Tuas Limited (TUA) Earnings Call Transcript & Summary

Thank you. Good morning all. I'm Richard Tan, CEO of TPG Telecom Singapore, the main operating vehicle of the Tuas Group. Joining me on the call are Tuas' Executive Chairman, David Teoh; and TPG Singapore CFO, Harry Wong. It is my pleasure today to share with you the first half financial year results of Tuas Limited covering the period 1st August 2021 to 31st January 2022. Slide 2 lays out the agenda of this presentation, starting with Harry running through the financials. I will then cover the business update and outlook. Last but not least, we'll reserve some time for Q&A. Do again note that the numbers reported are all in Singapore dollars. I will now hand over to you 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. On Slide 3, for the reported period covering 1st August 2021 to 31st January 2022, revenue was $25.6 million, with EBITDA being $6.3 million and net profit after tax of negative $13.4 million. For the comparative 6 months ending 31st January 2021, revenue was $12 million, with EBITDA being negative $2.3 million and net profit after tax of negative $11.4 million. From this, you can see that the financial performance of the business improved in the last 12 months. Revenue has more than doubled and the Tuas Group achieved positive EBITDA for the half year ending 31st January 2022. Next, we look at revenue and subscribers on Slide 4. Revenue for the 6 months ending 31st January 2021 was $12 million and increased to $25.6 million for the 6 months ending 31st January 2022. ARPU over the last 6 months averaged at $9.42 per month. The subscriber base as of 31st January 2022 was 487,000. That represents a market share of 6.9%. We proceed to the cash flow on Slide 5. Opening cash and term deposit balance was $94.5 million. Net cash from operating activities is $8.7 million. The main cash outflow comes from acquisition of plant and equipment of $21.5 million and 5G spectrum of $31.1 million. This brings the end cash and term deposits to $50.1 million as of 31st January 2022. With this, I will let Richard proceed with the business update.

Thank you, Harry. Moving on to Slide 6, you will see that the subscriber base continues to grow. We added 95,000 paying customers during the period. I'm also pleased to mention that in early March, we crossed the 0.5 million subscriber milestone. The completion of our rails tunnels coverage in Q2 FY '21-'22 and the expansion of free roaming to 57 destinations have helped support our underlying growth. Slide 7 shows IMDA's latest quality of service readout for the 4 major mobile networks in Singapore. Our continued network investments to deepen coverage and grow radio capacity has ensured that we attain parity with our competitors for both outdoor, indoor and tunnels coverage. Based on our exhaustive testing, we fully expect to meet the regulators' compliance standard of better than 99% for all road and rail tunnels. Moving to Slide 8. What you see is a map of Singapore with the dots representing many of our base station installations. We have spared no effort to ensure consistent coverage across the island of Singapore and the relevant outlying islands as well. Do note that the network is easily upgradable to support the new 5G 2.1 gigahertz spectrum, which TPG recently acquired. This involves the addition of new 2.1 gigahertz radios and baseband upgrades and where necessary, antenna augmentation as well. Slide 9 provides an update on the 5G 2.1 gigahertz spectrum acquired by TPG for a cost of SGD 31 million and its placement of the 10 megahertz in the 2.1 gigahertz band. It has a 15-year lifespan, and we expect to launch 5G stand-alone services this calendar year. Turning to Slide 10. TPG continues to lead the market with exciting offers to broaden our market base. As part of the process of migrating to a new brand for TPG Singapore, we will be launching SIMBA SuperRoam very shortly. This new plan offers an incredible free 10 gigabytes of roaming data to 57 destinations together with 80 gigabytes of local data for only $25. Both inbound and outbound travel have resumed in Singapore with COVID restrictions largely lifted, and this attractive plan will help us capture the outbound travel flows. For inbound travelers, we will be setting up an airside booth in Changi Airport very shortly where the travelers can pick up a TPG SIMBA SIM with minimal cost. We have also launched the $5 SIMBA Super IDD pack, which provides 500 IDD minutes to 21 destinations along with 3 gigabytes of local data. The SIMBA brand will progressively become the dominant brand for the group in Singapore. Finally, Slide 12, which covers the outlook for the business. The rebranding to SIMBA will progressively occur, and we will invest in growth. 5G is important to the company and significant efforts are already in place to launch 5G stand-alone services this year. While the Singapore economy is robust, we are experiencing higher overall inflation and large increases in wholesale electricity rates, which negatively impact network OpEx. And to close off, we are maintaining our previous CapEx guideline of about SGD 40 million for the full year, excluding spectrum. Our initial 5G ramp is included in that guidance. That ends my presentation, and I will now hand it back to the moderator for the Q&A session. Thank you.

[Operator Instructions] Your first question comes from Nick Harris from Morgans.

Great results. Three questions for me really. First one, just the seasonality of the business. Is December and January typically slow due to a lot of your customer base returning or exiting Singapore going back to places like Malaysia? Do you want me to ask the other 2 now or one at a time?

Might as well, ask both in one go.

Excellent. So the other 2 questions were just on your CapEx guidance. Obviously, you've reiterated the 4G CapEx. I'm not sure if you're able to provide any commentary or flavor around what we should think with respect to 5G. Is there a big amount or a little amount of CapEx we should think over the next 6, 12 months or even broader, if you're happy to talk longer term? And then just my last question was the SIMBA brand. That sounds like a great name. I was just wondering if maybe you could talk to the significance of that brand. And I guess, why do you think it will resonate with the Singaporeans. I was just trying to understand the, I guess, the origins of that brand and its significance.

Okay. Let me first start with the seasonality question. As you know, for the period, we added 95,000 customers. There's not a lot to say really about the numbers from a seasonality aspect because it is what they are. The numbers were indeed, to some extent, helped by the completion of the rail tunnels coverage. And as I mentioned, we were also able to launch free roaming to 57 destinations. So from a travel perspective point of view, and I think most of the listeners would recall that Singapore started to lift travel restrictions towards the end of the year. The timing was good, and that helped increase the take-up across most segments, most of our plans, and that's something that we observed. So I hope that kind of like covers the seasonality question that you asked. Before I handle the CapEx -- before I handle the CapEx question, let me talk about the brand. It's very straightforward. Singapore is the Lion City, and I won't say much more than that. There will be more to come as we continue with our rebranding. Now the third one would be on CapEx. CapEx is -- we have provided the guidance as we have indicated at about $40 million. The equipment that we have is upgradable. In fact, a lot of the equipment that we have purchased of late, for example, the baseband cards, they were already capable of supporting 5G. That's why we have not changed the CapEx numbers at all. Without a doubt, CapEx would be needed for the 2.1 gigahertz radios that I mentioned. But that would be -- and for the rest of this financial year, it's pretty clear that we are only at the start of the initial 5G ramp. We are very busy trying to finalize our plans right now. So at this point in time, it's a bit too early to provide the full 5G CapEx. As you know, IMDA has certain coverage obligations, which would be the 50% mark and the 95% mark and it stretches out the number of years. So as I said, at this point in time, it's probably a bit too early to provide 5G guidance -- CapEx guidance.

Can I just clarify that I understood that correctly? So I think what you said is for the rest of this financial year, the CapEx guidance that you have provided covers everything, and then we'll talk about next year, next year. So don't expect more for 5G CapEx in the second half of this financial year. Is that -- am I reading that correctly?

Yes. That's basically what I am signaling.

[Operator Instructions] Your next question comes from Joseph Michael from Morgan Stanley.

Congratulations on a really strong result. I had a couple of questions. I might just go through them one by one. But maybe just as a first one, just around, I guess, your net add momentum, it's really quite strong. Just trying to get a sense of how big you think the value end or the price-sensitive end of the market is like do you think 25% to 30% is a realistic number as to what's kind of addressable?

Well, it's kind of hard to look at the crystal ball and come up with a percentage like 25% to 30%, if you know what I'm trying to say. At this point in time, we have gained approximately 7%. And what we obviously tell ourselves is that we need to continue with the momentum because that's quite important too. And as far as we can tell right now, as long as we continue to maintain the price competitiveness of the service plans, improve all aspects of the customer experience, the network quality, et cetera, et cetera, and add new things to the plans, we believe that we would be in a good position to continue to grow because that's the main focus right now.

Okay. Got it. And then next question just around cash flow conversion. If my math is right, I sort of came up with an estimate of 130% cash flow conversion. Can you just talk us through what's driving that and how we should think about that ratio going into the second half?

Harry, do you want to try to talk about this cash flow conversion of 130%? In the meantime, would you like to ask the next question?

Yes, sure, sure. So next question I just had was around margins. Just trying to understand, I guess, the sort of sequential decline in margins from first quarter into the second quarter. Is that just all driven by higher electricity costs? And then how should we think about margins going into the second half? Can they improve from sort of 19% in the second quarter? Or do you think those higher electricity costs are going to weigh on margins?

I think the margins question, obviously, is an interesting one given the increases of some expenses. The electricity cost is a significant impact given that we have quite a number of base stations around the island. You saw something like 1,200 in the slides, right, and electricity costs. Every time the power cost increases, it impacts the network OpEx and it is beyond our control. We will do whatever we can. We are exploring options, but it is what it is with regards to electricity costs. We are looking at other cost-saving measures where possible to mitigate the increases in network OpEx and that is work in progress. One thing for sure is that we are trying to aim for an expense that sits somewhere between Q1 and Q2 and to try to improve the margins moving forward. So that, I think, hopefully addresses your question on margins. But let me try to come back to your second question. The difference is mainly coming from the accrual of network -- accrual -- sorry, of core network maintenance, interconnect and marketing costs, which have not been paid as of 31st Jan 2022. So that accounts for the difference that you have noted.

Okay. So that sounds like that will unwind in the second half.

Yes, that's correct.

Okay. Got it. And if I could just sneak one more question in before jumping to the back of the queue. I'm not sure if David is available to take any questions, but I was just keen to understand, it's clear that Richard and the management team are doing a fantastic job executing. But just wondering what level of involvement you have, David, in the business? And is your involvement increasing?

Yes. It's nice that the management is doing a good job, and I'm trying to step back not to interfere as much as possible and just trying to advise occasionally. That is my role.

Okay. So I guess should we think of you as more of a support on the strategic side and the execution and operational side of things. It's very much spearheaded by Richard and the team.

Yes, yes. Yes. I'm having a good time.

[Operator Instructions] Your next question comes from Joseph Michael from Morgan Stanley.

So I did have a couple of other things I was keen to hear your thoughts on. Maybe if we could just talk a little bit about broadband. I guess as an outsider looking in, it just makes a lot of sense to expand the product set into broadband. So just wondering if you could talk us through that opportunity? And what are the drivers you're looking for before sort of launching into that product category?

Well, clearly, the focus of the business is on the mobile business right now. We have done well with 4G. We need to focus on 5G. So definitely, it's an area of interest, which we will continue to look at. But for now, we want to focus on 5G.

Okay. Understood. And then going back to the point about rebranding to the SIMBA brand. So has that kind of the reinvestment for the rebranding happened? Is that sort of included in the first half OpEx? Or is there more reinvestment in sort of marketing spend to come in the second half?

Mostly, it will come -- some of it was in the latter parts of Q2. We will -- marketing is very important for us. We are a brand -- we are still a fairly new company in the grand scheme of things. It's very important for us to promote our brand. And with the rebranding, gives us an opportunity to do an even bigger shout out to promote our brand, explain to the public consumers businesses what we really represent. So there will be increases, especially as we lift the brand so that we are able to broaden our base. That's part of our plan.

Okay. Understood. And if I could just ask a sort of follow-up to Nick's question around seasonality. So just to confirm, so is the -- so it looks like second quarter is the strongest from a seasonality point of view. Like how should we think about the other quarters? Is the third quarter generally the smallest and fourth quarter? Like can you maybe rank the quarters from most seasonally important to least seasonally important?

I wouldn't read too much into -- as I always say, into the seasonality of numbers because things vary. And as I mentioned, part of the momentum was due to the completion of the tunnels as well as our expansion of the roaming footprint, which happened to coincide with the lifting of the travel restrictions. So these kinds of seasonality factor may not necessarily be repeated if you understand where I'm coming from. But obviously, there are lull periods like, for example, Chinese New Year, it's a very big holiday in Singapore, as you would be probably aware of. So it does make for quieter footfall. But -- and in some ways, you could say that there's some seasonality attributed to the launch of major brands like Apple and Samsung. And these product launches drive recontract plans. So if you map out the 24 months contract and when people -- they may recontract or they may consider switching to a SIM-only plan as the contract expires, that, to some extent, we are seeing the flow-through. So all in all, our focus has always been just to grow, acquire as many customers as we can, focus on the net adds, making sure that we deliver our promise to our customers. And our market share, as you know, it's still small at 7%, and we have lots of opportunities to grow, especially when we launch 5G.

Okay. Great. And then just one last one for me. Just I think the number you quoted in the presentation pack was the 7.3 million SIM cards in Singapore, 3G and 4G. How should we think about the dual SIMs component? Like how many of those do you think of the 7.3 million SIMs are accounted for by dual SIMs? And do you think that's a growing part of the market? Do you think consumers are taking a SIM subscription as well as having an existing subscription with one of your other sort of peers?

It depends. I think there are two answers to your question. Firstly, from a hardware perspective, most devices are dual SIM or they have an eSIM plus physical SIM slot. So most devices support that configuration these days from that's our observation and based on our scan of the devices that are attached to the network. So whether people pick up a second SIMBA SIM for the sake of just picking up the second SIM, it all really depends because, as I said, there's still a lot of customers out there who are on contract plans. And they were, for example, very, very keen with our roaming proposition and pick up a second SIM. And when they return from their travel holidays, they may continue with the service and, for example, put the SIM in their children's iPad. I'm just giving that as an example. But without a doubt, there's full number portability in Singapore. So we are seeing good growth overall in terms of our ability to acquire customers because there is number portability and because we have a very strong product and service proposition.

Okay. Understood. I might just sneak one more quick question in. Just around the business plans, which I think you launched back in September, so probably coming up to 6 months since you've launched. Just wondering if there's any early feedback you can give us on those business plans by the looks of things, they're quite aggressively priced. So just wondering if you're getting much traction in that business, SME segment of the market.

So the business plans are an extension of our consumer plans, if you would have noticed if you go to our website, right? So obviously, there is more for us to do. And the pickup -- the feedback has been very positive because the plans are very aggressive and people are excited about it. And we will do more to enable the onboarding. The next step is to focus on the onboarding of customers so that we can grow our base. We currently have several thousand customers for the business plan. So our intention is to grow that even more.

Your next question comes from Tobias Yao from Wilson Asset Management.

Congratulations on the results. Just wanted to ask you about there's been a couple of MVNOs that exited the market in Singapore and what's happening there in that space currently?

I believe your question is about MVNOs. I will just give an overview of where we see things happening because if you're an MVNO, you are not in control of your cost base. So there is very little room for you to maneuver. So for me, I think TPG or SIMBA is probably in the best position right now to absorb whatever arises out of MVNOs that are exiting this.

[Operator Instructions] There are no further questions in the queue at this time. [Operator Instructions] Your next question comes from Andrew Tan from Bell Potter Securities.

I guess I just wanted to get a sense of the ARPU and the shape of the ARPU as you, I guess, offer a lot more of these roaming plans to outbound travelers. How do you see the shape of your ARPU going forward?

The majority of our customers are on our $10 plan. So that translates to the ARPU of $9.42 that you've seen. We are launching SIMBA SuperRoam, which is at $25, and we will -- and we are seeing increased roaming traffic from our customer base. So overall, I would end -- last but not least, we have launched SIMBA Super IDD pack, which is a $5 plan. So overall, with add-ons with higher price plans, we are obviously hopeful of improving the ARPU. But however, as I said, most of our customers are on the $10 plan. So as the take-up for all these add-ons come along, the ARPU will lift. But I'd like to set some expectations because it will take time for the ARPU to improve from where we are. And obviously, last but not least, it is our intention to remain very competitive and focus forward with the 5G business.

And I guess, given your CapEx plans for, I guess, the 5G rollout is still getting worked out and your net cash balance is 50, do you have enough access to cash and debt facilities to complete the 5G rollout?

We believe that we are in a good position as far as cash position is concerned. And as I've indicated in the earlier Q&A, it's still too early to fully formulate what the total CapEx for 5G might be. But what we are seeing is that in the space of 5G itself, there are options like Open RAN, which obviously gives us a very cost competitive option. So we are exploring all options in the interest of our shareholders. And for now, based on what we can see, we are comfortable.