDA has grown 2.7% quarter-on-quarter. The normalized profit this quarter is about THB 3.1 billion, which is THB 0.7 billion growth on a quarter-on-quarter basis, largely coming on account of improvement in EBITDA. As a consequence of the efforts of the company, the leverage is down to 4.4x, which is net debt to EBITDA, which is a 1.2x decline on a year-on-year basis and a quarter-on-quarter decline of 0.3x. Let me go into a little bit detail to talk about the revenue development. First, the 4.2% growth in service revenue is mainly driven by mobile and online segments. This is on a year-on-year basis. The service revenue remained flat on a quarter-on-quarter basis due to lower contribution from mobile, offset by growth in the online business. As you can see from the graph, the product sales have declined 17.4% due to optimization of subsidy. And you will see a much better picture because the cost has declined even more when we look at the cost development. The total revenue increased 1.4% on a year-on-year basis, which is driven by growth in service revenue across all business segments. Then I move on to the mobile segment. As you can see from the right to the left, the blended ARPU has improved for another quarter at about 1.6% Q-on-Q and a 5.6% on a year-on-year basis to THB 211. At the same time, the postpaid ARPU has declined marginally by about 0.9% quarter-on-quarter, while the prepaid ARPU has increased 3.8% on a Q-on-Q basis. The middle section of the graph, you can see there is a 2.3% Q-on-Q and 4% year-on-year decline in total subscribers, which is impacted by our focus on quality acquisitions, something that we have been reiterating for the last couple of quarters. And also, there is collaboration with law enforcement agencies on scam prevention. And as a consequence, the mobile service revenue has remained flat on a quarter-on-quarter basis, as I mentioned earlier, due to low contribution from postpaid, offset by the growth in the prepaid segment, which mainly came from the tourism. Then I move on to the online business, which is broadband. We see a 7.5% growth on a year-on-year basis in online revenue, with 9.8% improvement in ARPU. So ARPU trend, you've seen has improved on a quarter-on-quarter basis for the last remaining quarters. In this quarter as well, there is a THB 4 improvement in ARPU and about 0.6% growth in subscribers as well. There is a 1.6% year-on-year decline in subscribers and about 9.8% year-on-year increase in ARPU, mainly driven by the removal of discounts and upselling of customers to the high-value packages, which is primarily, as you can see, the outcome is on the ARPU. And as a consequence, you can see the online revenues have grown 1.5% Q-on-Q and 7.5% on a year-on-year basis. Moving on to pay TV. There is a 0.9% year-on-year growth in pay TV revenues. The ARPU has slightly improved Q-on-Q by about 0.8% at THB 283. The subscribers have declined marginally as we can see that there is a decline on account of the linear subscriptions. And as a consequence, you can see, even though there is a marginal decline in the pay TV revenues on the subscription, the total revenues on a Q-on-Q basis is more or less flat or a negative 0.3%. Moving on to the OpEx. We see a 9.9% year-on-year and a 3.4% Q-on-Q decline in OpEx, which is benefited by the synergies and ongoing efficiency measures. As you can see from the graph, the network cost declined 13.3% year-on-year, which is driven by continued synergy-related savings as Khun Manat spoke about, from the network modernization. There have been procurement-related savings as well. The cost of sales have declined 21% year-on-year in tandem with the product sales and optimization of subsidy. If you recall, the products revenue declined 17%, and the cost has now declined 21.1%, which highlights the fact that we've optimized the subsidy. So profitability has improved. The SG&A has declined 17.7% year-on-year, again, benefited by synergies, mainly from organization modernization, commission and marketing expenses and improved collections. We see record levels of lower bad debts for the company. The other cost of providing services decreased 0.3% year-on-year, declining Q-on-Q due to lower seasonal content and project-based costs. Moving on to the EBITDA. We see a seventh consecutive quarter of EBITDA improvement, with 16.5% growth on a year-on-year basis. EBITDA has improved THB 0.6 billion Q-on-Q to close to THB 25 billion levels, an increase on 2.7% quarter-on-quarter. EBITDA improved by about THB 3.5 billion on a year-on-year basis as well, which is the 16.5% that I just mentioned a few seconds ago. Since amalgamation, we have seen a THB 5.5 billion improvement in our EBITDA, which is something that, as management, we are very proud of. And then as a consequence, the EBITDA to service revenue has improved to 60.2% in Q3 of '24, the first time we have touched the 60% threshold. Moving on to the profitability. We see a THB 3.1 billion normalized net profit in Q3, and we see a solid improvement in profitability in the 9 months as well. The net profit in Q3, like the previous quarters, was negatively impacted by one-time effects of THB 3.9 billion, mainly pertaining to the impairment of redundant assets related to network modernization. And I think Khun Manat spoke about the number of sites that we've modernized already. The normalized profit, though, has -- which actually amounted to about THB 6.3 billion for the 9 months of 2024, has seen a significant increase as compared to last year's 9 months. During the same period, we see a CapEx Q3 of '24 of about THB 9.9 billion. Majority of the CapEx is spent on modernizing the network, which you can see the results on the OpEx and, of course, on the performance here as well. On the left-hand side, you see the reported loss and the normalized profit on the graph. So as you can see, from a THB 2.4 billion of normalized profit in Q2, we now reported THB 3.1 billion of profit, which is roughly THB 700 million increase. Moving on to the leverage and the net debt position of the company. Again, in this quarter, we see a good reduction in the net debt. So now, on a full year basis, on a year-on-year, THB 37 billion of reduction in net debt, we can see in the graph here. And then as a consequence, the leverage, which is the net debt over the EBITDA, from a 5.6 turns in Q3 of '23, has gone down to 4.4 turns in Q3 of '24, a 1.2x reduction. During the same period or even actually in the last quarter, when I compare Q2 versus Q3, we've also seen a 0.3 turn reduction in the net debt, which is coming both on account of interest-bearing debt as well as the ones on the lease liabilities. The effective interest, as you can see from the graph, has more or less remained constant from Q2 '24 to Q3 '24. The debt maturity profile, you can see on the right-hand side of the graph. We've issued debentures of roughly THB 18 billion at a weighted average interest rate of 3.8% in Q3 of '24. There is also going to be an upcoming debenture issuance in November '24 to take care of the balance outstanding debt that is remaining to be -- that is supposed to mature in Q4. We've also secured a sustainability-linked JPY loan equivalent to roughly $900 million, which has been utilized to fully prepay the U.S. dollar borrowing that we had. If you remember, we had repaid part in previous quarter, and now we have actually repaid it in full. My last slide, just giving you a 9 months versus 9 months comparison. You can see on the total revenues, improved 1.9% on a year-on-year basis for the 9 months. As far as service revenue is concerned, it's an improvement of about 5.3%. The total OpEx, excluding D&A, has reduced 8% on a year-on-year basis. And as a consequence, the EBITDA on a reported basis has improved 15.3%. At the same time, on a normalized basis, the EBITDA improvement is about 17.7%. The net profit after tax has improved about THB 10.5 billion in the 9 months period in '24 as compared to '23. And as you -- as I mentioned earlier, we've seen a normalized profit of about THB 6.3 billion in the first 9 months of this year. With this, I hand back to Khun Naureen. She will open up for the Q&A, please. Thank you.

Thank you, Khun Manat and Khun Nakul. We do have a bunch of questions already, but let me first start with -- [Operator Instructions] So with that, we start with Khun Pisut.

Pisut from Kasikorn Securities. May I have 3 questions? My first question is on your mobile subscriber loss. It turned out to be the third consecutive quarter that you lost the mobile subscriber. And you mentioned earlier that it was about some technical adjustments, which was unlikely to persist. What exactly happened as it does not look like the industry issue as your competitors still reported positive impacts? And what should I forecast this parameter in the future? My second question is regarding your guidance. You maintained 2024 EBITDA growth guidance at 12% to 14% but mentioned that you could overdeliver the EBITDA growth over the guidance. How much should we expect your fourth quarter EBITDA growth from the third quarter? And for my last questions, you are so successful in making the market believe about your earnings turnaround. The market is now shifting the doubt to how much your normalized profit can grow until hitting the normalized level. And when will it happen? It would be great if you can give us some color on this and you can use your competitors' normalized profit level of the THB 3 billion as the reference.

Thank you, Khun Pisut. I would like to pass on all of that to Khun Nakul.

Sure. Thank you so much for your questions, Khun Pisut. Good to see you back at #1 in terms of asking questions. With respect to the mobile subscriber loss, you mentioned third consecutive quarter, yes. As we have mentioned in the past -- except for, I think, Q1 where there was a technical adjustment on the subs. Other than that, there is no technical adjustment in the last couple of quarters there. The reduction in the subscribers, firstly, on the prepaid is purely on account of focusing on quality subscribers. As we have mentioned earlier, in this market, like many of the markets in Asia, there is a high gross and a high churn kind of a behavior. And this is something that we've consciously wanted to address. We see -- we saw our competitors do something similar, maybe sometime last year. And this is the time of the year that Q1 and Q2 and now in Q3, we've taken measures to reduce the unnecessary gross adds that are there because they do not add too much to the top line. And keeping in mind the commission that we spend, it is a negative profit for us. So hence, we have taken as an opportunity to optimize our gross adds, which -- the effect of which you can see in the SG&A reduction as well, which is beneficial to the EBITDA. As far as the forecast is concerned, we believe that a majority of this exercise is already behind us. So we've taken 3 quarters to do this change. We've done it in prepaid. We followed up in postpaid as well. We believe that majority of this is behind us. So the trend should turn around in the next quarter. Then your next question on the guidance. Yes, I mean just to give you some numbers. If you do not grow from the third quarter numbers, we maintained the THB 25 billion. We're already sitting at about 14.1% growth year-on-year on the EBITDA, which clearly means that we will surpass the guidance that we have given to the capital markets because the EBITDA range was about 12% to 14%. We've had 7 consecutive quarters of growth. We know that Q4 is a seasonally high quarter. At the same time, there are seasonally high content costs as well. We will continue to deliver on our efficiency and our synergy program, which also means that we should see a definitely better quarter as far as fourth quarter is concerned. The extent to which the EBITDA will be, I mean, I cannot tell you it now, but I can assure you that we look forward towards having a growth in our operations and the synergy realization and the EBITDA. On the earnings turnaround, if I understand your question well, we have had a normalized profit of -- in the 9 months of about THB 6.3 billion. This quarter alone was about THB 3.1 billion. If I understand your question correct, you're probably talking about even after considering any potential write-off due to network modernization, will we end up having a profit anytime soon? It is a bit -- if I understand the question correctly.

He's asking for reported profit.

Okay. So on a reported basis, of course, we need to factor in the effect that may come on account of the network modernization. We have -- we are ahead of our plans. I mean we wanted to do up to 10,000 sites of network modernization in 2024. Right now, we've done 10,800. So we are 700, 800 higher than what we had planned. I think for Q4, you can probably estimate the network modernization to carry on with a similar momentum that we've seen in the first 9 months of this year. So you can average it out, and we're going to continue the plan. The network modernization, I'm sure there is going to be a follow-up question. We aim to complete the network modernization by Q3 of '25. [Foreign Language] Thank you.

Thank you. Next on the list is Piyush.

Congratulations for the strong results. I have 3 questions, actually, if I may. In mobile, can you tell us what is leading to drop in postpaid ARPU sequentially? And if you can talk a little bit about the outlook of mobile ARPU. Secondly, you have already exceeded 2025 EBITDA margin expectations, which you had given during CMD last year. In light of that, can you talk a little bit about margin expectations for '25 and CapEx outlook? And lastly, at what leverage level would you start considering dividends?

Thank you so much, Piyush. Then I will pass that on to Khun Nakul as well.

Okay. Thank you so much, Piyush. I hope you're doing well. Your first question on the ARPU decline in the mobile business, let me explain. It's basically coming on account of 3 reasons. Q3, we all know is a seasonally low quarter, especially in terms of international roaming. In fact, in Q2, we had good growth in international roaming. So when we compare on a quarter-on-quarter basis, we've seen a decline, which impacts the ARPU. The second thing is, as I mentioned, we are focusing on quality acquisition. Earlier, we had all spoken about prepaid. In this quarter, we shifted focus to postpaid as well, which is where you see our device sales have gone down on a Q-on-Q basis, but the subsidy spends are even lower on a year-on-year basis as well. By focusing on quality acquisitions, we've seen a reduction in the handset-bundled sales which, of course, impacts the revenue and also impacts the ARPU. But on an overall basis, these are more or less loss-making customers. So that's why we want to focus towards the profit-making business as has been our strategy. There is one more reason. We also saw lower revenues in this quarter from EPL. Q3 actually marks the beginning of a new quarter for EPL, and that's why the revenue is lower, which is expected to pick up in Q4. So these are the 3 reasons that I've seen that resulted in a decline in ARPU. But also, please keep in mind, on a year-on-year basis, we've seen a THB 9 improvement in ARPU already, from THB 417 in Q3 of '23 to THB 426 in Q3 of '24. As far as forecast, I think you also asked about this. We believe the growth in mobile business should probably be in line with the GDP. And a large portion of this growth should be driven by our ARPU improvement. The second one, you had a question on the EBITDA, right? We've exceeded the 2025 EBITDA margin expectations, yes. I think we had a Capital Markets Day on 26th September last year. A lot of those KPIs that we mentioned at the Capital Markets Day, including, but not limited to the EBITDA margin, our net debt to EBITDA, we had a target of 4.5% by end of '25. We are already at 4.4%. So this calls for a revision in the numbers. We are in the midst of finalizing the strategy for the next 3 years, and very soon, we'll come back with a revised set of numbers in a very, very short call to explain what the next 2, 3 years are going to look like. But as a management, we are not fully done with the synergy realization or our transformation program yet. As Khun Manat mentioned, we have done 10,800 site modernization. Target for us to do is 17,000. There is some more way to go on the other aspects as well. So we should continue to see the improvement. The leverage, I think you asked about it as well, what level of leverage we would consider a dividend. As I mentioned in the past, we do not link the leverage -- or there is no minimum threshold for us to reach as far as leverage is concerned for us to consider the dividend. We expect to turn profitable on a reported basis as well in 2025. There is no secret about it. And as and when this happens, we'll obviously look at considering the dividend, which is going to be brought to the Board for approval. We also know for a fact that our dividend policy is at least 50% of the stand-alone net profits, keeping in mind the cash reserves of the company as well. So maybe sometime in the second half, we can look at a discussion on the dividend into '25. Thank you.

Okay. Thank you, Piyush. Then we move on to Wasu.

So I have 3 questions. Number one is about the prepaid revenue, excluding the revenue from tourists. So how was the Q-on-Q trend for prepaid revenue for domestic customer? I'm just wondering whether the flood has impacted the prepaid revenue coming from domestic customers. So that's number one. Number two, now that True is ramping up network CapEx in the third and the fourth quarter, should we expect depreciation expense to rise Q-on-Q in the fourth quarter? And the final question, True's new debt issuances in the second and the third quarter seem to have interest rate of around 3.8%. Why did the overall effective interest rate remain at 4.1% in the second and the third quarter despite the lower rate coming in from the new debt? Those are my questions.

Thank you so much, Khun Wasu. Nakul, if you would like to take that one. Prepaid revenue.

Okay. Thank you for your questions, Khun Wasu. On the -- your first question is, excluding the impact of the tourists. Actually, I mean, let me explain the prepaid revenue development in this quarter. It's a mix of a few things. July, we saw the second highest tourist arrival in the country in 2024 and in the last few years, in fact, if you ask me. So it was a very seasonally high month as far as the tourist revenue was concerned and tourist arrival was concerned. At the same time, it was -- we had an impact coming specifically in the month of September especially in the North and the Northeast regions with respect to the flood, which definitely impacted the customers' affordability and, of course, the mobility of the people as well. At the same time, the government also launched this new subsidy scheme of about THB 10,000, which is done sometime in the 10th of September, if I'm not mistaken, which also had some positive benefit on the revenues as well. So a mixture of all these factors have resulted in a growth in the prepaid business of about -- of the numbers that you see, about 1.5% or so. And actually, that's what happened. So I cannot isolate the tourist here to see whether the rest of the business has shown growth and what percent of the growth, but in a mix, this is what has happened in the mobile business, especially on the prepaid side this quarter. Then the next question on the network CapEx. Yes, Q3, we have done roughly THB 9.9 billion or almost THB 10 billion of CapEx. For 9 months, we have reached about THB 20 billion. The CapEx guidance for the full year was about THB 30 billion, so you're right. There will be probably around another THB 10 billion that will be booked in Q4. As far as the D&A is concerned, it will be impacted by a couple of things. Number one, as we continue to modernize our network, we will continue to see a reduction in the D&A because we do write-off of assets that are rendered -- redundant because of the modernization. At the same time, as we dismantle the sites and we reduce -- we end up not paying for the rentals for the sites, amortization of rental also goes down. This obviously is offset with the fact that there is a higher depreciation. And that's why if you see in Q3, the depreciation on a Q-on-Q basis was more or less flat. It's a bit difficult to tell you what's going to happen in Q4, but you can assume that there is going to be a THB 10 billion of CapEx spend, and the roughly useful life of assets that we have is around 9 to 10 years. So maybe you can consider that to do the math. We always believe that progressively, with the efforts that we do on the single -- with the network modernization program, the write-offs and the rental reductions, the D&A should progressively go down ever so slightly on a quarter-on-quarter basis. Your last question on the debt issuance. The last couple of rounds have been around 3.8%, but the effective cost is still around 4.1%. I think we need to look at a couple of factors here. One, the debt that we have refinanced in the last couple of quarters is relatively small as compared to the total interest-bearing debt of about THB 350 billion. So it has to be a significant portion of the debt to be refinanced at a lower percentage for the effective interest to go down. And I think that probably will help me explain this aspect to you, [indiscernible]. Thank you.

Thank you, Khun Nakul. Next, we have Chris from DNB.

Can you hear me?

Yes, we can.

So just another question on EBITDA. So you had stellar, I think, 4% sequential growth on average since Q1 '23. I'm just thinking like into Q4, is it becoming more and more difficult to keep that kind of pace as there are fewer and fewer things to kind of improve on? Or is there no reason why you shouldn't be able to grow at that kind of 4 percentage plus or minus rate sequentially into Q4 on EBITDA?

Any other questions, Chris? We would like to take all the questions first.

All right, sure. And then the follow-up on that is basically, if you look at that trajectory into Q4 and you kind of annualize that level that you have in Q4 and you also have that NT agreement ending in August next year, and kind of is there any reason why you shouldn't be in a position to grow EBITDA almost 10% next year, I guess, with that tailwind from the NT agreement going out? Those are the 2.

Okay. Thank you. Khun Nakul, would you like to take them?

Yes. Again, thank you, Khun Naureen. Thanks, Chris, for the question. Yes, I have actually maintained it for the last few quarters that it is increasingly becoming difficult to grow the EBITDA. I think Q4 last year and Q1 this year, we saw roughly THB 900 million to THB 1 billion of growth in EBITDA. Now we see roughly THB 600 million of levels. So this should progressively go down, barring the impact that may come from the NT arrangement that you yourself alluded to. As we mature on our network modernization program, as we mature in terms of finishing the synergies or finishing the transformation programs, the incremental effect is going to be lower as compared to what we've had in the past. So yes, I mean, it will be difficult to assume a 4% growth on a quarter-on-quarter basis that I think is going to be difficult for us to deliver. Of course, a large portion of this will also depend on how well we are able to grow the top line because that can have a 2x impact on the EBITDA, keeping in mind the 55% to 60% margin that we have. Then as far as next year is concerned, yes, if you annualize Q3, Q4, and if you consider the benefits that we may get from that spectrum arrangement that is due to expire, the growth in EBITDA should be quite handsome next year. We are not yet indicating our guidance for '25. So you'll have to wait for Q4 numbers, and then we'll indicate to you the performance that is expected in 2025. But yes, I mean, if you just consider what you just mentioned, then there should be a decent growth in EBITDA in '25 as well. Thank you.

Thank you, Khun Nakul. We have the last live question from Khun [ Jin ]. Then we will move on to the chat box questions.

Can you hear me?

Yes, we can.

Somehow I cannot turn on the camera. I'm not sure why. I'm sorry.

That's okay. Now we can see you.