Tuas Limited (TUA) Earnings Call Transcript & Summary

Thank you, Sarah. Good morning, all. I'm Richard Tan, CEO of TPG Telecom Singapore. Also joining me on the call are Tuas Executive Chairman, David Teoh; and TPG Singapore's CFO, Harry Wong. It is my pleasure today to share with you the financial year results of Tuas Limited. Please note that the results span a full 17.5 months as we were incorporated as a new public company on 11 March 2020, and we completed our first financial year-end on 31 July 2021. Slide 2 lays out the agenda of this presentation, starting with Harry running through the financials. I will then cover the business updates and outlook. Last but not least, we will reserve some time for the Q&A. Do again note that the numbers reported are all in Singapore dollars. I will now hand you over to Harry.

Good morning, everyone. My name is Harry Wong, CFO of TPG Telecom Singapore. I will take us through the financials of the Tuas Group for this session. So we look at Slide 3 for the reported period covering 11 March 2020 to 31st July 2021, revenue is $34.3 million, with EBITDA being negative $2.4 million and net profit after tax of negative $32.6 million. For the 12 months ending 31st July 2021, revenue is $32.2 million, with EBITDA being negative $0.5 million and net profit after tax of negative $28.2 million. From this, you can see that the financial performance of the business accelerated in the last 12 months. Revenue has grown steadily month-to-month. TPG Singapore achieved positive EBITDA of $0.9 million for the 12 months ending 31st July 2021. Next, we look at the revenue and subscribers on Slide 4. Revenue for the 5.5 months ending 4 September 2020 was $4.3 million and increased to $30 million in the next 11 months ending 31st July 2021. The core mobile revenue accounts for 91% of total revenue. ARPU over the last 12 months averaged $9.43 per month. Subscriber base as of 31st July 2021 almost tripled from the last reported of 133,000, now standing at 392,000. That represents a market share of 4.5%. Next, we proceed to the cash flow on Slide 5. Cash following the acquisition of TPG Singapore is $144 million, comprising of cash acquired from acquisition of a subsidiary under common control of $56 million and proceeds from issue of share capital of $88 million. As a reminder, this transaction took place before Tuas was demerged from TPG Australia. Since then, acquisition of PPE and other intangibles assets totaled $45 million. Net cash used in operating activities amounts to $6 million. Net exchange fluctuations and others add up to approximately $1.4 million in cash inflows. This brings the ending cash and term deposits to $94.6 million as of 31st July 2021. With this, I pass over to Richard to proceed with the business update.

Thank you, Harry. Moving on to Slide 6. You will see that TPG has 3 very simple to understand mobile plans. A feature generous data bundles, free data roaming to selected countries and unlimited mobile to mobile calls. The majority of our customers are on the $10 plan. The $18 plan also includes free IDD minutes. It is clear that we have been leading the market with our very affordable plans, which have helped support our underlying growth. Slide 7 talks about our recently launched $5 plan for SMEs and businesses. They also feature unlimited mobile to mobile calls and the reception to this plan has been encouraging. We are again breaking new ground to help reduce costs for businesses in Singapore. And as we know, many of them are going through challenging times. Moving on to Slide 8. What we have here is a map of Singapore with the dots representing many of our base station installations. This is a significant investment on our part to provide a consistent and high-quality outdoor and indoor coverage for our subscribers. The network is also easily upgradable and with the 800 megahertz of millimeter wave spectrum, which TPG has acquired, we are in a good position to provide gigabit speed 5G millimeter wave services as the ecosystem matures. Slide 9 covers the recently released quarterly QoS audit results from the Infocomm Media Development Authority, otherwise known as IMDA for the period April to June 2021. Similar to previous quarterly audits, we clearly meet or exceed IMDA's quality of service KPIs. This is a testament to the quality of the network which we have built. Turning to Slide 10. Provision of MRT coverage continues to be on track. We have completed the substantial retrofit works for NEL, Northeast Line, CCL, Circle Line, DTL Downtown Line, CAL, Changi Airport Line and the new TEL Thomson-East Coast Line, Stages 1 to 3. Works continue on NSEW, otherwise known as the North South East West Line, and we plan to complete the remaining 11 stations by end October 2021, barring any unforeseen delays. We, therefore, expect to fulfill IMDA's MRT tunnels coverage conditions before the due date. Slide 11 covers the remaining business updates. TPG Telecom Singapore has achieved the key ISO 22301 and ISO 27001 certifications relating to business continuity management and information security management, respectively. In relation to 5G, we have obtained IMDA approval for 5G NSA market trial using our existing 2.3 gigahertz band until 31 December 2021. This allows our existing subscribers to enjoy the early benefits of 5G if they have the appropriate 5G capable devices. And finally, Slide 12, which covers the outlook for the business. To put it very simply, TPG Singapore is expected to continue tracking EBITDA positive and CapEx spend is estimated to be around $40 million, excluding any investment in 5G. The economic conditions here in Singapore remain uncertain and uneven. And as you are probably well aware, we have new restrictions in place such as work from home and dining out limited to 2 implemented again yesterday with a rising number of cases. That ends my presentation, and I will now hand it back to the moderator for the Q&A session.

[Operator Instructions] Our first question comes from Tobias Yao from Wilson Asset Management.

Congratulations on the results. Just wanted to ask your strategy around upselling your existing customers to the higher the $18 plan. And sort of do most customers come on at $10 and over time migrate to the $18 plan? And how do you think about, I guess, the strategy around pushing sort of the higher ARPU for the business?

Thanks, Tobias, for your question. The 2 plans, as we know, one is at $10 and the other one is at $18. As mentioned, the majority are on the $10 plan. The difference between the 2 is the inclusion of free IDD minutes. And that primarily is the difference besides the fact that the $18 plan has additional number of minutes to fixed lines as well as to SMS -- additional incremental SMS'. I hope that answers your question.

Yes. I was just more thinking, are you seeing a trend where customers that come on the $10 plan initially, over time, they migrate to the $18 plan. And so over time, the percentage of the $18 plan as a proportion of total plans go up, if that makes any sense?

Yes. I understand where you're coming from. So from that perspective, we are considering the possibility of adding what we call incremental service packs, and that should help lift the ARPU.

Got it. And maybe just another one. Just on the capital expenditure, you've talked through $40 million for this year, excluding 5G. Maybe could you help me understand sort of going forward, once you've done all the CapEx, excluding 5G, what would this typical CapEx profile look like over time?

I think it's too premature or too early to give any color beyond that $40 million that we have mentioned moving forward.

Is the $40 million mainly for new equipment? Or is it there's some replacement equipment in there as well?

Primarily, it is to add capacity and to deepen our coverage.

[Operator Instructions] Our next question comes from [ Young Lucas from Mirrabooka ].

Richard, just wanted to ask a question on your long-term ambitions for market share in Singapore and your access to 5G spectrum and how that will impact your ability to achieve that market share?

Okay. As you know, we are offering the most competitive plans in the market today, and this is helping us grow our market share. With regards to 5G, we have millimeter wave spectrum. And as mentioned in my presentation, with the network that we have built and the fact that it is upgradable, we are in a position to roll out 5G millimeter wave service as the ecosystem matures. Now with regards to 2.3 and obviously, the market is aware that there is a 2.1 gigahertz 5G option that will be coming up in Singapore. We are still considering our options.

And based on your current spectrum holding, what does that allow you in terms of additional subs or market share?

We do not think that the spectrum holdings that we have today limit us in any way. They are more than sufficient for us to support the current business.

And can you also talk a bit about the typical customer that you're winning at the moment? Obviously, it seems to be a more price-sensitive customer, but incredible value in your packages?

Yes, it is very clear that a lot of our customers are what I will call data-hungry customers. And I would say that we have quite a lot of them on our network.

And sorry, just one final one. Given the sort of COVID conditions that Singapore is under at the moment, can you talk about how that's actually inhibiting your market share gain, like perhaps whether you would have done a lot better under different circumstances?

Well, as you know, from an acquisition point of view, we are using a mix of online and dealer marketing. So with the COVID conditions, yes, it's a bit up and down, but we are obviously working hard to minimize the impact.

And if I may, one more question. So I'm just trying to understand the type of sales and marketing efforts you might put in place to accelerate market share gains from here?

Could you repeat that question again because I couldn't quite understand it.

Sorry. Just wanted to understand whether you need to accelerate spending on sales and marketing to accelerate market share gains from here?

Well, we are quite comfortable with the level of investment with regards to marketing that we do today. But obviously, we will adjust it accordingly depending on what the market situation is.

Our next question comes from Roger Samuel at Jefferies.

Just wondering what's the longer-term strategy for the company moving forward? And I'm just wondering if you are going to go into fixed broadband as well, given that you have ventured into mobile for SMEs. Are you going to consider going into fixed broadband?

Well, fixed broadband is something that we will continue to look at.

And just to clarify on your CapEx guidance of $40 million in FY '22, does that include any investment in spectrum? Or is it just the CapEx ex spectrum?

No, that $40 million does not include any investment in spectrum. As mentioned earlier, it is primarily for deepening our coverage and for enhancing the capacity in support of subscriber growth.

Our next question comes from Tobias Yao from Wilson.

Sorry, just one last question. Just on the business side of things, given the network that you currently have, I guess, is it fair to assume, I guess, more products over time after the initial sort of TPG business plan?

Sorry, could you repeat your question again?

Yes. I'm just trying to understand, I guess, longer term, the business SME market in Singapore for your business? And what other ways you could, I guess, penetrate the market or grow your market share there?

Well, we will continue to offer different mobile plans to embrace as many segments -- relevant segments of the market, and that is where we are coming from. Wherever we can compete strongly, obviously, we will want to enter that space.

Our next question comes from Young Lucas from Mirrabooka.

Richard, if I may, just are you able to -- excuse my ignorance of the Singapore telco market. But are you able to talk a bit about the competitive set in terms of the quality of the networks between the players in the market?

Okay. Interesting question. It is a 4-player market. And I would say that in terms of the quality of the network, we are as good as the other 3 of them. And this is evidenced by what IMDA has published with regards to their quality of service, quality of it. So we're quite proud of what we have, and I believe that our customers have voted with their wallets.

And then on the issue of capacity, is it as simple as if you wanted more market share or you need more spectrum?

No, not quite exactly. We have quite a substantial amount of spectrum from our own perspective. And based on our radio planning, we look at where there is growth in network traffic, and we add network capacity accordingly. And with the technology that we have that's available to us, we can do it very cost effectively depending on what the radio planners tell us.

And can I interpret the fact that you're the newest sort of network and you're utilizing the latest technology as to the reason -- as to why you're so price competitive and network quality is so high. Is that the reason?

Well, we have a very simple design. It's cloud-based, highly scalable. And yes, we are using the latest technology. And as mentioned, it's fairly straightforward to upgrade, and we leverage the latest and take advantage of whatever efficiencies that the new technology provides for us. And obviously, our overheads would be much less than the other competitors. And this, I guess, is what we are well known for.

Is there a metric you can point to that whether it's -- that tells you your spectrum usage efficiency versus competitors or there's some other metric we can use to demonstrate your superior economics?

Generally, we do not talk about our competitors. I would say that I'm sure that you are watching this space very closely as well. But given that we are -- we have a lot of data heavy users, I would say that, yes, we are likely to be carrying more than our fair share of traffic here in Singapore, and our network is performing well, and that's as much as I can say.

And one of the trends overseas in -- I think it was Verizon who are moving towards unlimited plans. Is that sort of the plan in the future to move towards that? And how does the -- have you managed to bear so much usage?

Well, I think it's too early to comment about unlimited plans. It will obviously depend on how the market evolves. But yes, we are watching the developments closely globally.

[Operator Instructions] There appear to be no further questions. So I will hand back to your speakers if they have any final comments. Thank you.

Thank you, everyone, again for your time. And thank you as well for your support. Thank you.