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Edited Transcript of 728.HK earnings conference call or presentation 22-Aug-19 10:59am GMT

Half Year 2019 China Telecom Corp Ltd Earnings Call

HK Aug 23, 2019 (Thomson StreetEvents) -- Edited Transcript of China Telecom Corp Ltd earnings conference call or presentation Thursday, August 22, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ke Ruiwen

China Telecom Corporation Limited - Chairman, President, CEO, and COO

* Zhu Min

China Telecom Corporation Limited - EVP and CFO

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Presentation

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Unidentified Company Representative [1]

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Good afternoon, ladies and gentlemen. On behalf of the Company's management, I'd like to welcome all of you to our 2019 interim results presentation. This presentation will be conducted in Mandarin with simultaneous interpretation. The Q&A section afterwards will be hosted by moderator and provided with consecutive interpretation. (Conference Instructions)

May I introduce our management on the stage. Mr. Ke Ruiwen, the Chairman, CEO, President and COO; Mr. Liu Guiqing, Executive Vice President; Madame Zhu Min, Executive Vice President and CFO; Mr. Wang Guoquan, Executive Vice President.

Thank you for joining us today and hope you find this presentation helpful. Now let us welcome Mr. Ke to walk us through the Company's 2019 interim results.

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Ke Ruiwen, China Telecom Corporation Limited - Chairman, President, CEO, and COO [2]

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Good afternoon. It is my pleasure to meet you all and introduce the Company's performance. The presentation has two sections. First, I will discuss the Company's overall performance and business review, then Madame Zhu Min will walk you through the financials.

We have six key development highlights in the first half of 2019. Revenue growth surpassed industry, with strong scale development momentum sustained. Second, convergence fostered scale and quality with prominent results in informatization. Third, network strength enhanced by cloud network integration with proactive and pragmatic 5G development.

Fourth, effective precision cost management increased corporate efficiency. Fifth, reform and innovation to boost vitality while open cooperation to facilitate win-win. Sixth, customer-oriented and enhance capabilities to focus on high-quality development.

During the first half, by fully leveraging edges in network and talent, the Company's results maintained solid growth during the period. Service revenue was RMB183 billion, up 2.8% YoY. Net profit was RMB14 billion, up 2.5% YoY. Both growth rates outperformed industry average.

The Company, carried through high-quality development and subscriber scale development, achieved prominent results. Mobile subscribers up 15% to 320 million (sic, 323 million). Broadband subscribers up 7% to 150 million. IPTV subscribers up 13% to 110 million. Bestpay monthly active users up 38% to 52 million. IoT connected devices up 79% to 130 million (sic, 132 million).

We actively promoted convergence services, upheld the large data traffic tactic, refrained from price war, which effectively enhanced customer scale and quality. During the period, triple play penetration rate increased 7 pp to 63%.

Mobile subscribers net add was 20 million with its market share constantly performing industry average. Mobile service revenue increased 5.6% YoY, in which handset Internet access revenue increased 11.5% YoY. Both growth rates were industry number one. Proportion of broadband subs enjoying 100 Mbps or above increased 14 pp. Broadband blended ARPU was RMB44.2, remaining number one in the industry.

Leveraging on our 150 million broadband subs base, we promoted comprehensive Smart Family services in the period, in which IPTV subs penetration rate was 74%, up 4 pp YoY. Family cloud subscribers reached 32 million, up 68% YoY. Smart home networking service revenue was RMB420 million, up 40% YoY. Smart home gateway subs was 62 million, up 76% YoY.

The Company has built a Smart Family platform with an aim to enhance ecological cooperation. The Company also unified product portfolio, raised service standards, expanded the professional Smart Family engineered team, and continued to strengthen ecological cooperation. All these gave impetus to the uplift of services, products, and sales and marketing capabilities while also boosted and satisfied family informatization demand.

During the period, DICT revenue increased substantially by 19%, contributing 2.8 pp of the overall service revenue growth and became a major growth driver of the Company. In particular, the cloud business revenue skyrocketed by 93%, while our e-surfing cloud ranked number 7 in terms of market share in the IAS business ranking compiled by IDC. And we were the only telecom operator within top 10. These formed a solid groundwork and competitive edge for us to develop 2B business in future.

Cloud revenue increased rapidly at 52% to RMB1.1 billion. The Company will fully leverage its integrated edge of 2/3/4 and 5G NB-IoT fiber network in cloud to expedite the construction of 5G SA core network for IoT, to perform network upgrade and optimization to provide dedicated line service for IoT, leveraging ubiquitous metropolitan fiber network and high-quality CN2 carrying network, and to build distributed IoT open platform, leveraging our extensively deployed e-surfing cloud with an aim to forge a high-quality omnipresent IoT network.

Scale of Internet finance business continued to soar as revenue doubled. GMV increased by 40% and GMV of personal accounts expanded by 92%. Bestpay was selected as one of the double-hundred action enterprises to establish more marketized corporate governance, incentive, and restraint systems.

Series A financing was completed with four strategic investors. Introduced capabilities of our financial cloud application platform fully upgraded, while big data and AI were leveraged to empower business expansion.

Our scale development is driven by leading network edge and outstanding user perception. For our mobile network, number of 4G base stations reached 1.52 million with network utilization at 44%. For fiber network, we built the world's biggest all-fiber ROADM network and 180 cities are Gbps-enabled.

Our superior network constantly enjoys customer acclaim as the Company's mobile and wireline Internet access service gained industry's highest customer approval rate for seven consecutive years. We have the biggest IDC cabinet scale in the industry, cloud resource pools in 31 provinces in the PRC, and the highest number of cloud products in the industry to obtain reputable certification.

We place high importance on building a secure network and develop benchmark network security products. Our powerful network edge now is a solid backdrop for the network in the future. We strive to build a next-generation cloud-based network. We carried our cloudification by building high-quality OTN-based carrying network and intelligent SDN-based dedicated network, improving IDC and cloud resource pool layout and speeding up establishment of new generation cloud network operating system.

We also carried out in-depth integration of 5G and cloud network by rapid cloud-based deployment of 5G and MEC by providing differentiated 5G industry cloud network solutions. And by empowering industrial Internet, Internet of Vehicles, campus, enterprise park, VR live streaming, and other things. With cloudification, we will build a simple, agile, centralized, open, and secure new generation network in order to bring brand-new user experience and forge new competitive edge.

We obtained 5G license in June. Driven by market and customer demand, we will commence SA/NSA hybrid network construction, with SA as the target network. We plan to deploy 40,000 5G base stations in around 50 cities by end 2019.

In the first half, we proactively forged 5G edge by expediting the formation of management platforms for edge computing and network slicing and launched full cloud-based and all-fiber 5G cloud network solutions for enterprise customers.

As an advocator and proponent of network co-building and co-sharing, we will actively promote 5G co-building and co-sharing as well so as to reduce construction and maintenance expenses and increase resource utilization while assuring customer experience and differentiated servicing capability.

Regarding 5G application development, we will take a customer-oriented and customer-experience-driven approach. We will fully leverage our integrated edge in product and servicing capability as well as in integrated smart informatization solutions, among others. We will actively engage our 5G ecological partners for cooperation.

Addressing the unique demands of enterprise, personal, and family customers, we will also develop customized China Telecom-specific 5G services and scene-based applications. We actively advance various measures for reform and innovation while also deepen open cooperation.

Regarding reform, we actively prepared cloudification and 2B service system reform, continued to improve mechanism of subdividing performance evaluation units, and carried out subdividing of cost management. All these achieved many meaningful results.

Regarding innovation and R&D, the reform of our R&D structure continued at a steady progress. We increased R&D input, built core capabilities, and nurtured top talent teams. Meanwhile, we extended cooperation with different institutions, companies, ecosystems, and investors. Reform innovation and open cooperation enabled us to boost corporate vitality and promote industry prosperity along with partners.

We continue to carry out high-quality development and we are on track to achieve major targets set in early this year, reverting our strong execution. In the second half, we will strengthen corporate capabilities, be more customer-oriented, seize 5G opportunity and the trend of integrated smart informatization services, maintain the robust development momentum in the first half, and speed up value-focused scale development along with achieving healthy growth in service revenue and net profit.

Next, Madam Zhu Min will have the floor for the financials.

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Zhu Min, China Telecom Corporation Limited - EVP and CFO [3]

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Thank you, Chairman. Ladies and gentlemen, I will now go through the financial performance in the first half of 2019. This table shows the key financials in the first half of 2019 and details will follow. To enable more accurate analysis of the Company's operations, pro forma figures of major items that are impacted by IFRS 16 are provided here for discussion.

Focusing on key cost items, the Company implemented efficiency uplift measures, which by management refinement, enhanced precision cost control of accountability units, the measures achieved prominent results. Total operating expenses decreased nearly 2% and its share to operating revenue decreased 0.6 pp. In particular, network operations was up 4.2% and the growth rate significantly declined.

SG&A was up 0.6% YoY and its share to service revenue dropped 0.4 pp. D&A was up 3.2% YoY. The growth rate also decreased comparing with the same period last year. CapEx in first half of 2019 was RMB35 billion. Total full-year CapEx budget, including 5G investment, remains unchanged at RMB78 billion.

In the first half, we continued to improve 4G coverage, dynamically expand capacity in key [NPC] locations and to fulfill VoLTE demands. On the other hand, we maintained our leading edge on fiber broadband network, and strengthened the benchmark and leadership position of Gbps service.

We stepped up investment in DICT, enhanced IDC, and cloud resources pool framework so as to improve network agility and strengthen end-to-end service capabilities of cloud network integration. We adhere to precision investment, strict management on investment scale, and strive for building a high-quality and efficiency network to ensure user experience and support emerging business development.

In order to truly reflect the Company's debt positions, we adjust disclosed basis of relevant metrics. In particular, debt refers to interest-bearing debts only and lease liabilities are excluded. In the first half, the Company strengthened efficiently centralized capital management, which effectively reduced scale of interest-bearing debt.

As at the end of June 2019, total debt decreased by 8% to RMB77 billion. Total debt to capitalization ratio was 1.8 pp lower comparing to the same period last year. Net debt to EBITDA also decreased by 0.1x.

During the period, EBITDA increased 2.6% while EBITDA margin remained stable. Finance expenses decreased 17.2%. Thanks to reduced interest-bearing debt, free cash flow remained strong. Our continuously improving financial position and healthy capital structure further strengthened the foundation for our development in future.

This concludes our presentation today. Thank you.

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Editor [4]

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Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.