Tuas Limited (TUA) Earnings Call Transcript & Summary

Thank you. Good morning, all. I am Richard Tan, CEO of SIMBA Telecom, the main operating vehicle of the Tuas Group. Also joining me on the call are Tuas Executive Chairman, David Teoh; and SIMBA Telecom's CFO, Harry Wong. It is my pleasure today to share with you the full year FY '23 results of Tuas Limited covering the period 1st August 2022 to 31st July 2023. 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 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 SIMBA Telecom Singapore. I'll be presenting the financials of the Tuas Group. On Slide 3, you can see that we achieved a solid improvement in the financial results during FY '23 when compared to FY '22. Revenue for the year increased to $86.1 million from $57.4 million in the prior year. EBITDA more than doubled from $15.5 million to $31.1 million year-on-year. Net profit after tax of negative $15.3 million was a significant improvement on the prior corresponding period loss of $26.7 million. Next, we look at the key financial metrics on Slide 4. Revenue for the year ending 31st July 2023 increased 50% year-on-year. ARPU over the last 12 months averaged at $9.37 per month. This compares to $9.19 a year ago. You can see that as the business has grown, EBITDA as a percentage of revenue has increased with average EBITDA margin of around 36%. The key driver of this improvement is operating leverage of bringing more subscribers onto our network. Slide 5 shows our continued subscriber growth over a 3-year period. The active services as of 31st July 2023 was around 819,000, representing a 39% increase over the past 1 year. We proceed to cash flow on Slide 6. Opening cash and term deposit balance was $49.6 million. Net cash from operating activities was $40 million. The main cash outflow comes from acquisition of plant and equipment and intangible assets of $44.6 million. This brings the ending cash and term deposits to $44 million as of 31st July 2023. As our business grows, the net cash outflow has reduced. With this, I will let Richard proceed with the business updates.

Thank you, Harry. Slide 7 provides some important updates on our 5G rollout. We launched 5G commercial services a week ago as we now have better 5G continuous coverage across major urban areas, and we are confident of exceeding the license mandated 60% 5G outdoor coverage milestone by end December 2023. 5G services are available to all subscribers at the same outstanding 4G prices with the appropriate 5G-enabled phones. Customers will thus get to experience the latest network technology without any fuss or additional charges. We are also pleased to add that we have fully embraced eSIM, and it is available to all subscribers for their convenience. The optimal utilization of spectrum, as we are all aware, is essential for both coverage and quality. This is especially true when there are 2 network technologies that must be deployed at the same time. The 2,100 megahertz band is SIMBA's primary 5G spectrum, and we will continue to lobby the regulator to adopt a more flexible approach so as to leverage all available spectrum to provide the best network quality to our subscribers and to deploy CapEx where it is most needed for capacity. As of now, the 5G layer is carrying close to 10% of overall data traffic, and this is expected to grow as we expand our coverage. We should also mention we have enhanced our roaming services and have enabled 5G roaming to 46 global destinations. Moving on to Slide 8. SIMBA is -- SIMBA currently has an ongoing fiber broadband pilot with select residents in the North-East Corridor of Singapore. This is a large district with more than 140,000 homes. Our primary focus is delivering a great service. The 2.5 gigabit per second plan at only $20 per month is very attractive, and we want the onboarding experience for customers to be smooth. We have employees and other friendlies going through the processes, and we have been making sure that we deliver a great outcome on commercial launch, which is expected to take place early next month. We are targeting to complete our island-wide rollout by the end of the first half of FY '24, and we are confident of our unique ability to disrupt the market as we have done for mobility. And finally, Slide 9, which covers the outlook for the business. We are experiencing a good start to our new FY, and SIMBA continues to grow its customer base consistently as the awareness of the value we bring to the market grows. CapEx for FY '24 will likely be similar to FY '23 in the range of $45 million to $50 million. This will cater for 5G expansion, 4G capacity growth and fiber broadband network rollout. We are confident of exceeding the regulators' 5G coverage milestones given the good progress we have made for 5G upgrades. It's all about execution, and the SIMBA team is currently fully focused on progressing with our fiber broadband commercial launch, followed by our island-wide rollout. Finally, we are actively looking at automating our business processes for higher efficiencies to enhance our competitive edge while improving customer service. That ends my short presentation, and I will now hand it back to the moderator for the Q&A session.

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

Congratulations on a great result. The first question I had was just around the mobile opportunity. I guess net add momentum accelerated in the second half. You're close to 10% market share. I would have thought it actually start slowing down by now. But my question is, do you think the mobile opportunity is broader than you initially thought? Is the value end of the market bigger than you originally anticipated? Just trying to understand, I guess, how you can continue adding mobile customers at such a fast rate.

Joseph, thank you for your question. As you have indicated, we are still below 10% market share. I think the opportunity is definitely there for us to continue growing. And based on the start that we're seeing for the new FY, we believe that we can continue to grow.

Okay. Great. Then next question just around CapEx. So you've guided sort of in line to FY '23. So just trying to understand, is $45 million to $50 million kind of a reasonable level to use over the medium term? I know there's puts and takes like 5G, 4G and broadband. But is that kind of a good sort of run rate to use for our modeling?

I would say it's reasonable to use CapEx around that range because there are 2 technologies that we will need to continue to augment: 4G for capacity growth; 5G to broaden the coverage; and whatever that is needed to support the growth of the business across the board. So I think it's a reasonable assumption.

Okay. Great. And then I might just ask one more question before joining the back of the queue. Just around industry consolidation. There's a bit of speculation in the market that the regulator would be open to consolidation in Singapore given the market is now a lot more competitive than what it was back in 2016. So my question is, if consolidation does occur, simplistically, is this positive for Tuas even if you are or not -- if you are involved or you're not involved? Is it simplistically positive if we do see industry consolidation?

Well, we can't really comment on competition and consolidation. We're just simply focused on our business, but I do appreciate the question.

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

Great results. I've got a couple, if I might. Just the first one is, I think you launched your broadband product in around March of this year. And the subscriber number you put there, 819,000 subs. I just wanted to understand, is that all mobile? Or are there actually some broadband subs in there? And sorry...

The 819,000 -- sorry. The 819,000 -- sorry to cut you in there. 819,000 is entirely mobile.

Mobile. Sorry, I was going to ask you, Richard, would you like me to rattle the questions off one at a time. So that's 100% mobile. Okay. Are you willing to share any comments on the traction in the broadband side? Or is it too early?

We're currently doing a pilot because we haven't done our commercial launch. As I've indicated in my presentation, commercial launch is expected early October 2023. So right now, we are just making -- dotting the Is and crossing the Ts to make sure that everything will obviously be good and smooth when we proceed with our onboarding of customers in October.

And just kind of more of a strategy question and maybe I've missed this, but the fiber broadband product that you're launching or you have launched, is that actually an on-net product? As in SIMBA is rolling out fiber to supplement or to support that? Or is it reselling the existing NetLink Trust-style fiber there and maybe it rolling in? It might be a David question, if he's happy to answer it, just his thoughts on how he's thinking about growth going forward? Because if you're reselling a broadband product, I assume it will be lower margin. So are you happy to get profit growth at lower margin? Or is the strategy similar to what he's typically done, which is all about selling on-net?

We are leveraging the reach of NetLink Trust. So immediately, we have island-wide coverage from day 1 once we launch.

Once you -- okay. So does that mean you'll strategically like to keep it with NetLink Trust for the time being, basically, that's an off-net product?

Yes, because that's the quickest time to market. And we believe that we can optimize our business based on this model.

And just 2 other questions, if I might. One was just the eSIM side of things. I presume that, that's significant in that customers can then port across to SIMBA without needing a physical SIM. So it should help make it easier to win customers or at least to migrate customers onto your network. Is that -- am I thinking about that correctly?

Yes. eSIM has been great. It's not available for many of our competitors. So it has been giving us a very good advantage, and we are seeing good traction in that space.

And my last question, if I might, and maybe I'm delving too much into the fine detail here. But if I look at your expenses, the other expenses line has normally been about $0.5 million every half. And in the current half just gone, it was closer to $3 million. I'm just wondering, is that sort of one-off in nature because you've got a few things happening? Or is that kind of the run rate going forward because you've moved from having 1 4G product to now 3, obviously, 4G, 5G broadband?

I would just say that a couple of things are needed in terms of putting all the things in place. So it's not necessarily a one-off, but I would say that given that now we have 4G, 5G as well as fiber broadband, you can say that, that is expenses that will carry forward for -- into the mix, into the future. But it's not expected to grow significantly.

[Operator Instructions] Your next question is a follow-up from Joseph Michael from Morgan Stanley.

I just had a couple of follow-ups. So firstly, on the cash flow conversion, 125% based on my math. Can you just help us understand how the working capital works for your business? And should we expect operating cash flow conversion of more than 100% to continue?

Well, it's a mixture of receipt of prior year's receivable and deferred revenue and some deferred payments. So I wouldn't read too much about that or rather we wouldn't read too much into that.

Okay. So can you continue converting the EBITDA at greater than 100% into cash flow?

I wouldn't say so. I think the EBITDA number is more representative of the business.

Joseph, it's David. Because it's -- we are using the prepayment for the service, so normally, the cash received -- operating cash received is more than the EBITDA. So we are quite positive about that.

Okay. Got it. And then maybe while I've got you, David, so just a question, I guess, around growth versus margins. If you look across the world, telcos are putting up prices, so are your competitors in Singapore. You guys haven't done that yet. In fact, you're actually offering your customers even more value with giving them 5G for free. So I guess my question is, and I know you're still kind of early in your life cycle and still growing rapidly, but how do you sort of prioritize growth versus margins? And at what point should we expect you to start driving even higher margins through price increases?

I think we are looking more into the long term. At the moment, we focus on growing our base, and there's still a lot to do, and there are still a lot of upside in the various areas. So we want to keep the same strategy, maintain the pressure and keep winning customers. That's what we want to do, Joseph.

Okay. So is it fair to say that adding mobile subscribers and soon broadband subscribers, that's the key sort of metric you're focused on internally and obviously doing it in a profitable way?

Yes, we are quite comfortable at the moment. And then there are still the business side, the enterprise side that we go into. So we want to expand the range of services we provide to the Singapore market and bring benefit to the Singaporean. So we are quite happy with the way the company is tracking.

Okay. And sorry, just one more follow-up to that. I guess, is the ambition here to build a sort of fully integrated telco in Singapore across all sorts of product sets and customer segments? Is that kind of the longer-term ambition in Singapore?

We have put in place. The infrastructure is there. The people are there. So all the ingredients are there. So just adding the services that -- to keep expanding our line of business, if we can.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Tan for closing remarks.

Thank you, Darcy. I would like to thank all on this call for your time and making the effort to understand our business along with our achievements better. It's been an exciting 12 months and many opportunities lie ahead. The Board and management of Tuas Limited appreciate your support, and I wish you a good day. Thank you.