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Edited Transcript of TRUE.BK earnings conference call or presentation 16-Aug-19 10:59am GMT

Q2 2019 True Corporation PCL Earnings Presentation

Bangkok Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of True Corporation PCL earnings conference call or presentation Friday, August 16, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Kittinut Tikawan

True Corporation Public Company Limited - Co-President

* William E. Harris

True Corporation Public Company Limited - Group CFO

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Conference Call Participants

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* Pisut Ngamvijitvong

Kasikorn Securities Public Company Limited, Research Division - Analyst

* Thapana Phanich

Deutsche Bank AG, Research Division - Research Analyst

* Thitithep Nophaket

Phatra Securities Public Co. Ltd., Research Division - Director & Analyst

* Wasu Mattanapotchanart

CIMB Research - Analyst

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Presentation

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [1]

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Good afternoon, and welcome to analyst conference for the second quarter 2019. Let's start with the highlight. True Group business performance and revenue continue to improve, driving profit in the second quarter to THB 1.8 billion, excluding onetime impact from the employee benefit. This is on track to meet the full year positive core earnings and profit guidance.

TrueMove H remain the industry outperformer with 6.3% year-on-year service revenue growth, driven by strong quarterly net adds and ARPU growth as competition is improved. TrueOnline broadband revenue picked up from the previous quarter, with positive response to the fiber campaign and our retention measure, while the industry remained competitive with less discount being offered by other operators. TrueVisions exclusive broadcasting rights of the EPL on all platforms expand to growth potential from content subscription, sublicensing, sponsorship, advertising to traditional TV, media and digital platforms. Meanwhile, True Group continue to capture growth opportunity in this digital era with user base for both TrueID IoT connection expanding significantly.

Now moving on to the financial performance. Consolidated service revenue increased to THB 26.2 billion in second quarter, driving the first half service revenue to a record high of THB 52 billion. A growth of 4.1% year-on-year excluding the World Cup contribution last year.

EBITDA continued to grow Q-on-Q to THB 7.9 billion, but softened year-on-year due to the impacts from asset sale to DIF in second quarter of last year and the loss from product sales following TFRS 15's adoption. Excluding this item, EBITDA increased year-on-year, with margin on service revenues approximately 36%. Operating profit was THB 1.4 billion, driving net profit to THB 1.8 billion, excluding a onetime impact from amendment of the Labour Protection Law related to employee benefit, a significant improvement both Q-on-Q and year-on-year. The positive core earnings and profit create within of our continued forecast on profitable growth (inaudible).

Let me touch a bit on cost side. As communicated earlier, we have a forecast on cost optimization and productivity initiatives, which were proven successful in the first half of this year. Core operating expense, excluding impact from the [last] swap asset sale to DIF declined 1.4% in the second quarter and 0.1% in the first half compared to the same period last year. We also reduced subsidies significantly from the previous year, with combined net product loss of THB 900 million in the first half of second -- and second quarter dropped 30% (inaudible) from first quarter level. We have additional savings are in the area of content, selling, marketing on our macro level, strategy and targeted campaign and operational, as well as digitization.

Moving on to the cellular segment. TrueMove H, once again, outperformed the industry as service revenue grew 3.6% (sic) [6.3%] year-on-year's to THB 19.5 billion in second quarter, driven mainly by growth in the postpaid segment. TrueMove H was the only operator operating positive net adds despite less subsidiaries. This is the second consecutive quarter that when ARPU grew increasing more than 3% Q-on-Q with ARPU cost from both postpaid and prepaid segment. This strong growth was driven by continued success of our target campaign and synergy with partner, while competitor in the industry improved with price optimization and the industry-wide unwinding of the fixed-speed unlimited proposition.

Moving on to the broadband internet segment. TrueOnline added 64k net subscriber in second quarter and expand its broadband internet subscriber base to 3.6 million, driven by a strong response to the fiber campaign, bundling with TrueID TV. Broadband internet revenue resumed its Q-on-Q growth trend, increasing to THB 6.3 billion, while the industry remained competitive with (inaudible) discount being offered by other operator. In response, TrueOnline have implemented key strategies to boost revenue in the second half, including the Up Your Happiness campaign, offering speed and fiber upgrade, as well as to move H data usage or certain TrueVision channels for the contract extension, will continue to enhance customer satisfaction.

In early Q3, TrueOnline further differentiated its value-driven products by launching the True Gigatex Fiber campaign, offering full speed 1 gigabit fiber broadband with strengthened WiFi 6 nano coverage TrueID TV box that comes with interactive and on-demand service, as well as a wide range of quality and exclusive contents such as EPL. Customers can also enjoy TrueMove H data usage while earning and redeeming True points for watching additional premium content. Even at this early stage, the campaign has received positive market response which will further drive growth and high-tier acquisition in our portfolio in the second half.

As for True Digital Group, its flagship digital platform, TrueID, continue to lead the market and grow monthly active user by 27% from the previous quarter, up to 19 million. TrueID and TrueID TV provide a wide range of content which consumers can access through multiple platforms, including application websites, OTT and their home television screen. TrueVisions Group EPL broadcasting rights on all platforms will further add to our value proposition through adding revenue upside from content subscription, digital advertisings and affiliate marketing. TrueID is also a digital gateway to the group's privilege program with TrueYou and TruePoint's redemption to over 26,000 partner enhanced customer engagement. Our IoT unit have developed digital solution across multiple vertical industry, driving connected IoT device on our platform up to 14% from the previous quarter to 193,000. We believe that our comprehensive ecosystem and innovative platform and solution will contribute significant growth in the foreseeable future.

This concludes today's presentation. We are now open for questions.

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Questions and Answers

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William E. Harris, True Corporation Public Company Limited - Group CFO [1]

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Thank you, Dr. Kittinut. Let's start with questions here in the room, and we have some questions from the web as well. But why don't we start with the folks in the room. Just raise your hand, and we've got a microphone for you.

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Pisut Ngamvijitvong, Kasikorn Securities Public Company Limited, Research Division - Analyst [2]

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Pisut, Kasikorn. I have 4 questions. The first one is that other than positive earnings guidance, I remember that you have service revenue growth target of the mid- to high-single digit for this year. Is your revenue growth guidance still relevant? I asked this because leading to the second question, your first-half service revenue growth was at only 3%, which is below the -- your guidance. Are you still confident to achieve your guidance? And if you can do that, does it mean you have to grow at least 7 or more percent in the second half? How can you do that?

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William E. Harris, True Corporation Public Company Limited - Group CFO [3]

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Okay. That's a kind of broad question. But no, we're not changing our guidance. We are still confident to get to the mid- to high single digits. And I'm sure as we progress through our questions, we'll be talking about the mobile business and what's going on there, as well as the broadband business. In both cases, we're expecting quite a lot more growth in the second half. We also, as I'm sure you recall, had a significant impairment to our revenue in Q4 last year. So that will help the year-on-year growth when it's in the year-ago numbers. So with all of that together, we're definitely not in a position now where we want to change our guidance. We're still confident.

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Pisut Ngamvijitvong, Kasikorn Securities Public Company Limited, Research Division - Analyst [4]

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And my third question is on -- given your lower handset subsidy and marketing expense in the first half, also in the second quarter, but your service revenue in the second quarter came down just 6%, I mean, out in the mobile side, basically, and only 3% for the service revenue in general, do you need to spend more to boost your top line growth? Or are you happy with this situation? And is it possible for you to grow revenue faster and also lower your OpEx more at the same time for the second half or so next year, if possible?

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William E. Harris, True Corporation Public Company Limited - Group CFO [5]

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I'll let Dr. Kittinut respond about how we're going to improve the growth in the mobile business. But I do want to point out, we did grow in the second quarter, Q-on-Q growth, and also year-on-year growth. The year-on-year growth, obviously, is not at the high levels that it was in previous years. It has come down. And as I said a moment ago, we're confident it's going to go back up in late this year to get back to that mid- to high single digits consolidated revenue growth. Obviously, that needs to be driven by the 2 major business units, which is mobile and broadband.

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [6]

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For the subsidy level, as you can recognize, we reduced a significant level of the subsidy to the market. This is why we still have, again, the (inaudible) and maintain the [cost]. Even though not the aggressive growth, but actually, we are much more focused on the profitability on every sub that we do the acquisition. So for the low-quality customer with the low ARPU and the high cost, this is what I think we are missing, this part in the previous quarter, according to the [heavy] of the reduction of the subsidy. But we still can maintain a high quality of the acquisition of the high ARPU customer to our sub-pay with a lower cost than before. This is our forecast. And for the -- we still have much more aggressive campaign to -- for the second half in terms of the -- but not mostly led on the subsidy program; much more on the proposition and value-add benefit to the package of the user -- for the user.

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Pisut Ngamvijitvong, Kasikorn Securities Public Company Limited, Research Division - Analyst [7]

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My last question is on your 19 million monthly active user. Can you provide the daily active user? I think that seems to be more relevant for you to understand the customer behavior using the TrueID. And another thing is that how can you monetize the -- such active user? Will you use it to retain your customer? Acquire new customers? Or for the new business volume like advertisement?

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William E. Harris, True Corporation Public Company Limited - Group CFO [8]

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Before we get to TrueID, can I just make another comment on the mobile side? You asked whether maybe we need to increase our sales cost, for example. As Dr. Kittinut pointed out, we have greatly reduced our subsidies as we target higher -- basically, higher ARPU, higher quality subs this year. And even from second -- first quarter to second quarter, we've reduced further. It's to be expected that as we transition from a higher subsidy regime to a lower subsidy regime, the low-quality, high-cost subs, who are also low ARPU, will churn out. And that's part of the reason why we are confident that our second half growth will be higher than the first half growth because we're basically past that hurdle now. So that's important to remember there is a reason for what's going on here. And nobody likes to have lower revenue growth, but we needed to make this change, and it's good to see ARPU growing for 2 quarters in a row. That's very positive. Dr. Kittinut, if you'd like to handle TrueID.

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [9]

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I think for the quarter, where we measure the digital platform is much more using the monthly active user, not the daily. There are some fluctuation of the daily according to their lifestyle, the content consumption. So international standards much more use on the monthly active user asset base. And definitely, we have the future plan. It's very near future to do the monetization. But the first target we have to grow up with the larger subscriber base, big enough for the monetization of the digital media and the content revenues on this space. So this is just in the state, growing up our sub base to last enough to monetize the advertising revenue. For the digital platform, actually, I think we can work on the monetization, where in several way, you might heard about SVOD, TVOD and even the AVOD. It's about the advertising on-demand that can put in on the digital platform. This can be the transactional, really, overall demand that you can sell as a pay per view for the -- to gain the revenues as the a la carte selection for the customer. And even the subscriber base can pay for the similar (inaudible) broadcasting that you pay for the lump sum and enjoy the monthly service of the content, same with other platforms. So this can alter the way we're going to monetize our last sub base on digital platform.

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William E. Harris, True Corporation Public Company Limited - Group CFO [10]

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And regarding the metrics. Yes, we disclose MAU because that's pretty much the standard for disclosure in this industry. We track dozens or hundreds of KPIs. And in terms of users, we track MAU, weekly average users, daily average users, logged in and registered users, app versus web, number of hours engaged, how much video they're streaming, number of times they come in. So yes, we have a ton of metrics. Some are more relevant than others, as you point out, to monetization. And MAU is probably not the most relevant, but it is the most commonly reported, probably because it's always the highest number of those various metrics. But that's fine. So we are keen to monetize. You also asked whether this is an acquisition tool or a stickiness tool, and the answer should be both. It's already a stickiness tool. It's helped a lot. We have a lot of very loyal users already and the OTT box is going to help us to expand that. And about 30% of the users are not True -- don't have True SIMs. They're AIS or dtac customers. We're not actively trying to bring them on board yet, but that they will come at some point relatively soon. We'll have to take a good look at that. So there's a lot of opportunity there for us beyond just the standalone business of TrueID as a separate business unit.

Okay, in the center here.

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Wasu Mattanapotchanart, CIMB Research - Analyst [11]

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Wasu from CIMB. Just a follow-up question about the aggressive marketing campaign in the second half of the year. Like, could you please explain like how are you going to do it? Like, you said a convergence bundle or something?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [12]

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For the -- you mean the mobile or broadband?

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Wasu Mattanapotchanart, CIMB Research - Analyst [13]

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Mobile.

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [14]

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Okay. Much more on the mobile. Definitely one of the key differentiate is on the convergence. We're going to use the bundling package, together with the OTT platform, OTT box. TrueID TV, as we report in '19 monthly active user, this is much more go together with the mobile subscriber base. So it's helped a lot in terms of the data consumption. It's helped a lot in terms of longevity of the customer lifetime, and also encourage them for their high ARPU spending. So we're much more offering TrueID service on top with the mobile subscriber. And also, I think in the coming -- coming soon, we're going to offer the OTT box together with the mobile as well. So customer can enjoy the digital platform, both on mobile and home screen together with the best value package proposition that they can enjoy both service. So this is maybe a part of what differentiates from the market. Together with the EPLs offering on the mobile customer as well, this is quite unique and differentiated from the market that the people, up to a level, certain of the placement can enjoy free EPL to the season.

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Wasu Mattanapotchanart, CIMB Research - Analyst [15]

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Another question on TrueID box. You mentioned this as a bundle. How do you position the TrueID TV box against your competitor's TV box? Because the market leader also has their own box as well. And also, how do you position the TrueID against other video streaming platforms?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [16]

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Our TrueID TV box actually is the first Android box in Thailand market. We are only one and the first in this market. This is an official Android box that you can using many different features and functions, such as the Comcast, such as Google Assistant, Google search, Play Store. And also, you can continue watching either on the mobile platforms and also the broadband platforms, (inaudible) and also together with TrueID platform that provide the content both synchronized with the TrueVisions content and the on-demand content together. This box is quite unique from the market. Normally, other box in the market are core system. You cannot add up any application into the box, and the experience is not smooth and seamless when compared with the TrueID TV box. So please try.

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Wasu Mattanapotchanart, CIMB Research - Analyst [17]

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Okay. So can I ask about TrueVisions? Like I'm not sure if you have like a database about TrueVisions in terms of the viewership. Like what do people view most of the time on TrueVisions right now? Is it sport events? Live events?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [18]

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Actually, for our current TrueVisions box, actually it's a kind of the one-way box cast. We cannot see the real-time on their preference or their watch view of the TrueVisions subscriber. So much more on the -- much more evaluate on the letting and on the market survey. But in terms of TrueID TV, when our customer indicate and pairing TrueID with the TrueVisions box, so right now, when you have the TrueID TV, or even the TrueID TV box at home, you can do the pairing by using the smart card number in TrueVisions to put in the TrueID, and then the whole platform is connect together. And then right now, from now on, you can know the preference of each individual customer, and even you can recommend the content of the -- favorite content of each consumer differently, individually.

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Wasu Mattanapotchanart, CIMB Research - Analyst [19]

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Okay. One last question about TrueID and TrueVisions because I've noticed some packages about the English Premier League, and it seems to me that the package on TrueID is a lot cheaper. Like you pay THB 300 per month to watch Premier League on TrueID. And then on the TrueVision, you pay like THB 200 per month on top of the membership fees. For example, if you are a gold member, you pay THB 2,000 per month. And then you have to pay THB 200 on top. So if I'm a potential customer, it seems to me that I would have to choose TrueID over TrueVision. Is that correct?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [20]

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For the TrueID sales, you can watch just only on the mobile.

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Wasu Mattanapotchanart, CIMB Research - Analyst [21]

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So if I want to watch on TV, I have to buy a box as well?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [22]

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Yes. You can use the TrueID TV box, and you have to pair with the TrueVisions package. So it's going to be another price. It's different about the screen.

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Wasu Mattanapotchanart, CIMB Research - Analyst [23]

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So if I am not a TrueVisions customer, I can watch TrueID TV box without pairing, right?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [24]

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TrueVisions customers can watch without pairing, yes. But in the near future, we're going to integrate both 2 systems together. So we will encourage the consumer to indicate and do the pairing. So right now, I think maybe yesterday or today, we start communicate to all base customer who have both TrueVisions and TrueID TV box to do the pairing together, and we're going to provide a seamless experience.

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Wasu Mattanapotchanart, CIMB Research - Analyst [25]

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How soon is that going to happen?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [26]

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I think...

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Wasu Mattanapotchanart, CIMB Research - Analyst [27]

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Is it going to affect like ARPU? The TrueVisions ARPU, is it going to be lower?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [28]

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It's quite different. TrueVisions, as I mentioned, is quite (inaudible) cast. You buy (inaudible) and enjoy the hundreds of channels, while the TrueID is much more on-demand. But we try to indicate both experience together. So in the near future, you can enjoy with the both cast and on-demand together with the seamless platform.

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Wasu Mattanapotchanart, CIMB Research - Analyst [29]

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But the payment scheme are still separate?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [30]

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Separate, yes.

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Wasu Mattanapotchanart, CIMB Research - Analyst [31]

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Okay. One last question for me. Like, how do you expect the fixed broadband market competition to be in the second half of the year?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [32]

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For the...

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Wasu Mattanapotchanart, CIMB Research - Analyst [33]

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Fixed broadband.

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [34]

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For the fixed broadband competition in the second half. I think the competition is quite high. As you know, the other operator offers quite a high discount. But we did a lot in terms of the broadband improvement in last quarter and also continue in this quarter. For example, we have the Up Your Happiness campaign. That is the campaign to up speed up our existing subscriber to have a best experience on the broadband customer that we hear a lot for our -- for us to maintain our current subscriber base. Second thing that we did starting from the first half that we overlay the whole network with the new fiber network area. So this is the way that we are quite competitive in terms of the technology and the new platform. And lastly, you might have heard about True Gigatex Fiber. This is a technology advancement under our group, and this is a unique proposition and unique offering in the market at this time, that you can offering 1 gigabit experience nationwide for the mass package campaign. So right now, THB 899 per month can subscribe to 1 gigabit experience nationwide. And also, together with the Gigatex modem, this is a new technology under the True Group. No need to spend more. Normally, 1 gigabit. If the other operator offering 1 gigabit, you have to spend more than, say, THB 7,000 or THB 8,000 to install a new equipment in your home to enjoy the full speed of the 1 gigabit. But this kind of package, the Gigatex fiber and Gigatex modem will be built in as a package. So our customers who subscribe to this package or upgrade to this package can get this kind of equipment in the package at THB 899 and enjoy full speed Wi-Fi and with the landline. Landline, you can enjoy up to 1 gig. For the Wi-Fi, you can enjoy up to 800-something max. This is according to the antenna of the Wi-Fi. But definitely, it's dependent on your device as well, the capability of the smartphone, the capability of the PC and notebook, about their maximum speed, the device in home can accept the speed technology. So this is quite a unique offering and with the mass market pricing. So right now, we can see the shift of the higher ARPU of the new subscriber of the broadband that much more subscribe on the THB 899 from now on.

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Thapana Phanich, Deutsche Bank AG, Research Division - Research Analyst [35]

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Thapana from DB TISCO. So I just have 2 questions. Maybe just 1 follow-up on the Gigatex package that you talked about. I'm just curious because I understand that most Wi-Fi modems on our phone isn't really capable of that higher speed. What is the compatibility percentage of mobile phones or PC devices in users' home that can work with the Gigatex modem? Just want to understand the figure. Is it 10%, 15%, 20%? Secondly, you talked about the cost being about THB 8,000, THB 9,000 for your competitors, but for you guys, it's a much more value proposition. Does that mean that you're kind of taking a hit by giving up -- by installing all these modems, which could be a bit more expensive than the usual modem that we have at home? Is that how it works? Or are you not really going to take a hit from doing this? Then the last question I have is the -- I noticed that in your Q2 numbers, your income from roaming for mobile went up significantly, and the quote in your MD&A, this comes from your partner. Is that a trend we're going to be seeing going forward, more roaming revenue coming in from partners? And that could also drive your mobile revenue to your target?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [36]

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Okay. For the Gigatex modem, Gigatex technology experience in the customer home is depending on the device. For example, if you're using the PC connected directly to the modem with the wireline and your PC port support 1 gigabit, so your experience is kind of full 1 gigabit. But according to the phone, for example, if you use a Huawei smartphone, the high-end model, their engine now can support up to about 500 megs or 600 megs, so that is going to be the maximum experience when you're using the connection of the Gigatex modem with the high-end smartphone. And the Gigatex modem is -- if you're talking about the cost, I think this is a kind of technology to develop, this kind of technology, to make the normal modem to be the Gigatex capability. So we spend several months already before we launch this campaign. So this is the kind of technology advancement that we have ahead our competitor.

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William E. Harris, True Corporation Public Company Limited - Group CFO [37]

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On the roaming, as you know, roaming is pretty variable quarter-to-quarter. So I wouldn't necessarily read any trends in here. Let's see what plays out over the next quarter or 2. It could just be a seasonal thing. Any more questions in the room before we go to the questions from the web?

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [38]

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I'm Thitithep from Phatra Securities. I have 3 questions. Number one, when I compare your budget CapEx -- when I say budget CapEx, I mean an increase of the fixed asset, not the CapEx in the cash flow. What I found is that your CapEx in the second quarter, it's still materially higher than peers. Although you were the first one who invest in the 4G, so I would have expected your CapEx to decline faster than peers in 2019. So I'm wondering why your CapEx is still -- it still remains high. Is it because of your investment in the fiber that you just mentioned? That's the first question. Number two, again, compared to the peers, we have seen the year-on-year growth in the mobile phone revenue of Advanced accelerated quite sharply compared to the first quarter from 3% to 5.5%. DTAC accelerated a little bit. And for you, it's a flat growth compared to the first quarter growth and the second quarter growth. I wonder why there's a big discrepancy. Is it because Advanced moved a lot of their subscriber on to their unlimited fixed speed, so right now there's more upside for them? Is that the reason? The third question is accounting. You booked employee benefit provisioning. I think it's like THB 700 million or something. Is that all in the admin expense or part of it is in the cost of service?

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William E. Harris, True Corporation Public Company Limited - Group CFO [39]

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Okay. Do you want to start with the mobile issue, then the year-on-year growth being up a lot in AIS, perhaps more of the customers on the fixed speed unlimited data tariffs.

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [40]

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So the effects from the unwiring fixed speed unlimited in the first quarter, actually we did very well for the postpaid customers. We offered a higher offering package to normalize the upsize of the data consumption together with the upsize of the incoming revenue together. And also with the prepaid market, it's quite a different spending power on the prepaid market. It's not different -- it's different from the postpaid market. The people -- customers have to adapt with the new supply plan that we started to offer, just about data rather than the unlimited. But in terms of the incrementals of the revenue, we foresee, before the changing of the market landscape, already that our sub base actually on the prepaid side is smaller than AIS. So the onetime impact of the adjustment in terms of the market value will take effect in the -- when we remove the fixed speed unlimited, okay? So they can, in terms of the higher impact, in terms of the upside revenue in the prepaid, more than us. But this has happened in onetime with the larger subscriber base. But in terms of the core base, we still gain the market share. And subscriber share, we still keep gaining momentum into our sub base. So I think the changing in the paradigm of the market cannot defy the continuities of the growth here -- from the growth momentum of True Mobile and gaining share from the prepaid. From the prepaid, we still continue the growth momentum.

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William E. Harris, True Corporation Public Company Limited - Group CFO [41]

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And on the CapEx question, as you may have noted, we have a lot of work in process on our balance sheet. This is just coming out of that. This is work that was done last year, and it's just coming into the depreciable base. That's why it jumped up. It takes a fair amount of time for our engineers to verify everything's good and in place and sign off. The actual work being done this year, the new CapEx that we have budgeted, as we've discussed at previous meetings, is substantially lower than in previous years. We are, both on the mobile and the broadband side, reducing our new spend significantly. But because of our 5-year payment plans, the cash CapEx is going to be quite similar to previous years. It will take some time to catch up.

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [42]

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And this work in progress that has been transferred to the asset, is that mobile, office broadband or both?

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William E. Harris, True Corporation Public Company Limited - Group CFO [43]

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It's both. You'll hear about it probably a little more on the broadband side, but it is definitely both. And what was your third question again?

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [44]

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It's accounting. Your employee...

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William E. Harris, True Corporation Public Company Limited - Group CFO [45]

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Oh, where does it show on the P&L. Yes, it's in the selling and admin on the published financial statement. You're right.

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [46]

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Oh, so if it's mainly in the admin, if I strip that out, it means your admin cost, ex this one-off, declined by 7% year-on-year. Is that because of the cost cut effort?

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William E. Harris, True Corporation Public Company Limited - Group CFO [47]

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Yes. Our costs, excluding that and the differential, are basically flat to down, I mean the new differential from last year.

Okay. Why don't we go to the questions on the web? I think we probably already answered some of them. But let's work our way through any that we haven't covered.

Okay. I'll read them for those who can't see them. First is about the mobile business in the second quarter. Our prepaid net adds dropped, while our postpaid net adds jumped up. Was that because of the removal of the unlimited fixed speed packages or for some other reason? And will this be sustainable in the future? Or is it just temporary?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [48]

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I think for the prepaid, it is much more on the impact from we do much more selective, call it, high-quality customer. According to -- I mentioned that we reduced significantly in terms of the subsidy for the low ARPU, low quality with the high expense. This is the scope of the area that we try to be quite conservative in making the offering for this kind of the segmentation. So that impacts for the net add, there's not that much accuracy as in the past that we're offering all the subsidy to everyone during the migration period. So -- and this will -- this align with our strategy to focus on much more profitability rather than the acquisition for the low-quality customer.

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William E. Harris, True Corporation Public Company Limited - Group CFO [49]

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Okay. Next question, also on the mobile business. What percent of our mobile subscribers were customers under the unlimited fixed speed packages? What's the most popular package among those tariffs, among the fixed speed tariffs? And when will the 1-year package validities expire? And how much do we expect to migrate them on to other more profitable packages?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [50]

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Normally, the percentage, I have just -- I can't give just a lovely number. We are allowed 25% to 35% of the fixed speed customer. So -- and the more popular unlimited, normally, we offer, for the prepaid, we offer fixed speed, 512 and 1 meg, 2 megs and up to 4 megs for 1 day, 7 days and 30 days. That is the popular package. So right now, it's become the data offering to the customer rather than the unlimited. When the 1-year package expires, this is much more maybe talking about the postpaid. So we have the higher package, that's still the offering, but we are not offering fixed speed. We offer as a full speed unlimited. But you have to jump to the price point that we can offer the full speed unlimited. Currently, it's THB 199. But we have special offering for our existing customers with some discount for this package to continue their experience and get -- adapt to the new pricing optimization.

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William E. Harris, True Corporation Public Company Limited - Group CFO [51]

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And before we move to the next question, Khun Thitithep, [Khun Nan] has asked me to clarify my comment about the labor law. It's in the cost of providing service SG&A on our audited financial statement. But in the IR reports, which are normalized, we pulled it out and put it under other expense. So I'm not sure which one you were looking at, but if you're looking at the IR reports, which are frankly a whole lot easier to follow, so that's probably where you should be looking. There, it's in the other expense.

Okay. And more mobile, questions on the mobile. Interesting question, what would we offer to customers who were on the THB 299 unlimited cap speed at 4 meg if their contract were to end next month? So the customer was at THB 299, 4 meg, what do we offer them when they get off? If they are a very heavy user, like a 50 gig a month user or an average user or maybe a little below average at 10 gig a month, what would be our strategy for -- to do with them once their 12 months is up?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [52]

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Okay. So currently, in the market now, we have no fixed speed for the postpaid market. So we have only full speed with unlimited but at a price point. So this is the way that we try to shift the customer base who are heavy data consumption user to the higher package to align with the industry that we try to go after, industry total market revenue to make the data consumption aligned with the incrementals of the revenue. So this is the key point. For the users who are using 50 gig per month, actually we didn't have the 50 gig per month at THB 299. It actually used to be something about THB 499, THB 599 in the previous packages. So we have 2 options actually for the high level of the unlimited data with full speed.

We have some offer, a further discount with the exiting customers who have a long lifetime with us, so they can enjoy this kind of THB 1,099 with some discount. But if they cannot go with these kinds of the high package, but they're using not much their data, we have a lower pack. Actually, we have many levels of data consumption for them to choose but normally maybe 1 tier or 2 tier upper from their current price plan. So it depends on the nature of the consumption experience of the user that if they are 1 gigabit, it's quite easy, maybe they shift just only THB 100, they can continue on a more same experience that they used to get before. But if they are heavy data consumption, frankly, this is our target group to up revenue according to their data consumption. So if they still continue to use heavy data consumption, they have to use a -- spend more on the package. But in terms of the transition, we have some discount offering for them.

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William E. Harris, True Corporation Public Company Limited - Group CFO [53]

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Next question is with such a great opportunity to monetize data consumption more effectively, can I assume that your mobile service revenue growth rate in the third and fourth quarter should be much stronger than that in the first and second quarter? I think that's a very short answer. Yes.

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [54]

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Yes.

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William E. Harris, True Corporation Public Company Limited - Group CFO [55]

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That is our expectation.

Okay. Let's move to the next one. The NBTC is working to improve the MVNO regulation. Do you think that the new regulation can force you and your competitors to share network with MVNOs at a reasonable wholesale pricing?

Well, we already do with CAT. And I don't want to comment on pending regulations. We're in discussions with the NBTC on this and a number of other regulations as well as spectrum auctions. And until the rules are clear, there's no benefit in speculating on what will happen. Sorry, but I'm not really going to answer that one.

TrueOnline, your second quarter fixed broadband ARPU was stable but net adds were stronger, resulting in quarter-on-quarter service revenue growth. What was your strategy to recover revenue growth? And how has the broadband competition subsided in the quarter?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [56]

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In the second quarter, actually, we did very well in offering the broadband packages together with the TrueID TV Box as a bundling package. So this has encouraged customer to subscribe at a higher-priced plan. Right now, you can choose the THB 899. This is -- I mean in the second quarter, you can subscribe THB 899 together with the free TrueID TV Box inside the package. And this shift of our new subscriber to this package is quite significant that we can enhance our ARPU in the second quarter. This campaign is quite a success before we're launching the True Gigatex Fiber in early Q3.

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William E. Harris, True Corporation Public Company Limited - Group CFO [57]

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Speaking of Gigatex, you mentioned about the fixed broadband package Gigatex. What are your key differentiations that competitors cannot match? What's the market response so far? And who are we targeting? Is it our competitors, customers or brand-new customers or our existing customers?

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [58]

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Okay. The differentiation, I already mentioned on the Gigatex, and the campaign is just launched for a couple of weeks. But we got a quite very good feedback from the market. And the people, both the existing and our new customers, subscribed to this package. And also, we got -- we have a replacement service as well. If the customer subscribe to other operators and then get rid of the old technology, they can use our replacement offering to change from their current operator to our True Gigatex Fiber as well.

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William E. Harris, True Corporation Public Company Limited - Group CFO [59]

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Okay, more on -- to online. I understand that the fixed broadband household penetration rate is currently about 45%. Do you -- basically, they're asking how far the penetration rate can grow from 45% in terms of households and what is our strategy to win the lower tier of the fixed broadband market who have affordability issues and might have lower prices than the first-tier segment.

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [60]

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I think in many developed countries, the broadband penetration is more than 80%. So I think we can see in the major cities that our broadband penetration will go over 80% in the near future as well, especially in Bangkok and all the major cities. But in general, for the nationwide, from the next 2 or 3 years, I think the penetration of our country can up to 50%. But according to our infrastructure that we provide to -- nationwide, home passes can accommodate up to almost 80%.

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William E. Harris, True Corporation Public Company Limited - Group CFO [61]

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Okay. Next question is, if you were Advanced, what would stop you from taking over Jazz to become the second largest FUB operator? I think actually, they'd be the largest if they took over Jazz instead of the distant #4 currently. Under such a market situation, what would be the most likely financial implications for True and True's fixed broadband unit?

I'm not going to speculate on what AIS is or what Jazz is doing. I have no idea whether they're in discussions or not. Certainly, we've mentioned in these forums before that it would not surprise us if they were to make a play there. But whether the pricing and the other issues are acceptable to AIS and Jazz, we have no information whatsoever. Certainly, generally speaking, if they were to do such a thing and the market would be -- and that they'd be in the high 40% range, we're in the low 40% range, and that leaves TOT with the rest, one would expect there'd probably be a lot less price competition in the market. So that would probably be beneficial to us. But I have no clue whether this is really real or not. I don't want to speculate on what they're up to.

Next question, the adoption -- and we're into general questions about True now. The adoption of TFRS 16 next year will bolster your debt level considerably. Will this affect your local credit rating or limit your ability to issue U.S. dollar debentures?

To be clear, it won't change our actual debt at all. It doesn't change anything at all. It just changes the accounting. We're essentially capitalizing all operating leases, or nearly all operating leases, and treating them as finance leases. But the obligations are exactly the same. The cash flow is exactly the same. The credit worthiness is exactly the same. Most of the developed world has already adopted IFRS 16. Thailand and other emerging markets are doing it next year. The rest did it in January this year. And as far as I know, no one had a credit rating impact from it because the credit agencies are well aware of all of this and always have been. And I've been dealing with credit agencies for decades now, since the '80s, during my time in Verizon, and they've always looked at operating leases and treated them as fixed costs. So this is not going to change that at all. So I don't really -- I can't imagine why there would be any impact on credit ratings when our cash flow and obligations are exactly the same before and after the accounting change. In terms of our ability to flow U.S. dollar debentures, again, same thing, no impact on our ability. We're perfectly capable of doing U.S. dollar debentures. The issue is they're higher cost than Thai baht debentures after they're hedged. If that were to flip and they're cheaper than Thai baht debentures, we could do it tomorrow. But right now, it's not.

Next question, excluding the rental fee to DIF, your core OpEx was quite stable for a few quarters. Is it possible to see your core OpEx come down more?

Yes. We are working very hard to have it do that, excluding the differential. And obviously, you've seen our business has grown. Our operating cash flow is drastically higher than it was a year or 2 ago. We were at, I think, THB 8.2 billion of operating cash flow before interest and taxes in the first half this year from negative 2 or 3 years ago. So yes, we'll continue to squeeze that as hard as we can. Obviously, as we continue to grow and expand into new businesses like True Digital, that does create some expenses that were not there before. So we have to handle those as well. But we're extremely serious about this, about growing our cash flow and our EBITDA and net income.

Next question is what makes your core OpEx to revenue ratio inferior to your competitors?

A complicated story. And in the case of AIS, it's purely a scale game. Their mobile revenues are roughly 50% higher than ours. If our revenue tomorrow morning was suddenly 50% higher, our costs would certainly not move up to match. Nearly all of that would flow through to EBITDA, and our ratio would move very much closer to theirs. The biggest difference right now is DIF. We are renting far more of our network than our competitors are, and that pushes our margins lower. In the case of DTAC, they're just an ultra, ultra low-cost company. And their revenue in the last 6 years is lower. Their revenue today is 12% lower than their revenue in early 2013. Ours is vastly higher, way more than doubled. So would you rather have the revenue and the cash flow or the margin? We choose the revenue and the cash flow. That said, it's not to say we don't have room to improve. We have plenty of room to improve, and we're pushing very hard. It is one of the top focuses of all senior management is to push costs down.

Next question. Oh, there is no next question. Any more questions in the room, any follow-ups? I've got a couple back here.

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Unidentified Analyst, [62]

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[Kitti Sanjak], SEB Securities. One question for me. Do you have any update on the projects with Krungthep Thanakom, they're moving fiber underground?

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William E. Harris, True Corporation Public Company Limited - Group CFO [63]

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That's another short answer, not yet. We are still in discussions and don't have any news to relay. So if we can find a way to do this in a way that's accretive to our shareholders, super, we'll do it. Otherwise, no.

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Unidentified Analyst, [64]

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Can you share with us what is the key issue that you are discussing with them?

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William E. Harris, True Corporation Public Company Limited - Group CFO [65]

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I don't think it would be helpful to discuss it any more than that. So when we have news, we'll let you know.

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Unidentified Analyst, [66]

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Okay. In case that you have to move, I mean, all the fiber underground, so I understand that the maintenance cost will be much more higher than the current level. So can you share with us how much higher if you have to move...

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William E. Harris, True Corporation Public Company Limited - Group CFO [67]

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The -- oh, the maintenance.

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Unidentified Analyst, [68]

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The maintenance costs.

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William E. Harris, True Corporation Public Company Limited - Group CFO [69]

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The maintenance costs after it's moved?

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Unidentified Analyst, [70]

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Yes.

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William E. Harris, True Corporation Public Company Limited - Group CFO [71]

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I couldn't tell you offhand. My first reaction would be they should be lower because we have problems with the aerial cable all the time, things fall on it, there are fires or the pole falls over. We have breaks and need to repair. The underground cable, obviously, that can still happen, but it's far less. So I'm not sure whether the maintenance costs will be higher or lower. My initial reaction would be probably lower, but I could be wrong. But at some point, it's going to be moved underground. It's coming regardless. Whether we do it or someone else, it's all going to be underground in the city in the long run.

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Unidentified Analyst, [72]

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[Nataphol from Transia Securities]. Two questions, please. The first one on the mobile. I believe you have been much less aggressive on doing subsidy and also to gain customer, I mean, subscriber market share. Would it be fair to say that you are quite satisfied with this portion of, say, 1/3 of subscribers already and looking forward, it should be more benefit to you and in terms of increase the ARPU, in the state of increase the number of the market share in the mobile overall?

The second is on broadband. Your Gigatex is, I believe, the 1-gigabit speed. It's nearly or not the fastest available technology right now. Does it mean something like already a cap to the monthly fee that you can charge on the broadband apart from the top-up of the bundle package? I mean, THB 899, so no more faster speed than here? So this seems to be the highest price cap already going forward until maybe next technology.

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [73]

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Okay. For the mobile part, I think for the subsidy, we much more focus on the target area. We still have the subsidy, but we choose the areas that are quite under penetrated, and we invest and can get more upside in the market share. So I would say that the subsidy still continues but much more selective markets. Okay. That is the first one.

The second one, for the broadband, the Gigatex experience at THB 899, this will come together with the up sales because this kind of the fiber technology that we're having currently is core together with the broadcasting. It's not just only the fiber on the broadband side, but core to -- the signal is dual signal, it's core together with the broadcast signal. So you can enjoy the broadcasting consumption on 4k, 8k or even any new technology on the broadcasting happening in the near future with our consumed data consumption on your network. So in your house, even you're watching many skins on the 4k TV, you can enjoy a superior experience on the broadband service. That is the differentiation. And also every household that we have the fiber-to-home, we can add as sales for the content service. That is the way that we enhance our revenue per household.

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William E. Harris, True Corporation Public Company Limited - Group CFO [74]

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And if I could just expand on the first answer in terms of market share and are we satisfied. To be clear, our objective is to create value and turn the company into a permanently net income-positive and free cash flow-positive company. We are already net income positive, although relatively small, but we are not yet free cash flow positive. CapEx will never go down to 0, so the way to drive that up is through increasing the operating cash flows. That means more revenue and less expense, it's that simple. So we're pushing very hard on both. So -- and it's not a question of -- we're not in business to hit a certain market share, and then we say, great, we've hit that market share, we'll stop.

But if we need to gain more revenue -- let's say, you want to grow your revenue by 50% over a number of years, would we be happier keeping our market share where it is and the whole market grows at 50% or increasing our market share by 50% and the market doesn't grow at all? Well, both get us the proper result. So in theory, we're indifferent. But if the whole market grows and we grow with it, that's a whole lot easier all around because to grow your market share in a -- by a lot in a market that does not grow at all means that your competitors are shrinking radically. And when competitors shrink very fast, they tend to do irrational things, and that makes it difficult for everyone. And we have seen that to some extent in recent periods.

We've been growing quite a lot, and the market was growing really well in 2016 and '17 but by late 2018, barely growing at all for the mobile business, just low single-digit growth. Now we seem to be moving back from that. And that's -- certainly, we're very happy about that. We have no reason to desire AIS and DTAC to be shrinking. That's not in our long-term interest. So we're glad they're growing, and we certainly expect to grow faster and continue to gain share in the long run.

Okay. And if there are no more questions, which I see there are not, thank you all for coming. I hope this was helpful to you. And please keep in touch with us through our Investor Relations team. And we'll see you all here in 3 months.

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Kittinut Tikawan, True Corporation Public Company Limited - Co-President [75]

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