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Edited Transcript of DIGI.KL earnings conference call or presentation 18-Oct-19 7:00am GMT

Q3 2019 Digi.Com Bhd Earnings Call

Selangor Darul Ehsan Oct 22, 2019 (Thomson StreetEvents) -- Edited Transcript of DiGi.Com Bhd earnings conference call or presentation Friday, October 18, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Albern Murty

Digi.Com Berhad - CEO

* Inger Gløersen Folkeson

Digi.Com Berhad - CFO

* Keh Jiat Loh

Digi.Com Berhad - CMO

* Kesavan Sivabalan

Digi.Com Berhad - CTO

* Winnie Ooi

Digi.Com Berhad - Head of IR

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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

* 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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Good morning, good afternoon, ladies and gentlemen. Welcome to the conference call. Winnie, please begin your call, and I'll be standing by for the Q&A. Thank you.

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Winnie Ooi, Digi.Com Berhad - Head of IR [2]

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Hello. Hi, everyone. Good afternoon. Welcome to Digi's Third Quarter Earnings Call. With me here is -- we have our Digi management team, our CEO, Albern Murty; our CFO, Inger Folkeson, as well as other members of our management team today to walk us through the third quarter performance. And then we will later take in a session for question and answers.

So without further ado, I'll pass the line to Albern.

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Albern Murty, Digi.Com Berhad - CEO [3]

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All right. Thanks, Winnie. Good afternoon, good morning to everyone. Thank you for joining us for our Q3 2019 call. We'll go through the -- a little bit of a presentation from the management team. Together with me today are the CFO, Inger; and the CMO, Loh; the CTO, Kesavan, is here and the rest of management team, but the 4 of us will be the ones that will add to this presentation but also take some of the questions.

The agenda that we'll cover is key highlights, performance and we'll wrap up with other updates and priorities with a little bit of an outlook.

So please allow me to start. The first 9 months of 2019, we have seen tracking well towards the Internet growth ambition that we have. Year-on-year comparison, we see 11% improvement on Internet and digital revenue, and this has been a key focus from us as part of our change in strategy on data subs and data revenue. And that also then translated to 4% increase in subscribers for the subsequent period.

What we see here is that we've been able to achieve this through continuous focus on the right plans and products, but also definitely a deployment of a much better 4G network experience, doing better speed, and I'll cover that in my -- when going through the slides.

The base, as I said, has improved and the usage of the base has also increased, thus giving us solid Internet and postpaid revenue growth, which we can see on top of the Q-on-Q improvement in the chart below.

So if you look at the 9 months of '18 versus the same period in '19, you see that postpaid growth is now 12.7%. And when you look at service revenue overall, there is a 1 -- a reduction of 1.9%. But if you look at the overall performance, we are quite happy quarter-on-quarter, and I'll come back to that in a short while.

Digital solutions continue to take up position. We have reached 3.6 million customers using the MyDigi app. We also have a strong -- good traction on digital services, particularly on games with Republic GG and EasyAdd, which is the new platform that we just launched. We continue, to that extent, our B2B ambition. Besides growing on SME solutions, we have now also covered retail to serve our customers for the business consumers.

On this slide, you'll see that we have also mentioned the 5G OpenLab. This is a field trial that we're working with partners, and it's a collaboration to partners to sort of test the open 5G market on use cases.

On this slide -- on the next slide, this will give you a little bit of the key highlights. Internet revenue, slightly shy of 11% year-over-year. Postpaid revenue is at 12% year-over-year. And service revenue, a slight reduction of 0.7% year-on-year, an improvement from the previous quarter, then taking the quarter-on-quarter to a positive 0.9%.

On OpEx, happy to report that it was a flat OpEx year-on-year and quarter-on-quarter, taking EBITDA margin to 48% -- sorry, 46% and also MYR 725 million in absolute.

CapEx, a little bit leading to my point earlier on the network, and the deployment is now at MYR 548 million year-to-date, giving us a strong network position. And also here, I will talk a little bit about it in terms of how we've taken a #1, #2 position in 4G network experience in that space.

On MyDigi app, I covered that earlier, but MyDigi 3.0 continues to garner customers' choice in terms of rewards and account management. We have launched Digi WiFi extension to our Internet proposition, now providing close to 7,000 WiFi spots nationwide that consumers can use WiFi as an option for connecting with you.

And not forgetting, going beyond what the brand does, it's also then taking privileges to senior citizens and differently-abled persons as part of our digital inclusion promise to society.

Our commitment towards placing customers first. As the slide indicates here, it's a combination of engagement that we take out to market. We are still the only brand that does this consistently. And here, you see a couple of images. The one on the left talks a little about taking employees and reaching out through over 7,000 Malaysians, listening and also providing them services or just engaging them.

On the right side, you will see that digitalization of SMEs, part of our B2B ambitions that I talked to you about a couple of quarters ago, we are now going one step further to actually doing our best educating and training SMEs, giving them the tools and the capabilities to actually go -- or take their business to additional platforms. So it's very well received. We ran 4G nationwide this period, and it was very well received. And we expect we could continue to engage the SME in this space.

On the next slide, a little bit on the network that I talked about. Investments in the network was very visible, and you saw that reflected in our CapEx. On 4G LTE, we have now reached 90% coverage; LTE-Advanced at 70%; fiber at 9,200 kilometers nationwide. On the subscribers, the 9.4 million that I mentioned earlier is our 4G Internet subscribers at 9.4 million.

On the network, the steps that I just wanted highlight to you earlier, we are now ranked #1 and #2 on Ookla's speed test across 13 states nationwide. And that has come from 2 things: one is investments and better capacity management of the network; second one is also optimization for better experience for our customers.

Mobile data usage is now around 12.9 gigs per sub per month in the third quarter. And as I mentioned earlier, I covered the Internet. Here, in this diagram, we just split between postpaid and Internet -- postpaid and prepaid, both showing positive growth on Internet usage.

Inger, would you walk through the next couple of slides, please? Thank you.

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Inger Gløersen Folkeson, Digi.Com Berhad - CFO [4]

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Thank you, Albern. Then I'll go into subscribers and ARPU. So we are building a base to become a much stronger Internet and postpaid base. So we are continuing to focus on capturing our customers into device ownership program, and that's the so-called Phone Freedom 365 program. And we're also seeing very good traction on Postpaid Family plans and also our pre-to-post conversions as well. And Albern touched upon, also the prepaid Internet passes is resulting in prepaid revenue's slight growth as well.

So in total, we see that our subscribers coming from prepaid Internet and postpaid is increasing year-over-year by 3.7%. And the decline that you see here from non-Internet prepaid is narrowing. So it was minus 5% this quarter-on-quarter, narrowing from 9.2% last quarter. So in total, we have strengthened our subscribers in postpaid and prepaid Internet by 341,000 subscribers or 3.7% year-on-year.

Our blended ARPU is resilient at MYR 40 due to a stronger Internet and postpaid revenue, and this is sufficient to cushion the noninterest ARPU dilution that we see. And the postpaid ARPU has actually increased to MYR 71 from MYR 70 last quarter, and this is due to our efforts in ARPU uplift, especially from our existing customer base. Although we see that our ARPU is also challenged by new entry-level customers that we also want to come into the postpaid segment. But we continue to grow with our customer needs to have a continuous focus on ARPU outlook.

Moving on to the service revenue. We see a solid Internet growth, as we mentioned before. The service revenue overall, excluding the contract asset amortization, quarter-on-quarter has increased 0.9%, and the decline has also narrowed year-over-year to minus 0.7%. Last quarter, it was minus 2.2%. And if you exclude the non-Internet prepaid, actually our service revenue grew by 2.4% quarter-over-quarter and 8.9% year-over-year.

Okay. So looking at the Internet and digital revenue growth, we really see that it's gaining momentum, but we also want to highlight here the increase in higher demand on digital services, which we for the first time see there is -- we show here on the chart MYR 7 million this quarter.

So in total, non-Internet revenue has been moderated by 3.7% quarter-over-quarter. And we continue to see the impacts on, of course, the revision on interconnect rate and also the increase from the higher contract asset amortization.

Moving to the cost side. So we continue to deliver very efficient operations. As you can see here, our underlying COGS have remained flat. Last quarter, we had a nonrecurring traffic cost of MYR 34 million, meaning that you can actually see that we have been able to have a pretty flat COGS quarter-over-quarter if you disregard that. Also, it's a 5.4% year-over-year decline also coming from the interconnect rate.

Total OpEx, we have really managed to remain flat both year-over-year and quarter-over-quarter. And this is actually very favorable, 34.6% of our service revenue only. Even as we continue to invest in our network, which also increases our OpEx base, we managed to compensate that with efficiency initiatives as well. Actually, our underlying OpEx is lower compared to the last quarter because the one-off, the nonrecurring cost that we have this quarter of MYR 17 million is lower than the MYR 28 million that we recorded last quarter. So we continue to have a very high commitment and focus on driving our operations efficiency.

Moving to the EBITDA and profit after tax, relatively resilient. And we've included here for your transparency the nonrecurring costs that we have mentioned the previous quarters as well. So as you can see, the underlying EBITDA has increased by 2.7% quarter-over-quarter, and it's minus 3.6% year-over-year after the normalization and the contract asset amortization. It's basically trickling down from the top line, which causes the decline year-over-year.

We have improved our earnings quarter-over-quarter, mainly as a flow-through from stronger service revenues and also more efficient operations. So our reported EBITDA, as Albern mentioned, is now at MYR 725 million, resulting in a 46% EBITDA margin. And our underlying profit after tax has increased 2.2% quarter-over-quarter, but also a decline of minus 5.8% year-over-year after the normalization, as mentioned earlier.

Then recorded profit after tax has -- fell minus 12.6% quarter-over-quarter and minus 7.9% year-over-year because we have accounted for MYR 200 million -- MYR 202 million in depreciation cost and an increase in finance cost but also higher effective tax rate. And this is related to additional tax from finalization of our tax return filing and higher nontax deductible cost.

So moving on to the CapEx. We are in line with our strategy on investing in what matters most for our customers. And we are seeing that our cumulative CapEx year-to-date has now reached MYR 548 million, and this equals to 13% CapEx service revenue.

This has given us more optimized 4G network. We can also see that we have enhanced our capacity with the building of fiber network, expansion now reaching 9,200 kilometers. And we're also using more spectrum dedicated specifically for 4G. And as Albern also mentioned, now we have results from Ookla that we are ranked as #1 and 2 across 13 states in Malaysia when it comes to 4G network performance. In the same assessment, our average data download speed is now at 30 megabits per second across our network.

So in total, our operational cash flow has actually strengthened 23.4% quarter-over-quarter to MYR 606 million, giving us a 39% margin after recording a relatively lower CapEx this quarter, which was part of our plan. It was front-loaded to accelerate the network experience in the first half.

Moving on to the dividends. So based on the earnings per share, it stood at MYR 0.047, or MYR 0.046 after accounting for the MFRS 16 impact. This was presented to the Board, and they have declared a third interim dividend of MYR 0.045 per share or equivalent to MYR 350 million that will be payable to our shareholders on the 19th of December this year.

For your information also, we secured a MYR 900 million Sukuk funding over 2 tranches of MYR 450 million for a 7- and 10-year tenures. This is part of our already announced MYR 5 billion Sukuk programs and will support us in investing in our business going forward. And we remain our net debt to EBITDA healthy at 0.8x before MFRS 16 effects and 1.5x after. Our conventional debt over total assets is at 10% after MFRS 16.

Moving to the impact of MFRS 16 Leases, this is something we continue to report just to show you the impact. But basically, we continue to move our leases from our OpEx lines down to the rights-of-use assets. This time it's MYR 109 million, then we move it back again to depreciation and amortization and finance cost, giving us a delta of minus MYR 6 billion this quarter.

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Albern Murty, Digi.Com Berhad - CEO [5]

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Okay. Inger, thank you very much. Then just to wrap up the last couple of slides. So just shifting gears a little bit just to give you a little bit of a better picture as a brand and as a company, aside to the financial ambitions that we have.

On this slide, you will see that we have embarked on being a thought leader but also a leader in the space of sustainability, bringing programs across the SMEs and across the business partners where we're talking about the importance of sustainability. In the visual up there, you see engagement on Sustainability Day that we just had where we have brought in external parties, brought 150 different companies joining us for that event.

Also you will see that we have launched a Yellow Heart program. I've talked about this before, we're the second Yellow Heart for retail, making this an opportunity for us [as far as a differentiated] brand. In this instance, we have now extended what we did previously to the differently-abled persons by offering a lifetime MYR 10 monthly rebate. We've now extended that offer to seniors as well. We truly believe that everyone deserves to use the Internet and inclusion.

On the last one is empowering the next generation. While we saw the impact, I've always said that we have a responsibility to educate and build resilience for children. Here, you see that we have covered 130,000 students across the country through various programs that are listed hereon.

On the next slide, just to share with you that while we are pushing our business every day in growth, we are recognized and we're humbled by the recognition that we received. And we dedicate this to our employees, to the brand overall, to society and to our investor community.

Then on the last slide, just to close off with the priorities and outlook. What we have seen is basically that we've been able to provide sustainable Internet revenue growth of 11%. You see that postpaid has maintained its momentum from the previous quarters, but also from last year, here with 12% growth. Efficiency remains to be our main focus in terms of driving the mindset but also the culture in terms of delivering good quality network, good quality service, but in an efficient manner. Here you see flat OpEx and 48% EBITDA margin with healthy returns that Inger shared earlier, with a cumulative dividend per share of MYR 0.138.

So what are we going to be focusing on for the next period is continue our growth strategy in terms of execution and delivery in the channels. Driving postpaid, B2B and prepaid Internet growth, that has been our strategy for the past year and we're going to continue to do that. You've seen now in the third quarter improvement in all the 3 areas, that we have set it up. We also are going to continue to focus on structural efficiencies. We believe that we can do even more in this space. And on the network side, we continue to expand and improve the quality of our network and we are committed to our customers.

On the guidance. On the -- based on the performance, we've also now looked at CapEx ratio of 12% to 13%. On the EBITDA, we've taken that now to low to medium single-digit decline. And on service revenue, it stays at low single-digit decline.

With that, I'll conclude the presentation. And Regina, I will open then for Q&A. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Arthur Pineda with Citigroup in Singapore.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [2]

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Hello, can you hear me? Hello?

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Operator [3]

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Sorry. Mr. Arthur, would you please stay on the line because our speakers' line has just been disconnected. (Operator Instructions) Sorry for the inconvenience.

(technical difficulty)

Ladies and gentlemen, thank you for waiting. The speakers are back online. Please go ahead, Arthur.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [4]

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Several questions, please. Firstly, just to clarify on the guidance. You say the CapEx guidance is now slightly higher at 12% to 13%, what's driving this change on the guidance?

Second question I had is on the prepaid side. It continues to be problematic with declines. What can be done to stem the prepaid decline? What's being done on that side?

And lastly, a housekeeping question. Can we clarify the nonrecurring items booked for this quarter?

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Inger Gløersen Folkeson, Digi.Com Berhad - CFO [5]

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Thank you. I will start with the CapEx revised guidance. So basically, it's a combination of 2 things. One is that CapEx guidance is on a CapEx to sales. And since our sales revenue has a slight decline, that also increased the ratio in itself. However, we have also invested slightly more than we thought in the beginning of the year because we want to continue to deliver on our customer promise, on customer experience, and that's also what we see results in. So as mentioned earlier, we front-loaded our investments this first half, and we see those results now in the third quarter.

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Albern Murty, Digi.Com Berhad - CEO [6]

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On prepaid decline though?

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Keh Jiat Loh, Digi.Com Berhad - CMO [7]

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Back to the questions on the prepaid, I think actually what we shared in the earlier slides, well, there's really 2 components in the prepaid. If you look at the Internet, definitely, I think we are able to narrowing the gaps and it's tough to show some of the top trends again. But again, I think if you look at the prepaid/postpaid segment, the Internet user behavior obviously it's very different. Postpaid commitment, a bit more stable, and whereas prepaid has a lot more choice. And definitely, the competitions and the free gigs are still abundant, available in the market.

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Inger Gløersen Folkeson, Digi.Com Berhad - CFO [8]

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And on the third question on the nonrecurring items in Q3, this is quite similar to the previous quarters. We -- it's a combination of efficiency efforts we are doing on negotiations. So we are reversing some of our accruals based on the new prices we get as well as some cleanups that we have done in our balance sheet.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [9]

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Sorry, the line was not very clear. What cleanup on the balance sheet?

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Inger Gløersen Folkeson, Digi.Com Berhad - CFO [10]

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So some aged purchase orders that we've had that we cleaned up.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [11]

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Oh, understood. Sorry, just to look back on the prepaid decline. I understand that you mentioned that that's been problematic. But what can be done to actually reverse this trend? Is this just all being driven by competition and we just have to wait until competition subsides before we can actually see stabilization?

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Keh Jiat Loh, Digi.Com Berhad - CMO [12]

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No. Again, I think that's really -- I think that in terms of Internet usage, that will continue to grow. Of course, we are continuing to believe that in a -- going to the segmentation models, work on the different offerings, different affordability level, and that is what allow us to continue to Internet -- I mean monetize the Internet. But again, right, I think you also have to take into consideration that what you see in the prepaid is after the pre-to-post migration. So I don't think we can look at pre and post completely separately, but I think you really need to look at this as a bit more in totality as well.

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Albern Murty, Digi.Com Berhad - CEO [13]

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Yes. I would just add in that last comment that Loh had, which is pre to post, basically, there's a couple of methods that you would defend the growth and expand the ARPU levels. One is pre to post. And as you know, the user is doing that systematically. The other part is there are pockets of growth in prepaid that are added over data, which we have our fair share of retention to go and get. So those 2 things combined and the network expansion that Inger mentioned, those are things that will drive towards managing how we -- the prepaid going forward.

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Operator [14]

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Our next question comes from Prem with Macquarie in KL.

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Prem Jearajasingam, Macquarie Research - Analyst [15]

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Two questions from me. First of all, more shorter term, do you think that the industry has come to a point where we can actually start seeing positive service revenue growth going into next year? Or do you think that competitive pressures are still intense and there's no hope in sight or no chance of us getting positive service revenue growth for the industry over the next 12 to 18 months? That's first one.

Second one, a bit more longer term. Could you give us some comments around what you think about the NFCP and all this talk around 5G networks? And how does Digi fit into this whole strategy? And what implications does it have for your long-term CapEx requirements?

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Keh Jiat Loh, Digi.Com Berhad - CMO [16]

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Prem, back to the question number one, of course, I think if you look at the service revenue today, there's Internet revenue component and the non-Internet revenue. I think if you see some of the -- our progress on the Internet, really, I think, of course, the postpaid Internet will grow much promising compared to the prepaid, as what we have just explained just now.

But really, I think there's another component, right, in order for the industry to have a positive service revenue; and then there's a non-Internet portion, which is really still there's a lot other elements there not within our control. I mean there's interconnect, there is the -- and also voice to -- I mean the voice data cannibalization is going on. And they are, as I mentioned, going to more and more bundle and other, the voice bundle, obviously there's a price dilution that's on the non-Internet. But again, I think the focus here is how do we continue to build Internet business in a sustainable and a profitable. I think that is still what we are focusing on in the near term.

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Albern Murty, Digi.Com Berhad - CEO [17]

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Yes. Prem, thanks for the questions. On second question in terms of NFCP and 5G. The way we look at it is, first of all, NFCP was a very clear decision from the government in terms of how they actually see improving connectivity in the country for the better of the consumers. And I think Digi is very much in line with NFCP ambition.

There are 7 items in the NFCP, as you know. You're part of the launch. I think on the mobile space, it will look at including the quality and also making sure that they're able to perform on the coverage side. So it's very much part of what Digi would look at in terms of network expansion and quality improvement to serve our customers in that period. And that will be then translated into the CapEx that we would already have provided for that period and our customers.

When it comes to 5G, it is a step-by-step. And you have seen how they've done -- we've done together as an industry together with MCMC and the regulators in terms of taking from a showcase to a trial, to a field trial, and there's a road map that we shared with them as well, is my understanding. And the other thing that's quite different is how the federal and the state are working together with the operators to actually find a much more effective way of rolling out connectivity in this very space. So for me, it's very much welcomed and it's part of our CapEx ambitions as part of NFCP and now part of our own network then.

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Prem Jearajasingam, Macquarie Research - Analyst [18]

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Do you think that Digi would look at building its own 5G network? Or do you think we could move something closer to what China Unicom and China Telecom have done where we have some form of infrastructure layer for players to come on board and, therefore, save on the CapEx element? What do you think that long-term direction is?

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Albern Murty, Digi.Com Berhad - CEO [19]

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Yes. So as you said, it's a long-term direction and it's very early days. So right now, we are actually doing a trial and we're also doing OpenLab, the 5G OpenLab. So we're taking a very fragmented approach in terms of looking at it. We'll look closely doing an investment in terms of what would the use cases of 5G be. I mean you know this, but just to remind everybody that we're also part of Telenor Group. And there, we also have a potential looking at what -- not just the use cases, but what are the methods in terms of deploying that 5G that we could get and explore.

So very early days. We are keeping our options open in terms of whether we build or whether we do anything else, and we will come back once we have a clear ambition. But as we said, that's a little bit of a long-term view right now.

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Operator [20]

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Our next question comes from Alex Goh with AmBank KL.

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Khir Peng Goh, AmBank Group Research - Research Analyst [21]

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I've got several questions. The first is regarding your operating costs. I'm just looking in terms of your traffic, your O&M and your material costs, quarter-on-quarter, compared to the second quarter, I noticed they went up, right? Can you just give us a bit of a guidance? Are these seasonal? Or is there something that we should bear in mind going into the fourth quarter?

My second question is regarding your tax rate. Can I -- I know that this is now your normalized rate, which is, in this third quarter, was 27%. Is that the rate that we should be looking at going forward?

And the third question is regarding your Home Fibre plans. May I know what are your plans for expansion? Given in light of your comments earlier on, on NFCP, how does that fit into the overall plans for Telenor as well?

And my fourth question is regarding your MYR 900 million Sukuk. What are you planning your funds for? Is it on CapEx or it's on spectrum? What do you intend to do with the funds?

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Inger Gløersen Folkeson, Digi.Com Berhad - CFO [22]

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Thank you for your question. So I'll do #1, 2 and 4, and then I'll hand over back to Albern. So the increased quarter-on-quarter on O&M and material costs, the reason it went up is related to the one-offs that we had last quarter in this area.

On the effective tax rate that we had this quarter, was related to additional tax from finalization of our tax return filing, but also a higher nontax deductible cost. It will not be our run rate going forward. And as you saw from last quarter, it was also significantly lower. That was due to deferred tax last quarter. But as you know, the normal tax rate is 24%, and that's the average. I think we would rather look at annual [rate first].

When it comes to question 4, the MYR 900 million Sukuk that we have issued this quarter, it's for our working capital management as well as our CapEx investments going forward.

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Albern Murty, Digi.Com Berhad - CEO [23]

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Yes. Alex, just to take the last question that you had on fiber to the home and as part of the NFCP. So the fiber-to-the-home position that we have taken is that we have done some fibers previously. And then last quarter, we talked about some launches that we've had where we've taken a few positions in strategic locations that we feel that we wanted to get better knowledge of how fiber will be as a bundle, and we've done that now in some key markets in KL. But the latest one was that we launched is Sabah.

And we are looking at that in terms of being able to provide the customers a bundled value proposition, but we're taking it step-by-step. And we're making sure that we're able to have value proposition and a differentiation that makes sense for us to get into. So it's still very early days for us. We are open to exploring all ways of taking that as a value proposition and the bundles to our customers, but step-by-step.

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Operator [24]

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Our next question comes from Foong Choong Chen with CIMB in KL.

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Choong Chen Foong, CIMB Research - Analyst [25]

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Four questions from me. Firstly, on the postpaid ARPU increase, right, on a Q-on-Q basis, can you give us a sense of the planned upgrades that you are seeing? Is this happening at the lower-end level? Or are you seeing that across all your various postpaid plans? And Inger mentioned earlier on about efforts to -- or for ARPU uplift. Could you also elaborate on that?

And then my second question regarding the Ookla speed test result, that was very encouraging. And you also mentioned that you're now putting more spectrum dedicated for 4G. So on that, can I -- can you just sort of provide more color as to what spectrum you're using for 4G? How much bandwidth is allocated for that basis -- for that use case?

And then my third question, regarding your cost. If we look at the underlying cost of goods sold and also the OpEx, overall about flat for the first 9 months if you would take out all the exceptional or one-off items. And given the fact that your 4G coverage is already quite high and I think going forward, probably incremental expansion, do you think that there is more room to sort of drive down the overall cost levels over the next 12 to 24 months? And if so, in what particular areas would you be looking at?

And the final question regarding your 7,000 WiFi locations, right, do you see that as potentially contributing in a material way, your top line and earnings? And perhaps more importantly, how are you going to be paying for this? Is this a variable cost or is it a fixed cost that you're committing to? Yes, those are my 4 questions.

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Inger Gløersen Folkeson, Digi.Com Berhad - CFO [26]

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Thank you, Foong. So I'll start with the -- Loh, for question one?

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Keh Jiat Loh, Digi.Com Berhad - CMO [27]

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Okay. On the postpaid ARPU or ARPU uplift activity, I think it's [sailing] back to what we have been sharing, you see a lot of asset on the phase management and that's really cut the cost from pre to post. And of course, in the last many quarters, we are building the postpaid base, and that's really same time and same time move into the voice plans as well. So this really is a mix of activities across the entire base. And matching the usage method to the -- whatever that we believe that the ARPU is relevant and affordable to the segment. So that's what we are doing.

But I'll just jump very quickly on the question number -- before pass to Inger. Back to the WiFi, that's really more on -- I think that's a significant contribution, but it's really more on convenience and also loyalty, seamless connectivities to the -- our prepaid and postpaid. And the gadgets subscribed to the MyDigi, our digital channel. Yes. Thank you.

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Inger Gløersen Folkeson, Digi.Com Berhad - CFO [28]

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Yes. And Kesavan?

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Kesavan Sivabalan, Digi.Com Berhad - CTO [29]

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Yes. So I'll take the second question with regard to the Ookla spectrum. So I think one of the things that we have done over the year is to move the funding, get more efficient clear spectrum (inaudible). So as we see more clear planning, we are able to move spectrum from the 2G and 3G networks into our (inaudible) and that's the result of doing that and the migration effort and what is (inaudible).

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Inger Gløersen Folkeson, Digi.Com Berhad - CFO [30]

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Okay. So then let me move to the flat costs that we see both in COGS and OpEx year-over-year, year-to-date, even though we have an increase in our network. So basically, we continue to work on efficiency measures in order to be able to offset the cost increase, and we will continue to do that going forward as well.

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Operator [31]

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Our next question comes from Ranjan Sharma with JP Morgan in Singapore.

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Ranjan Sharma, JP Morgan Chase & Co, Research Division - Analyst [32]

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Just a couple of questions from my side. Firstly, on your digitalized vision initiatives and your MyDigi app, how should we think about the cost savings going forward from the potential reduction in channel cost? And also, does that allow you to learn more about a customer, which will permit you to upsell services or offer tailor-made plans for customers? Maybe that can help stabilize some of the revenues.

The second question would be on the industry. We've seen industry revenue declining for years now, at least for the 3 big players, returns on capital have been under pressure as well for the entire industry. When should we relatively think about industry revenues turning around? I know it's a pretty broad question, but would appreciate your thoughts.

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Keh Jiat Loh, Digi.Com Berhad - CMO [33]

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Back to the question on the MyDigi. Really, I think here, we see 2 benefits. One is really have got -- allow us to now engage our customers in more frequent and also able to deliver micro-offering or personalized offerings that we believe, based on their usage, to be really important. On the cost side, we believe also, [as I meant] more and more customers are connect through this digital channel, it will also allow us to simplify and cross-sell a lot of the -- you see, today, I think we deliver our service in multiple channels, and that's where you sort of create complexities as well as you will have direct impact to the cost.

So I think this is also one initiative that we believe, if we continue to build on the platform, it also allow us to redefine some of this workflow and work processes where you will simplify the processes. And of course, we hope that this would translate into a profit or cost savings in the future.

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Albern Murty, Digi.Com Berhad - CEO [34]

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Yes. MyDigi has really come a long way, and it's actually very pleasing for us to see the development of it and also the takeup of it. And so we -- besides what Loh said in terms of the benefits, in terms of cost and reach, actually we have gotten a lot of positive feedback from the customers. And (inaudible) introduce our Box of Surprises, on rewards and a much better way of us communicating this loyalty and this message to the customers without being intrusive. And yet, the stickiness is clear. And so it's an extremely positive upside for us and hence, why we also report the MAU every quarter because for us, that's a key traction that we want to keep track on.

Inger?

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Inger Gløersen Folkeson, Digi.Com Berhad - CFO [35]

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Okay. So Ranjan, I think I will just comment a little bit on the revenue, the turnaround in the revenue. So as you've seen, we've had a positive increase quarter-over-quarter in the past 2 quarters. But our main focus is on the growth that we see in postpaid and Internet revenue growth which is, as you know, 19% in the postpaid Internet year-over-year, which is significant, and then 12% on the postpaid growth in itself. So I think we will continue to see decline in the traditional services alongside our competitors as well. But we see that it's flattening out slightly the past quarter.

So next year, our focus is loyalty and also monetization of the data. And I think the key focus in order to win in this market is then the customer experience on the data [business] in order to be able to do that monetization. So I think we will continue to see how Digi plays in that going forward.

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Albern Murty, Digi.Com Berhad - CEO [36]

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Yes. And I think the opportunity is up -- all up to us, Ranjan. So 2018, you saw Digi made a recovery after change in strategy in the previous years where we moved away from pricing to this to profitability-based growth. And in 2019, of course there's headwinds, mainly on prepaid. But for us, the importance was growth on postpaid, which is maintain double digit. And as I indicated earlier, our growth on B2B is also progressing extremely well, along with digital services. And hence, why this combination of these 3 and a stabilization of prepaid going forward could potentially see a different picture going forward in the long term, as Inger mentioned, where customers appreciate a better network and the willingness to pay for a better network experience, while [just using] the benefits from the other platforms that we offer.

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Operator [37]

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And next we have a follow-up question from Arthur Pineda with Citi in Singapore.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [38]

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Sorry, 2 follow-up questions from me, please. Firstly, just wanted to get management's thoughts on TM's proposal to build a national 5G network. Is it something you'd be supportive on? Or do you think the mobile players should own their own networks?

Second question I had is regard to the margin differential between prepaid and postpaid. Obviously, you've been pushing more subs to the postpaid. But when you do, do that migration, are the margins actually better considering there are subsidies implied with postpaid?

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Albern Murty, Digi.Com Berhad - CEO [39]

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So let me take the first question on TM. We actually don't comment on anyone else's proposal, and that's also from a public inquiry, from what I understand. So we just focus on our own plans. And we are evaluating all options, as I mentioned earlier to another question. And we will basically look at what makes sense for Digi in terms of our deployment and our network plans going forward.

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Inger Gløersen Folkeson, Digi.Com Berhad - CFO [40]

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So on the margins, we don't specifically comment on the margins on the pre and postpaid level. I think our focus is what Loh mentioned as well, I think there is not really a pre and post anymore. It's more catering for what the customer needs. And if the customer needs a prepaid subscription, we will foster and deliver that customer in the best possible way. When the customer is ready to move over to postpaid, we'll do that. So we offer the best package and service to the customer based on their needs.

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Operator [41]

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(Operator Instructions) Mr. Albern Murty, there seems to be no further questions at this point in time. Thank you.

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Albern Murty, Digi.Com Berhad - CEO [42]

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Well, Regina, thank you very much. To everybody on taking their time to join us on the Q3 2019 call, thanks a lot. Have a good day and a good weekend ahead, guys. Thank you.

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Inger Gløersen Folkeson, Digi.Com Berhad - CFO [43]

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Thank you.

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Operator [44]

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Thank you. Thank you for the participation. This concludes the conference.