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Edited Transcript of AXIATA.KL earnings conference call or presentation 28-Nov-19 8:00am GMT

Q3 2019 Axiata Group Bhd Earnings Call

Kuala Lumpur Sentral Dec 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Axiata Group Bhd earnings conference call or presentation Thursday, November 28, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Allan Bonke

PT XL Axiata Tbk - Director

* Chui Fen Wong

Celcom Axiata Berhad - CFO

* Jamaludin bin Ibrahim

Axiata Group Berhad - President, Group CEO, MD & Director

* Suresh Narain Singh Sidhu

Axiata Group Berhad - CEO of Edotco Group Sdn Bhd

* Vivek Sood

Axiata Group Berhad - Group CFO

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Conference Call Participants

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* Arthur Pineda

Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research

* Choong Chen Foong

CIMB Research - Analyst

* Khir Peng Goh

AmBank Group Research - Research Analyst

* Piyush Choudhary

HSBC, Research Division - Telecoms Analyst, South East Asia

* Prem Jearajasingam

Macquarie Research - Analyst

* Ranjan Sharma

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to Axiata Group's Third Quarter 2019 Results Briefing. (Operator Instructions) Also note that the call duration will be for a maximum of 90 minutes ending 5:30 p.m. I would now like to hand the conference over to the speaker today, Tan Sri Jamaludin, President and Group CEO. Thank you, sir. Please go ahead.

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [2]

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This is Jamal. Thank you for joining us for the second -- third quarter 2019 results. So let's go straight to Slide 4. Basically, these are our 6, 7 messages that we want to convey.

The first one is, of course, the -- probably the most important is consistent with our focus on profitability in cash. I think there's been more and more definitive results. As you can see, the year-to-date, our free cash flow jumped 43.5% to MYR 2.6 billion, boosted by the operating leverage from higher revenue and cost excellence. Our underlying PATAMI, of course, affected by the absence of M1 contribution and higher taxes for Robi, which is quite unfortunate but still has been quite good. But you exclude those items, the year-to-date PATAMI increased by 14.6%.

Our balance sheet remains very strong, which later on my CFO will elaborate. The one thing we want to highlight is, and we are happy with, is the XL continued performance. We show that the turnaround is real. As you can see from this performance, the revenue increased by 9 points. The ARPU increased and the revenue increased by 10.6%, and the total profit is ROIC improvement of 4.5 percentage points.

Robi, postacquisition of Robi was profitable but after that the acquisition of Airtel, of course, we have achieved loss at a negative EBITDA and profit. But let me just say that the profit actually is -- the return to profit, there's a strong improvement in ROIC at the same time.

Celcom delivered higher PATAMI at 7.9% and better FCF at 15.3%. We also have to note that edotco continued with their double-digit growth in all metrics, and that's something that we'll gain -- help us in our growth.

ADA, our digital advertising company, delivered maiden profit in the third quarter. We expect the whole year to be positive. So as comment -- or as we had conveyed earlier, we have 3 companies within our digital businesses. ADA is one of them. Our expectation for us to deliver profit for the first time this year, and they are on course to achieve that.

So on the headline KPIs, very unforeseen circumstances across. We are likely to exceed our FY '19 headline KPI for EBITDA and ROIC.

Going to Slide 5, it's just to give you a flavor. And when we say we want to improve EBITDA, PATAMI and FCF, we're achieving practically all the companies except for Ncell. As you know, Ncell, the ILB, the International [League of] Businesses, is not performing as good and as expected almost flat, right? And of course, the introduction of some new factors in XL impacting consumer demand that affected them, I wouldn't say, badly, but has somewhat affected them.

And on the relative performance of the group, our only OpCos, as you can see, in all districts, we perform as the #1 and #2.

The next slide, Slide 6, is just to show that we have increased our revenue pretty much across the board except for maybe Celcom and Ncell. That, as you can see, correspondingly, the cost -- the total cost -- actual cost is lower in practically all except Ncell. So for example, in the case of -- for the group, we increased revenue by 5.5%, but our total cost increased only 1.4%.

I'll pass over to my CFO, Vivek, who will give you a bit more detailed explanation of the results. Vivek?

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Vivek Sood, Axiata Group Berhad - Group CFO [3]

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Thank you, Tan Sri. Okay. Good afternoon to all of you. I'll just go on to Slide #8. I'll take down now the financial performance for quarter 2 2019. First slide talks of the reported numbers, and the second -- next one would be on the underlying performance.

So reported performance, revenue grew strong at and 4.2 -- 4.0% and EBITDA at 26.3% on a year-to-date basis. The 26.3% was coming out of contribution from the MFRS or IFRS 16 [shown addition in] 2019.

PATAMI overall delivered year-to-date over MYR 1 billion, but PATAMI had a few one-off items like M1 gains, the unusual [recording] this year of around MYR 180 million. Divestments of our core -- our noncore business was [essentially off MYR 290 billion]. And the Idea rights, which we have -- given us, let's say, give us around MYR [96 million] up gain.

So overall, reported numbers look strong. If I go to the underlying performance, which is really what matters, which is on the MFRS which is at constant currency, it was strong growth in EBITDA, double digit, 10.3% despite the 3.4% growth in revenue. And if I exclude the rights sales, our service revenue excluding -- revenue excluding the rights grew by nearly around [1 5 -- 5.1%]. This resulted in 2.3 percent point improvement in EBITDA for us at 37.8%.

Costs, more or less remained -- stayed flat as [consumption] in our wireless side. PATAMI was dragged by a few issues, all right, in terms of one-off. One is we sold off M1 during the year, which was contributing noncredit debt proportionately for 2 quarters was contributed [I can figure] MYR 90 million last year, which we won't get this year. The taxes which were introduced in the budget of Bangladesh, which was -- which is the revenue increase from 0.75% to 2% had an impact of around MYR 84 billion for us. And then some of the M&A expenses that [Axiata] continue to make, discussions we have with Telenor would be a net impact of around MYR 3 million.

So those are the outcomes which should impact PATAMI -- underlying PATAMI for the first 3 quarters. However, as Tan Sri mentioned earlier, if we normalize some of these one-off items, it will be around 13.6% improvement in profits.

The next slide is simply this one from last year in the current year and I believe some of it I already mentioned. EBITDA contribution is significant for us in the first 3 quarters. All of the impact which is coming largely on taxes, other than the inbounds I talked about, and taxes, mainly coming out of Bangladesh, which has a dual impact. One is in corporate tax increase, which I talked about 1.75% to 2% but also impacts the deferred tax accounting.

In addition to that, there's a tax implication in XL, which was on the carryforward losses coming from the AXIS module, which expired -- it's probably going to expire this year. In addition to that, I think the -- you see the financial costs, slightly higher, mainly because we have moved specifically in Indonesia, where we've moved from U.S. or more foreign to the local borrowing, which has a much higher interest rate but does protect us from ForEx fluctuations.

If I go to the one at the bottom, basically, there's the kind of one-off on the reported number and one is the underlying number. The big item there is the M&A gains, which I talked about earlier, coming from the M1 disposal. Idea's rights issues and ABS noncore ventures, which we talked of the end of the year.

Our focus has been -- if I go to the next slide, our focus has been on improvement of our cash flows. And I'm happy to say that we've seen a positive impact of around MYR 2.6 billion on our free cash flow. If I refer on our cost on a cash basis which the table shows below our free cash flow margin is around 19% and operating free cash flow margin is [in at] 3% to 9%. And our CapEx intensity remains pretty much at 3.2% compared to last year, mostly coming out of EBITDA improvement and the free cash flow improvement.

Our operational excellence is a key focus for us. We have -- we are able to make efforts on improving the cost despite the fact there is expansion at some of the markets. So for example, Indonesia, Robi, Bangladesh, partly in Celcom, we've added new sites which had an impact on increasing the [unit core] cost.

I will walk through our efforts on the cost optimization program. We've been able to reduce our cost on the network side in the market [installed] mostly coming out of the [-- with our] companies, XL, Robi and somewhat in Celcom. So broadly, the costs have remained flat for us despite the expansion in the network.

So turning to the next slide on the balance sheet, very fairly strong balance sheet with the gross net to EBITDA down to 1.9 on a comparable basis, and we did move up to higher fixed rate debt and moving more into local currencies last year. There was some volatility in the market. That does have some marginal impact on our cost of borrowing. However, we do feel that given the volatility in the currency market as well as interest rates, it's much more prudent for us to have a higher mix and do some currency borrowings. Our cash position remains very strong at MYR 5 billion already there.

If I go to the next one, Celcom. Our new market has been hardening a bit in terms of the market growth overall, but largely depending on the impacts of -- [one is the] wholesale revenues been coming down as well as the impact on these rates because if the interconnect rates are coming down, we see the effect on the industry growth. And so telcom has grown some and the order growth has been in line with our industries, we think. However, our core revenue had been positive at 0.6% on a year-to-date basis, but we've been adversely impacted because of [-- should be still] growing which is what we offer to TM and also the inbound roaming which has come down as well as the resettlement we have given have been revised since the beginning of the year. And our conscious decision to reduce the [part that remained this] loss -- had a very low-margin number on [the EBITDA] margin. So that's had an impact on the overall mobile service revenue for us, and we have positive development of free cash flow as well as improvement in PATAM. Just to clarify, the last year, when you look at the [develop and submission] costs which we didn't spend last year.

If I go to XL, this had a really strong performance coming in with 8 quarters of improved EBITDA with the current quarter and achieved good compared to how the market development is happening, not only on the top line growth, but also improvement in the EBITDA margin by 19% and improvement in free cash flow as well as recording 4 quarters of profit in Indonesia. So extremely good performance for us in Indonesia.

If I can go to the next one. Robi, extremely good performance when it comes to revenue, double-digit, 10.4% revenue growth on a year-to-date basis. Net income in the market improved free cash flow and improved profits. Here, you would see a negative impact largely because last year, Robi did sell some towers to their own sister company, edotco. This did result in one-off gains. If I normalize for 2 [impact] sales, one is the gain last year from the sale of towers as well as normalizing impact implication which has come because of the new taxes introduced this year. We will see around close to MYR 5.5 billion improvement in the profits of Robi. So extremely good performance with EBITDA margin improvement of [96%] year-on-year.

I don't intend going through all the other operations in Indonesia at this time and the opportunity is much more time for the Q&A. But fair to say all of those with the exception of Ncell, which is largely driven because of the market condition as well as the lowering of the international long distance have done fairly well.

What I will do now is to take you to Slide #21, which is basically talks about where we are, mostly on KPI or the headline numbers which we have done at the beginning of the year. Our revenue growth, it would be marginally lower. And that's because of [on-shelf] is limited and [then on] dividends in terms of our markets, which has an impact on the overall improvement. But the revenue line, excluding devices, we should be above our [reasonable] target.

EBITDA, strong EBITDA, we should be even closer to a double-digit growth in EBITDA. And the return of invested capital should be about 6%, and CapEx based on our conscious allocation and capital allocation strategy, we should be below our targeted CapEx for 2019.

I think that we've talked -- I mean these are fairly well-known risks. For example, I think we do see challenges of the unfavorable regulatory environment in Nepal with respect to capital gains tax. We recently got the Supreme Court judgment on the dividend, what was expected, but there's some open issues on that. And I think we will continue to pursue the international forum for getting the right kind of decision to that as well as issues, I think, in Bangladesh mostly coming out of the BTRC audit. Then we have the concern of the [franchise] more in the new equipments as we're launching new products to various channels in the markets given the regulatory environment. Our market conditions in Malaysia and Nepal are [reaching midpoint]. And also I think the ADS business over the last -- considering time to manage the OpEx scale of the intensity of competition in the managing [CapEx] is increasing, but it does have in terms of overall adoption of the products and services.

Opportunities, Indonesia and Bangladesh continues to [work over] from an operation standpoint. Infrastructure, I think we are getting new tenancies and also looking at new markets which should give us opportunities. And then, obviously, focus -- continued focus on structural cost takeout, and I will give you more detail when we have the -- next week in this forum on how we are looking at costs, structural costs, going forward.

So that's it for me. Tan Sri?

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [4]

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Thank you, Vivek. So I think we'll just go straight to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Prem Jearajasingam from Macquarie.

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Prem Jearajasingam, Macquarie Research - Analyst [2]

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A couple of questions from me. Firstly, on Celcom. If I were to look at the trend in your prepaid revenues, 1Q to 3Q, it looks like you are on an interesting glide path here. You're stabilizing on that front. But if I look at 3Q versus 2Q, there's been quite a drop. Is it just pure seasonality? Or is there something that worked in 2Q which didn't work in 3Q? And I suppose the long-standing question of how long before our margins start gravitating towards where our peers are sitting at the 40% level at Celcom?

Second one is largely around 5G and infrastructure sharing. I know the agreement between Maxis and Celcom on potential 5G network sharing. But could you help us understand what your philosophies are around 5G and how that network rollout is likely to take place in a Malaysian context?

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [3]

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Thanks, Prem. I'll pass to [Peter], although I did note that you had asked a question on edotco, which is the [trio is here. Their] performance so good.

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Unidentified Company Representative, [4]

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Thank you for the question. I think the first question is about the prepaid Q3 versus Q2. Yes, despite the decline on the -- to Q2 -- from Q2, yes, we do see a lot more in terms of the prepaid to postpaid migration. I think it is the trend becoming more and more important. So I think this is something that we are working on. But hopefully, with this, the trend and what we -- and also what we're doing in the postpaid side, we can actually capture more -- 3 to 4 migrations in the coming -- in the fourth quarter or the coming first quarter. So this is a trend and something we are handling internally.

And then your question about the philosophy around the 5G and also the sharing of the infrastructure with 5G. And there are a few things around the -- in terms of 5G being worked on -- worked out within the industry in Malaysia, which has to do with the rollout of 5G in zone 1, zone 2, zone 3 and zone 4. And a lot is being discussed at the industry level and there's not a lot of sharing initiatives that will take place. Especially in zone 3 and zone 4, I think this is something that will be unveiled as soon as [possible.] Premature probably to speak at [Huawei] at this point in time. But we remind you that the MOU that we have with Maxis in [-- that's small.] There's a lot of sharing within zone 1 and zone 2, which is more the city center and also the urban areas. This is something that is -- it is a very -- at this point, at the early stage where we're sitting down together to start thinking and planning what if we were to share the network, the 5G network, because to that extent because now this is a trend that's happened globally around 5G being shared by most of the digital operators in Singapore. But as long as if you look at the network in Malaysia, both of our networks are quite comparable. So our 2G, 3G and 4G networks are quite comparable with this. So we think we are [strike] when you do over, start thinking about how to share the 5G networks together.

As [Jamaludin] mentioned, it's still very -- in the early stage and we think that in the next 6 months, we hope to be able to describe further how the sharing will take place.

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [5]

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Just one clarifying comment before I start this year is that from a broader philosophy, I guess, it's a balancing act. We know that 5G in terms of the commercial business case [push] hard at this point in time to justify the incremental revenue and our ARPU and the cost of which the benefits are quite questionable.

At the same time, we do understand, we do support wholeheartedly the government's intention to bring about leadership in the technology. It is partly the basis. And when we take pride on that. So the sharing that you want, we are doing it so that we can achieve growth at the same time. So I think that's just probably a tailwind and with -- from an industry perspective, we believe sharing is the only way to achieve -- which is to grow our networks.

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Prem Jearajasingam, Macquarie Research - Analyst [6]

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I completely concur. I was just wondering how 2 mobile operators with limited fiber capacity would undertake this task especially when the network's going to be requiring a lot more fiber. So there is going to be a fair amount of investment especially given that the revenue upside is probably pretty limited at this point in time.

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Unidentified Company Representative, [7]

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Yes. Prem, we do recognize that, but both parties have quite a reasonable amount of fiber. Actually, if you look at our own fiber, our site, the direct site, we have more than 30% of fiber. But if you look at in terms of their collective sites, you're really quite right. We're talking more in the 90s -- more than 90% of our collective sites are fiberized. And then we have our site, more than 70% are actually single [host] to fiber. I think that that's one point. And I think together, if you look at what fiber that Maxis have is we could complement each other and that with sharing, I think we can actually achieve more together.

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [8]

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So I think if I can add some more -- add a bit on that. Don't forget that on fiber, we also are working with Digi, our data partner. And we have a reasonably good deal with TM as part of our overall deal, the biggest deal with TM on fiber. So one is, it can be, from a cost perspective, a concern, but I think we have taken a lot of measures to ensure that we can be economical on the fiber.

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Operator [9]

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We now move on to our next question which comes from Choong Chen Foong from CIMB.

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Choong Chen Foong, CIMB Research - Analyst [10]

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A question on for Robi and for Celcom. Starting off with Robi, I've noticed a very big jump in the PATAMI Q-on-Q. Could you just kind of help us to understand what is more the direct costs, the sales and marketing over the past costs are lower on a Q-on-Q basis? You also saw that the interest costs are more than half on a Q-on-Q basis. So any color on that as well?

And lastly, for Robi, the tax, if I look at it, we still have about 7.6% of the revenue. So can you help me reconcile that with the 2% turnover tax? Those are frequently for Robi.

And then for Celcom, you mentioned earlier about the 3 to 4G migration, there you're seeing a bit more into the first quarter. But if I look at the postpaid net adds, that was down Q-on-Q. So can you sort of give us more color as to what will happen on the postpaid side? Was this due to more competition in the low end as well? So perhaps if you can update on your competition front would be [helpful] so.

And then on the network cost, debt grows further Q-on-Q. Was there any one-offs here in terms of the LTE expansion cost in the quarter? And do you see room to significantly bring this cost down? Or do you think this is [just] right for the price and quality of network that you want to have at Celcom? That's it for my questions.

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [11]

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Okay. Yes. We don't that. So in terms of gross funds, I'm going to ask Jennifer to answer -- cover the second one. There will be -- quarter-on-quarter improvement in PATAMI will come from 2 factors. One is continuing growth in our revenue, which is great. Second then is, consciously, we've got a lot of focus there on value and profitability. The overall gross additions in the market has been slowed down by [what has been we're] really focusing on quality of customers versus driving to higher gross addition, and then we improved those customers [trends]. And so there has been a reduction in the sales and marketing cost as well as the E&P cost. And there have been continuing efforts on improving the network cost.

And then one thing I must say about Robi, if you look at the last 4 years since we acquired the -- acquired Airtel -- or Bharti Airtel, there is -- the cost in that company has remained flat. Despite the fact that we've been increasing in network coverage as well as growing revenue quite consistently, they've been managing the cost structure extremely good. And in addition to that, this quarter, Berhad, because their focus was a lot more on quality of sales, which means they lowered the gross additions, that had overall impact -- negative impact on the net adds. But we saw ARPU improvement happening in Bangladesh. So I think that's the one issue.

The second issue which is true there is [growing tax of 7.6%] of revenue, but where we already talked about 0.75% to 2%. There are 2 factors. One is that the tax included in fiscal 2018. So there is a [one-time] negative EBITDA impact on Q3 2018 which we have to account for 2019 because this effect started with the accounting in 2018.

Second is that it's a funny regulation in Bangladesh. The regulation is you have to pay the highest [percent of] revenue or 45% of the profit before tax or advance to actually pay. So in this case, they ended up paying [3%] because these profits [are the] profit before tax. However, these aren't exclusive. We were not in an inclusive position. [Each year, they beginning to -- still] continue looking at accounting of tax variability on this kind of 35% of profit before tax. We've seen although they are making losses, they ended up accounting for the other deferred tax or deferred tax adjustments. [Together] we will grow the tax, which are coming into the EBITDA [promised] of revenue. So I think one -- at a point in time, when they start making better profit, we will start seeing adjustments on the EBITDA. So that's the reason why we see a much higher percentage of revenue as tax. We also look at this.

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Vivek Sood, Axiata Group Berhad - Group CFO [12]

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I will take the first part of your second question on the [predisposed and then, the part on the --] Jen, network cost. Yes. You're right. The competition on the low-end segment intensified [even on] postpaid. In Malaysia, you can get [twice the revenue you] get a postpaid package. But the result that you have seen, yes, we were doing 3 to 4. But we will focus more on the high-quality customers. So if you look at it, even though our customer base declined on a stronger postpaid, but our postpaid revenue has actually increased. We are addressing the low-end segment -- the composition of the low-end segment through different means. Not directly through our brand, but it's something that we are doing actively. And then we're also working on an alternative plan around how to address this low-end segment better in the fourth and also the first quarter of 2020. I'll pass on to Jen to talk about the network costs.

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Chui Fen Wong, Celcom Axiata Berhad - CFO [13]

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Okay. The network costs, I wouldn't say that the [trends went up as we -- in] mobile cost in Q3, as the [-- actually the margin is reduced, it's] almost flat. The -- we haven't seen much of a result in terms of the cost savings [as now] because [we continue to say -- be a small -- sector in communication industry.] Maybe achieve the results in [a number of these, you say -- talking about] the key integration within that is to optimize [each area we at this time]. So these are the 2 [paths. We need] more investment before we can actually see the cost reduction in the revenue line. So did I answer the question?

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Choong Chen Foong, CIMB Research - Analyst [14]

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Yes. Can I just follow up on the network cost side? So do we -- should we expect that the network costs would go up a little bit more from here? Because you said that we probably need to make some investments before we start to see some savings come through? Or are we sort of at the peak and going forward, within the next 12 to 18 months, we should start to see some benefits?

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Chui Fen Wong, Celcom Axiata Berhad - CFO [15]

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You're talking about the number that we are keeping now with [the peak which should come to us] very much over the next year in the short term. And then over a longer period, we should see the [number stabilize].

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Operator [16]

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We now move on to a question from Alex Goh from AmBank.

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Khir Peng Goh, AmBank Group Research - Research Analyst [17]

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I've got 3 questions. One on your Slide 21, where you showed us your expectation for -- in terms of the KPI guidance. If you look at the revenue growth guidance which would come below, but the EBITDA and ROIC is going to be above, does that mean you are expecting a lower cost to contribute to this higher-than-guided EBITDA growth? And where is that reduction in cost likely to come from? Is it from the management of cost? Which -- we should we be getting this from -- in Malaysia? Or is it any of the other countries that have had like a plus? That's my first question.

My second question is regarding your Celcom, where your EBITDA was impacted by wholesale revenue. So I expect that it was coming due to the impact on fiber broadband. But what was the impact to the net level for Celcom? If you look at, then you are also taking the fiber from TM as well as Chari. So what was the impact on a net level from this wholesale reduction?

And my third question is regarding your CapEx. You've indicated that it is likely to be lower. But going into next year, under NFCP requirements, do you expect that to accelerate? So given the fact that you guided it to be below this year, but is that going to be an offset next year?

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [18]

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Let me answer the first question before I pass to Vivek. Just a clarification, the revenue there is total revenue. If you exclude device, we do expect our numbers compared to the assumed revenue target to be higher. So we actually -- we could have -- we should have done ex device. Device is actually fairly artificial. We can increase already depending on our -- possibly in our programs -- marketing programs. What is more important is revenue ex device, just to clarify. Having said that, we do expect EBITDA to increase far higher than the increase in revenue. Sorry. Yes, that's right, because of the cost improvement.

I'll pass to Vivek to give you a bit of color.

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Vivek Sood, Axiata Group Berhad - Group CFO [19]

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Yes. Thanks, Tan Sri, for that clarification. But as I said earlier, so far, on a year-to-date basis, we will do -- actually I think we are growing at 5%, while 3.4% is included in the [numbers]. So there has been a conscious effort to curtail the various subsidies [worldwide].

And that said, I think our focus on cost continues across operations. If you go back to Slide #12, we have some of you. You cannot [appropriately explain where are the] cost savings coming from. Majority of the cost is coming from network, IT cost and sales and marketing costs. And these are coming from essentially markets in Bangladesh and Indonesia, also on sales and marketing somewhat from Celcom.

In addition to that, we've seen some movement on the staff costs coming from Celcom and [the tel]. So we [don't need going ahead the] savings. And as you recall, the MYR 5 billion of cost savings, and this year, target was MYR 1 billion. So on that perspective, we are only around MYR 800-plus million on the cost savings for this year. Yes. We [deliver] offset by some of the expansion with the new cost, which will continue in the current markets where there's still growth opportunity. So that's where we are looking at costs. Broadly, this will remain flat or a very low single-digit increase in costs compared to last year. [Peter?] Or Jennifer.

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Chui Fen Wong, Celcom Axiata Berhad - CFO [20]

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Yes. I think the [wholesale] revenue -- I think the wholesale revenue that we are seeing this year is actually the domestic roaming solution that we [have seen that we have in addition to the transport the] (inaudible) [that we have, in addition to the] (inaudible) revenue, which I think we made mention (inaudible) revenue, the margin is actually very good. So that is one clear portion of the (inaudible) revenues. But on the other hand, we still have [some] revenues from the domestic roaming arrangement that [sort of peaked then] declined year-to-date as compared to new policies that we received. The main reason for this was mainly because of the acquisition of [the week] and the impact from the reduction is about (inaudible) of the total revenues year-to-date.

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [21]

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Question 3?

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Vivek Sood, Axiata Group Berhad - Group CFO [22]

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Yes. On the CapEx, I think in general, we will give the guidance for the CapEx for 2020 and beyond sometime in February. But when it comes to NFCP, yes, there is a lot of discussion still at the industry level. And we wanted there to be a lot more collaboration happening at -- within the industry in order to achieve the NFCP targets. And we hope by doing this, we could help to minimize the CapEx required to achieve the NFCP.

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Khir Peng Goh, AmBank Group Research - Research Analyst [23]

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Okay. Can I just squeeze in one -- can I squeeze in one question regarding Ncell? Regarding the CGP situation, I mean, how much have you provided for the CGP so far in your account? And yes, could you just give more color on that?

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [24]

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If you recall, I think we did mention this at the quarter 4 or the full year 2018. The earnings [point] at that point in time, we did say that we believe there are -- there are sufficient provisions available on the tax matters. Some of them are included in the [revenues] across the group. We think at this point in time, this is sufficient, where we will take care of the nature of the liabilities from CGP. However, until we just get near clarity or we've come to a conclusion, it's very difficult to say what the actual amount will be. So from our perspective at this point in time, we do see that overall provisions we have on various tax matters should be sufficient -- or should be sufficient as the situation changes.

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Khir Peng Goh, AmBank Group Research - Research Analyst [25]

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By the end of this year, do you see any additional provision coming in for any other reasons?

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [26]

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At this point in time, I think we've also mentioned in our quarter release that we still believe that the strength of our international arbitration, our position on that, is very strong. So unless we decide to take certain other measures, we do see -- we don't see any major implications, at least at the time the tribunal proceedings are completed.

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Operator [27]

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Ranjan Sharma from JPMorgan has our next question.

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Ranjan Sharma, JP Morgan Chase & Co, Research Division - Analyst [28]

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A couple of questions from my side. Firstly, on edotco. I understand that Indonesia is thinking about revising the negative list, which might open the tower industry to foreign investments. Is that something that's on the radar for you? And does XL direction of towers [meet --] feel that negative list is potentially revised? Also regard confidence in, why -- what has driven the big improvement in EBITDA margin in the first quarter to the third quarter?

Then on -- you said ADA is breakeven now. Is that expected to remain this year in 2020 as well? And are we still on track for breakeven for Apigate next year in terms of admission plan?

And the last question is on TM. I understand that the domestic roaming agreement was revised down. I think it's MYR 15 million loss in revenues per quarter. Can you just share with us or remind us like what does that Celcom [or right does it contribute] in return? Is it of right of access to fiber? Or if you can share what the benefit Celcom brought?

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [29]

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Okay. Suresh?

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Suresh Narain Singh Sidhu, Axiata Group Berhad - CEO of Edotco Group Sdn Bhd [30]

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This is Suresh Sidhu here. I think at edotco, we always look at countries that are within our footprint. But also available and addressable also that we can own and operate the asset. So in Indonesia, [those would be something weaken] the negativeness. That is probably something that we would consider. But naturally, any entries into Indonesia will depend on the individual benefit attractiveness of what targets are available. So it's possible. But I think let's wait and see.

On the XL question, I think I'll leave that to Vivek. He'll answer the question on the margin or turn that back to Vivek, all right? So just on the margins, and I'm just going to use the pre-MFRS comparisons here. The main drivers, if you look year-over-year on successive quarters is largely because, I think, increasing revenue, having growth on power, and I think our consistent co-location movement as they maintain co-location ratios around 1.6, even though we continue to grow power, both from small asset purchases and organic growth. We've improved a lot of revenue assurance. So I think there's a little bit benefit from better billing over the last few quarters.

And I think more importantly also, some better cost management, which has come a little bit from some surge of projects on rehabilitation of compounds, which we have charged them higher costs last year. And I think this year, lower maintenance costs overall. And some of that is actually coming from Malaysia because we took over the telecom [field] costs, which I think we announced that last year at OFS, and that's actually helped us drive a lot more cost synergies as well. So those are the big ticket items that explain our numbers.

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [31]

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Thank you, Suresh. Allan, are you on mic?

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Allan Bonke, PT XL Axiata Tbk - Director [32]

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Yes, Tan Sri. So I think if you look at the power we removed from the negative space, I think this has been talked about for the last 3, 4 years. Unfortunately, that's not happened, and I think we know that is coming back again. However, there's no certainty that it will come anytime soon. So as far as we are concerned, we have actually announced that we are running the tower divestment, and I think that is expected to be completed by Q -- end of Q1 next year.

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [33]

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Okay. On question number three, before I pass to take telecom that -- on the TM, the answer is that we are expecting them to be, basically, neutral -- profit neutral by end of this year for ADA, for the full year results. And therefore, we should expect some profit next year for ADA.

For Apigate, the plan was supposed to be profitable next year. We see that's a bit of a challenge. It's still in the plan, but it's a bit of challenge, and we hope we can still make it.

Your question number four?

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Chui Fen Wong, Celcom Axiata Berhad - CFO [34]

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The question number four, in terms of TM. Yes, we have the revenue contribution from the (inaudible) revenue (inaudible) mainly because of the fact that these are rolling at the home sites exceptions for (inaudible). So this why the revenue at the 3 sites are in fact being essentially delayed, but [the reason there is core addition], which is [Smart] domestic roaming. (inaudible) [GMP, GOV].

The second one was actually on the (inaudible), which we have a favorable arrangement, favorable way in terms of the fiber reaching from TM, and that is still continuing.

The third one is on the HSBB arrangement that we have sent [that was of course, HSBB was] a lot lower [result of foreign concept but dedicate -- because we have to move --] part of the reason that we have with them, the partner leasing that is probably a very positive thing for us.

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Operator [35]

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(Operator Instructions) We now move on to Arthur Pineda from Citi for our next question.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [36]

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Just 2 questions, please. First, I'm curious on your decision to partner with Maxis on 5G deployment. Why not include Digi in this discussion, considering you were actually thinking about merging -- working with the Telenor Asia assets? Is it being limited to Maxis? Is there room for a 3-way deal?

Second question I had is just regard to your thoughts on the stakes that you hold across your subsidiaries. Are you comfortable with the ownership levels? Do you think this is ideal? Or would you consider increasing or decreasing stakes in these various assets?

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [37]

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Let me take the question about this arrangement with Maxis. Well as you know, the current 5G technology is still not stand-alone and then we have to take a few things into account. I think what I'm trying to say that this is actually very early stage of offsetting how to check prices in Zone 1 and Zone 2.

So we're starting with [a nonstandard zone,] which is depending very much on the 4G network that we have. And at this stage, one of the reasons that we're working on with Maxis first, is right in the process comparable really of the network that we have to leave at network 5. And that was certainly one of the more important ones because we are using it as the same vendor for our 4G network, just to make things a lot easier to plan and also to prepare the migration from 4G and how to put the 5G on top of it.

So I think that's where we are. There is a bigger risk whether we're looking at the Zone 3 and Zone 4, where we see more players and more operators. But it's something probably not at liberty to be discussed yet publicly.

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Unidentified Company Representative, [38]

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So on the second question, as we did [same thing] to actually increase our ownership in a few of our opcos. But what we have, at this point, directionally, decided that we want to -- is to give out cash. We believe that there might be a need when it comes to consolidation or given the offer that's in the market.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [39]

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How about the other way? Would you be willing to, let's say, reduce and actually monetize some of these assets?

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Unidentified Company Representative, [40]

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There's nothing imminent at this point in time. We -- if we were to look at that, it's more not because of our belief in opco, but we want to [use cash] or we did it for an opportunity for consolidation. Again, it's quite possible, but nothing imminent either way, to increase or to decrease.

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [41]

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Yes. Just to add to that, that is in fact -- we are actually looking at potential strategic investors in some of our possible consolidation that we want to do or -- in new areas that perhaps -- that we might embark on.

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Operator [42]

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We now have a question from Piyush Choudhary from HSBC.

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Piyush Choudhary, HSBC, Research Division - Telecoms Analyst, South East Asia [43]

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Three questions. Firstly, at Celcom, could you -- on a high level, could you kind of elaborate on the outlook for the EBITDA margin for next year? How -- we have seen in June of this year, but what's the outlook for 2020, if any?

On the regulatory side in Malaysia, any time lines for the spectrum allotment that you could share?

And lastly, on edotco, organically, what's the outlook for the power growth for next year? And which countries would likely drive that?

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [44]

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Okay. Let me pass to Suresh because it's really his [part of it].

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Suresh Narain Singh Sidhu, Axiata Group Berhad - CEO of Edotco Group Sdn Bhd [45]

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Suresh here, again. On the organic outlook, I think we would still expect there was a, maybe slower growth than this year or close to double-digit growth. I think that depends on the number of towers or new tenants. The mix will actually probably shift a little bit. I think we expect that Malaysia will have a little bit more of a gestation period waiting for 5G. So there may be slower growth here.

So we anticipate higher growth in newer markets that we're in, Pakistan. We have recently sort of almost completed an entry into the Philippines as well. And we expect that countries like Myanmar and Bangladesh also will have some reasonable goal.

So maybe a little bit away from Malaysia and coming from newer and more emerging markets.

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [46]

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You can see, for example, revenue growth of low double-digit is not good enough. [Another one? It's the end?]

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Unidentified Company Representative, [47]

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Yes. On the EBITDA margin, and with all the initiative, there was basically a question on this cost management as what was mentioned before. We hope to see that the current EBITDA margin will be -- continue on the upwards trend, hopefully, to be around -- to maybe about 38.5% to be around -- close to around 40% in the next year or so.

Now on the regulatory front, the packet for the spectrum at industry banking looked at the 700, 2,300 and 2,600. The latest indication of the target by the regulators is to be around the second quarter 2020.

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Operator [48]

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(Operator Instructions) There are no further questions at this time. We will now pass the call back to Tan Sri. Please continue, sir.

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Jamaludin bin Ibrahim, Axiata Group Berhad - President, Group CEO, MD & Director [49]

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Thank you very much. I just want to end this, again, with a thank you to all those participating in the -- who participated in the third quarter 2019 results. Talk to you next quarter. Thank you.

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Operator [50]

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This concludes today's call. Thank you for your participation. You may now disconnect.