Tuas Limited (TUA) Earnings Call Transcript & Summary

Good morning. I'm 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 half year FY '24 results of Tuas Limited, covering the period 1st August 2023 to 31st January 2024. 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 you over to Harry.

Good morning, everyone. My name is Harry Wong, CFO of Simba Telecom. I'll be presenting the financials of the Tuas Group. On Slide 3, you'll see that we achieved a notable improvement in the financial results during the first half of FY '24 when compared to that of FY '23. Revenue for this half year is $54.7 million, up from $39.6 million in the same period last year. EBITDA increased 56% to $22.4 million, up from $14.3 million in the prior corresponding period. Net profit after tax of negative $3.5 million was a significant improvement on the first half year loss of $7.5 million in FY '23. Next, we look at the key financial metrics on Slide 4. Revenue for the half year ending 31st January 2024 increased 38% compared to the first half of FY '23. ARPU over the last 6 months averaged at $9.56 per month. This compares to $9.37 for FY '23. With increasing scale of the business, EBITDA margin has improved to 41% of revenue. The key drivers of this EBITDA uplift are an increased subscriber base and expanded plan mix catering to different customers' needs. Slide 5 shows our sustained customer growth since FY 2022. The active mobile services as of 31st January 2024 was around 938,000, representing a 36% increase over the past 1 year. We proceed to the cash flow on Slide 6. This is the first reporting period in which we show positive cash flow. This is obviously a big milestone for the company. Opening cash and term deposit balance was $44 million. Net cash generated from operating activities was $27.5 million. The main cash outflow comes from acquisition of plant and equipment and intangible assets of $23.9 million, largely mobile network, but also some fixed broadband infrastructure. This brings the ending cash and term deposits to $47.3 million as of 31st January 2024. With this, I will let Richard proceed with the business updates.

Thank you, Harry. Slide 7 provides an important update on our 5G rollout. Simba comfortably exceeded the 60% coverage requirement mandated by IMDA as of 31st December 2024. Based on our drive test results, we provide better than 80% outdoor coverage. Customers are now enjoying 5G services at 4G prices, and this is underpinning more subscriber growth. Work is progressing well to increase overall network capacity to ensure a consistent user experience, proactive network augmentation while optimizing CapEx. Moving on to Slide 8. Simba has completed fiber broadband rollout for 4 of the 9 central offices that serve residential homes. We currently have more than 1,200 paid registrations and about 60% of the lines have been provisioned. Our 2.5 gigabits per second offering of $21.80 per month, including GST, is the most competitive plan in the market, and we are confident of growing our fiber broadband business. We are also excited by the recent Singapore government announcement up to $100 million in grant funding that is available for operators who bring benefits of 10 gigabits per second broadband for consumers. As such, Simba is making plans to transition to the new 10 gigabit per second fiber broadband equipment as soon as practically possible. We are very keen to continue with our unique ability to disrupt the market as we have done for mobile. And finally, Slide 9, which covers the outlook for the business. We had a good start to the 2024 financial year, and we expect to continue with our growth momentum in mobile. Our CapEx for FY '24, which primarily is allocated to 5G expansion, 4G capacity upgrade and fiber broadband rollout will be in the range of $45 million to $50 million. Hence, there is no change from the last CapEx guidance. The group has continued to sensibly manage its cash, and we are targeting to achieve a full year positive net cash flow. Finally, we intend to accelerate our fiber broadband rollout and hope to launch a 10 gigabit per second service by end FY '24, which should be very exciting for Singapore consumers. Of course, another highlight for the half was Tuas being admitted to the ASX 300. Whilst my team and I are very proud of this recognition, we know that our job as managers is to maintain our focus to grow the business, keep a keen eye on operating efficiencies and doing our best to increase sales. We trust that if we do this, we will honor the faith that shareholders have placed in us. 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 with Morgan Stanley.

First one I had just around your mobile subscribers. So now above 10% mobile share. You continue growing half-on-half, added 119,000 subs in this half. My question is, where is the share coming from? Or do you think you're just simply growing the market?

We are gaining market share, obviously, and along with the growth in the market. So we believe that we can continue to grow. The growth is across all segments.

Okay. Great. Next question I just had around broadband. So in the outlook commentary, you mentioned ramping up customer acquisition. What does that involve? And should we expect a big step-up in marketing in the second half?

Well, as I've indicated in the presentation, we have [indiscernible] and obviously, work is ongoing to ensure that we complete our rollout to all nine. And this is where we do a step-up in terms of marketing, the service and reaching out to customers, including our existing mobile subscriber base. So we believe that if we dot all the i's and cross all the t's, we will be able to ramp up customer acquisition.

Okay. Great. Follow-up question just on broadband. You mentioned the government is now offering $100 million in grants for a 10-gig fiber broadband service. What do you need to be -- what do you need to do to be eligible for those grants? Is it simply you get a payment per subscriber you add on that speed tier?

Okay. So the grant of $100 million is split into 2 parts, $25 million for infrastructure upgrades, $75 million for adoption support. So the infrastructure upgrades is to encourage operators like us to upgrade our current infrastructure to 10 gigabits per second. So that funding is based on how fast we can quickly roll out on a first come first serve basis. The same goes for adoption support. The government would like us to encourage us to move all subscribers where possible to 10 gigabits per second offering. So they will again offer an amount per subscriber that we bring on board at a 10 gigabit per second level. Actually, to be more specific, as long as it's 3 gigabit per second and above all the way to 10. So there will be funding provided as we bring on board customers. Again, the application now is ongoing, and we are -- we will be submitting our application very shortly.

Has the government publicly announced what the adoption support is per subscriber?

Yes. But it is not clear to me how much information the government has released. They have made the plans very clear to operators. So at this point in time, I prefer to not disclose what it is depending on how much the government releases, then we will obviously share the information as well.

Okay. Got it. I'll just ask one more question, and then I'll jump in the back of the queue. Just around your margins, they continue to surprise on the upside. Against my numbers, it looks like the gross margins were very strong, 68.7%. Is it right to expect more leverage on your network costs as you scale your mobile business? So should we expect gross margins to continue expanding from here as you grow your mobile subscribers?

Well, margins will improve, but they will clearly flatten over time. So that's all I will say.

The next question comes from Darren Odell with Peloton Capital.

Congratulations on a strong result, guys, again. Just as we sort of think about things in the future and moving out to be a fully fledged telco, I was just kind of -- you've now sort of well advanced on the consumer market to work towards the required market shares. But if we're thinking about the corporate market or government market, where about are you in your thought process on that? Or how do you plan to sort of attack those markets? Or is there any color that you can provide at this stage for future growth plans?

I think we have indicated previously corporate and government markets are interesting to us. We have the infrastructure to support it, and we will be gearing up more things. There's still much to do as far as the consumer market is concerned, especially in fiber broadband. And obviously, we believe in terms of entering each market and doing it well before proceeding with the other. But obviously, it's within -- it's obviously on our radar to enter those markets.

Your next question comes from Nick Harris with Morgans.

Can you hear me?

Yes.

Just a couple of questions for me. The first couple for Richard. Could you please just repeat the timing that you mentioned on the call for the launch of the Simba 10-gig product? And then part 2 of that question was just -- I know you don't want to delve into the funding sort of specifically, but is it semi-sensible to think that the government funding would cover some of the -- or the bulk of the CapEx upgrade costs for the switches? That's my first 2 questions.

Okay. Maybe I'll handle these 2 questions first. In terms of timing, we did indicate in the presentation that we will launch 10 gigabit per second offering by the end of this financial year. And in terms of the funding as far as much -- I think it's very helpful the funding. It will obviously encourage operators like us to transition to the 10 gigabit per second platform as soon as possible because the funding helps us equalize the cost in terms of moving to the higher speed platform.

That's very helpful. And if I might just squeeze a last question in for David, but also starting with congratulations on becoming free cash flow positive. That's clearly a massive milestone and a great outcome for the business. And from my perspective, it looks to be sustainable. So my question to David. And the Board in general, obviously, you're generating free cash flow. You've got whatever the number is $47 million net cash, and that will continue to lift going forward. Have you put much thought into capital considerations, i.e., whether you might think about paying dividends, making acquisitions or potentially reinvesting a big chunk of that cash into new and different products? [indiscernible] It's form of CapEx.

Harry, it's David. The dividends, I think the Board has to decide. And on the -- any good opportunity, we will look at it. Anything that is adding value to the company, I think the company will look at it.

Your next question comes from Ian Martin with New Street Research.

You mentioned as one of the key drivers, the expanded plan mix, catering to array of different customer needs. Could you give us some idea how that customer mix has changed over the last 12 months and where you see it going given that the different plan mix or the expansion in mix of plans, you're aiming further up the curve, I presume, in terms of customer spend?

Okay. So while we do not give a breakdown of the customer mix, it is clear that the $10 plan forms the majority of our customers. It is our job, obviously, to also move the ARPU upwards. And if you have noticed, we have been introducing higher price plans, which have more inclusions, and that has been strong in terms of attracting customers and also encouraging customers to upgrade to those higher price plans because these higher price plans, for example, have higher quotas for roaming and a lot of our customers have been traveling quite a lot. So they are able to take advantage of what we have included in the plan, not just for roaming, but IDD minutes as well. So that's as much as I can give with regards to our customer mix.

All right. If I can perhaps follow up just going back to the capital spend question. Just wonder what the outlook is for spectrum in New Zealand and whether there's an opportunity in the next few periods to acquire more spectrum or whether you see that as a priority for the company?

We are comfortable with our current spectrum holdings, and this is how we have been managing it with regards to our network CapEx because we believe that we have sufficient spectrum to continue to support the growing subscriber base. There will be opportunities for us to acquire more spectrum depending on the expiry of the existing licenses. So when the opportunity arises down the road, obviously, we will cast a keen eye on what is on our...

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

I've just got 2 follow-up questions, which were e-mailed through. Firstly, just on the -- in the other expenses, Note 5, there was some revenue reclassified related to bank charges. So I think it's about $1.8 million in Note 5 of the accounts. Can you just talk through what's going on there?

Harry, would you like to provide some color with regards to that?

Okay. Those are related to the merchant charges that was reclassified by period.

Okay. Got it. And then the other follow-up I had was just if you look at your operating cash flow, $27 million, EBITDA was $22 million. Can you help us understand why you're converting more operating cash flow than EBITDA? I presume it's working capital dynamics, but could you talk us through that, please?

I think it can be described as follows. Part of it is for deferred revenue -- and there is also some cost reimbursement for what I would call network elements that have to be put in place as part of license obligation and the cost reimbursements would come from INB. So it's a bit of both, and that would explain the difference in terms of the cash flow and comparing it to the EBITDA line.

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

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