Taiwan Mobile Co Ltd
TWSE:3045
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Taiwan Mobile Co Ltd
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Good afternoon, ladies and gentlemen. Welcome to the conference call. Today, our Chair Person is Mr. James Jeng. Please begin, thank you.
Okay. Good afternoon. Welcome to Taiwan Mobile first quarter investor conference call. Before I start our presentation, I would like to direct your attention to our disclaimer page, which states the information contained in this presentation, including all forward-looking information is subject to change without notice, whether as a result of new information, future event or otherwise, and Taiwan Mobile undertakes no obligation to update or revise the information contained in this presentation. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is the information intended to be a complete statement for the company, markets or developments referred to in this presentation.
Okay. Let's start with the business overview. For the business overview, I will start with the operating performance of telecom business. Despite the adoption of IFRS 15 starting this year, we believe the pre-IFRS numbers better reflect customers' contribution and our operating results in the telecom space. Based on pre-IFRS and ex-roaming numbers, our analysis shows that we continued outperforming our peers in the first quarter. First of all, we have a smaller mobile service revenue decline. In addition, through cost control, we still managed to grow our telecom EBITDA by 4.1%, not to mention our higher revenue per unit of spectrum.
Let's see the growth catalyst. Video streaming and the cable broadband are both seeing very good growth momentum. Digital media and entertainment has been our focus, of which we are seeing positive development in the video streaming business. Through the combination of SVoD, means -- the SVoD stands for subscription video on demand, and TVoD, stands for transaction video on demand, and the future AVOD, means advertising video on demand revenue model, we level up our video monthly active user number by 73% in the past quarter. Separately, we continue expanding our target customer from mobile users further to cable broadband users, through our partnership with leading-cable MSOs.
For the cable broadband business, with competitive pricing and effective bundles, the broadband subscriber number increased by -- increased Y-o-Y by a healthy 6% on stable ARPU in the first quarter. At the end of first quarter, 38% of cable TV customers also subscribed to the broadband services, suggesting growth potential moving forward.
By selling more bundle services to the same household to increase ARPU, our total cable revenue was able to stay resilient. The expanding cable broadband subscriber base provides new potential subscriber to our broadband streaming services.
Further in the e-commerce part for momo, the company has a great quarter in the first quarter. Momo recorded a 34% Y-o-Y increase in total revenue, benefiting from the strong growth in the e-commerce, in particular, the mobile platform revenue increased 71% year-on-year basis. This together with the profitability recovery in the TV home shopping business result in a 37% Y-o-Y growth in the EBITDA in this quarter.
Momo has several new initiatives, including: first, strengthening logistics by setting up satellite warehouses closed to the city center in order to test deliveries of less than 4 hours. Momo also add the post office as a new logistic center -- logistic partner who delivers later into the evening than most private third-party logistic companies. Secondly, adding new brands merchants such as MUJI. And the thirdly, further expanding the online to off-line convergence sales services, through alliance with the certified used-car dealership.
Let me turn the presentation over to Rosie for the financial overview section.
Hi, good afternoon. Let's turn to the financial overview. On the performance by business: firstly, the recurring numbers, excluding the domestic roaming business, better reflect our performance in the first quarter. In the first quarter, our consolidated EBITDA grew 1% year-on-year, of which core telecom EBITDA stayed resilient year-on-year, while momo's EBITDA surged 37% year-on-year.
Under the basis of pre-IFRS 15, our core telecom EBITDA continue its growth by rising 4.1% year-on-year.
On the results summary, in the following page. In the first quarter, our total revenue beat our forecast on back of momo's higher-than-expected e-commerce revenue. As such, its related cost and expense also exceeded guidance. That said, lower-than-expected handset subsidies and dealer commissions partially offset the aforementioned OpEx. As a result, our operating income came in 11% higher than our guidance.
In a nutshell, in the first quarter, we surpassed our EPS guidance by 8%.
Now let's move on to the balance sheet analysis. On the asset front, the major Y-o-Y change seen in the first quarter was the increase in concession, resulting from the TWD 8.6 billion addition of the spectrum on the 2.1-gigahertz frequency band. On the liability front, we increased our short-term borrowings to finance the new spectrum we bought in the first -- in the fourth quarter last year.
In addition, the TWD 7.4 billion worth of corporate bonds have to be repaid within a year. As such, we had higher short-term portion of long-term debt at the end of the first quarter, compared to a year ago.
For the 2 key financial ratios, net debt to EBITDA in the first quarter of this year was still at a healthy level of 1.4x, while ROE stood at above 20%.
Now let's look at the cash flow analysis. The first quarter operating cash inflow rose 6%, compared to a year ago. Investing cash outflow increased year-on-year, mainly due to an increase in CapEx, while part of the 4G and momo logistics center CapEx payments were deferred from last year to the first quarter of this year.
That said, we still stick to our guidance and expect consolidated CapEx for the full year of 2018 to trend down by 11%. On the financing front, we had a cash outflow resulting from debt repayments and interest expenses. For the first quarter, free cash flow reached TWD 5.2 billion, translating into an annualized free cash flow yield of 6.9%. Let me turn the presentation over to James for event update.
Okay. Let's see the event updates.
The next page show our event updates. Last Friday, TWM board approved a proposal to distribute a cash dividend of TWD 5.6 per share out of the year 2017 earnings, pending AGM's approval. This demonstrates our commitment to maintaining a stable dividend policy.
In addition, on April 20, 2018, TWM successfully completed the insurance of its 5th unsecured corporate strip bonds with a total number of TWD 15 billion, which consist of TWD 6 billion for the 5 years bond with a fix annual rate of 0.848% and the TWD 9 billion for the 7-year bond with a fix annual rate of 1%.
Next page lists the recognition of -- we have received in the first quarter of year 2018 for your reference.
Finally, to wrap up our presentation, this -- the final slide will summarize the key message that we would like to deliver: in order to deliver satisfactory return to our shareholders, sustaining the stability of free cash flow generations and adding differentiation to strengthen our market foothold remain our main focus.
This will conclude our presentation, and now I would like to open the floor for the Q&A section.
[Operator Instructions] Our first question comes from Peter Milliken from Deutsche Bank.
Just one question on the profit trajectory. You mentioned that you were 8% ahead of your EPS forecast, yet your net profit was down 12%, yet the full year forecast guidance is supposed to be down 4%. So the first quarter was expected to be extremely bad. Why was it expected to be so bad versus the next 3 quarters?
I'll pass to Rosie.
Well, if you compare our numbers to last year, on year-on-year basis, of course, this year, we have several factors that actually affected our performance in the first quarter. One -- the first one is the APT roaming. The second thing is the MTR -- mobile termination rate cuts. And third one was the...
Tax rate.
The tax rate, okay? So -- and also the capitalization of commissions also aid into our profit. So all things combined -- all these factors combined have a total impact of more than TWD 1 billion.
.
I see. Now the first 3, the roaming, the MTR and the tax rate, I would have thought that would be a full year impact and not disproportionately hitting the first quarter? Or am I missing something?
Well, it's affecting our performance every day, right? Because the APT roaming has been declining, and amortization of commissions have also been happening every day, right? And mobile termination rate too. And the tax rate, of course, will be also one of the major issues, right?
Yes. Okay, got it. And just one other the question. I noticed that the blended cable-TV ARPU seems to be lower than previously. Has that been restated? And if so what's the change going on there?
Yes, the cable ARPU has been restated to reflect the contributions from users. Previously it included the revenue from channel leasing, which was not generated by the customers.
[Operator Instructions] Our next question comes from Neale Anderson from HSBC.
I just have one question on the pricing dynamics in mobile. How would you characterize at the moment, do you think it's roughly the same or is it deteriorating at all? And related to that, I believe there were some comments from the regulator in Taiwan about the current pricing being not sustainable in the medium to long-term. Does management agree with that?
Well, actually the current competitive dynamics have not changed much since probably 2 years ago because so far it's leading the competition, which is hurting everybody in the market space. And secondly, on the NCC's pricing comment, we, of course, agree with them. If every operator can be more sensible on the pricing, then of course, the overall environment will be more healthy.
Our next question comes from Varun Ahuja from Crédit Suisse.
Just want to go back to pricing thing a little bit more details. Chunghwa in their call on Friday highlighted that it's the competition from the other 2 guys, primarily you and Far EasTone, which has led to them launching this TWD 4.99 plan. So it's like a blame game, it keeps on happening within all 3 of you. Ultimately, the revenues doesn't -- hasn't grown for the last 2 years. And interestingly, regulator has also kind of come out and open and said that the pricing is unsustainable as highlighted earlier. So just wanted to hear where is the -- in your view, in management's view, the problem in terms of raising the prices? That's number one. And number two is, do you see over the next 2 years or so, service revenue in the sector moving up because there's that much you can do with the cost side to grow the EBITDA. Thirdly, the free cash flow yield, obviously, on a Y-o-Y basis, is improving [indiscernible], but that hasn't translated to growth in dividends over the last 2 to 3 years, despite the CapEx coming off. So just wanted to hear what point do you think the management or the board will be comfortable to raise the dividend?
Okay. Let me answer this question. I'd say, in generally, the competition -- mobile competition in Taiwan, you can divide it into 2 portion. One is in the commercial part. The second is in enterprise, all of government sector part. Mostly, in the price competition, in the enterprise part, basically we have -- every operator had that so-called pyramid [ indiscernible ] for specific customers. Namely, it's case by case because the every enterprise may ask for special rate. In turn -- in return, they will give you a leased-line business or some other benefit. So the tariff for enterprise sector is really vary from company to company. So everything is offer below the line. But the TWD 4.99, this time, the start with the Chunghwa telecom, it operates above the line, which is in the commercial market and that affect all sectors, every single individual or subscriber. I don't think as a market leader, and basically dominate their whole government sector, it's not smart enough to operate in this way, everything put above the line and that's my comment to them, okay. Of course, I would like to reemphasize, again, in the enterprise sector, okay? The tariff is really a bundle offer because they come with not just -- it's not just a mobile tariff, it also come from the fixed line business, so it's a combination offer. So -- and that's my comment on this. But once again, the TWD 4.99 tariff, Taiwan Mobile will be stopped today -- at the end of April. In May, we will stop to offer this tariff to the commercial market. That's my response to you regarding the first question. The second one, in terms of the mobile revenue and the telecom revenue, we have 2 part. One is the mobile, the other one is the fixed line and rest of the revenue. For the mobile revenue, from what I see, for the next 2 years, probably, will remain flat, in terms of the top line. But the good thing is, right now, since the tariff plan is going down, and as we can see, most of the low-tariff plan is -- not come from the open channel, it come from the, we call, either from the Internet channel or from the social media channel [ imply ] that 40 subscriptions from the Internet, we don't have any subsidy -- handset subsidy or channel commission. Basically, the tariff is low, but in terms of the EBITDA, it's not that bad because we reflect most of the channel -- our cost channel saving to the customer side. So -- but again, you are right, this will reduce your ARPU as well as the top line. In terms of the bottom line, the impact will not be that significant. That's my comment on this. But however the [indiscernible] portion is the enterprise sector for the fixed line business, [indiscernible] also is our next focus for the enterprise sector as well as the government sector to start to penetrate into this market. And there is a good news recently just announced that Taiwan Mobile, along with our 2 strategic partner, we win a nation AI platform tender which is the about TWD 1.1 billion and that demonstrates the Taiwan Mobile along with our strategic partner will start to penetrate into the enterprise as well as the government sector. Hopefully, that will -- going to boost our telecom revenue and to compensate a little bit about the mobile revenue.
And on the free cash flow yield, you mentioned that we have an improving free cash flow yield, but it hasn't been reflected in our EPS. Well, I think we are the -- firstly you know that the dividend policy is decided by the board every year and they also look through the long-term for any change in policy or to make their decisions in board meetings, okay? So they, of course, have seen the improving trends, but I think it's up -- it's still up to them to decide when they will adjust this policy, but at least, I think, we are very committed to maintaining a stable dividend policy. So I think the current environment hasn't really been very satisfactory to everyone. So their -- they have their maybe some justifications for their conservative decisions made. But as the -- if the things could -- if the competitive landscape could be improved, I think, they would -- maybe make a different decision on this. But anyway, it's up to the board to decide.
[Operator Instructions] James, there seems to be no further questions.
Okay, great. Thank you. So we will conclude our conference call today.
Thank you.
Thank you, everybody.
Bye.
Bye.
Thank you. That's it for today. Thank you for joining. Goodbye.