Taiwan Mobile Co Ltd
TWSE:3045
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Taiwan Mobile Co Ltd
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Good morning, good afternoon, welcome to Telemobile's Conference Call. Chairperson today is Mr. Jamie Lin. Jamie, please begin your call, and I'll be standing by for the Q&A session.
Thank you very much. Hi, everyone. Good afternoon. Welcome to Taiwan Mobile's First Quarter 2021 Earnings 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, further events or otherwise. And Taiwan Mobile Company Limited, hereafter the company, 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 of the company, markets or developments referred to in this presentation.
All right. Let's get out of the way. Now let's turn to business update. I will start with the highlights of the quarter. In the first quarter, we saw decent top line performance across our key businesses. For telecom, our mobile service revenue turned Y-o-Y positive in March, benefiting from our growing 5G user base and continued monthly fee lift from 4G to 5G upgrades.
Our e-commerce business, momo, continued its upbeat momentum, posting 25% Y-o-Y growth in e-commerce revenue in the first quarter. Lastly, our broadband business delivered double-digit Y-o-Y revenue growth as we continue to cross-sell to our Pay-TV and mobile customers. As a result, consolidated revenue jumped by 11% year-over-year in the first quarter, a significant acceleration from the 7% Y-o-Y growth recorded a year ago.
Now let's turn to Page 5 for a closer look at our mobile business. Underpinned by our industry-leading 5G infrastructure rollout with 3.5 gigahertz high-speed band, Taiwan Mobile was the first telecom operator to reach 50% 5G population coverage certified by the NCC, with more than 6,000 3.5 gigahertz base stations built. We are close to covering 70% of mobile traffic.
Superior product offerings remain front and center in our 5G strategy. TWM offers the most comprehensive 48-month rate plan choices that bring most premium 5G handsets to $0 bundled price. At the same time, our 5G Double Play or [Foreign Language] in Chinese, and 5G momobile or [Foreign Language] in Chinese, products leveraged group resources to appeal to home broadband and e-commerce users in a way only Taiwan Mobile can. As a result, the monthly fee uplift in users upgrading to 5G reached 26% in the first quarter, resulting in a year-over-year increase of postpaid smartphone user ARPU in March, the first time since the 499 frenzy in 2018 or 34 months to be more precise. Customers love the better coverage, better product offerings and better services we provide. As a result, our churn rate further declined to 0.85 in the first quarter, and we expect it to remain at low levels.
Next, let's go to Page 6 for an update on our e-commerce business. Despite a high base in online shopping demand spurred by the COVID-19 outbreak a year ago, we still grew e-commerce revenue by 25% Y-o-Y in the first quarter of this year. On the back of market share gain, while the total number of transactions increased by 21% year-over-year.
Going forward, as we ramp up the construction of our southern distribution center, and further expand our cellular warehouses and in-house delivery fleet, we expect the share gain momentum to continue. In terms of synergies within the group, on top of allowing users to pick up deliveries from TWM stores, offering free MyMusic streaming services to momo's VIP customers and the momobile bundles mentioned earlier. We are in the process of building even more significant cross-selling programs. Thanks to scale economies and operating leverage, e-commerce EBITDA soared by 58% Y-o-Y in the first quarter. Note that payment processing fee as a percentage of revenue decreased as momo's private label credit card accounted for 23% B2C sales in the quarter.
Now let's take a look at our broadband business on the next slide. In the first quarter of 2021, we continued to fare better than our MSO peers in the Y-o-Y trends of basic TV subscriptions and broadband service penetration. Demand for faster home broadband access include -- including our 4G, 5G Double Play packages continued to swell, lifting broadband revenue by 12% Y-o-Y. This more than offset the decline in basic TV revenue and turned overall CATV revenue positive at a 1% growth Y-o-Y versus last year's 1% decline Y-o-Y. EBITDA's Y-o-Y trend also stabilized.
Now let me turn the presentation over to Rosie for our financial overview.
Hi. Good afternoon. Let's start with performance by business. In the first quarter of 2021, our consolidated revenue grew by 11% on a year-on-year basis, on the back of our robust e-commerce business and stabilizing telecom business. Mobile service revenue year-on-year declined further narrowed and turned positive in March, which helped telecom revenue turned to 2% year-on-year growth in the quarter.
Telecom EBITDA is 9% year-on-year drop with the result of higher subsidies from our upselling strategies and longer handset bundle contracts. However, the year-on-year drop narrowed sequentially, partially attributable to the low roaming business base from March onwards.
Our cable TV business saw a stabilization in EBITDA's year-on-year trends, driven by broadband. However, the EBITDA turned to decrease year-on-year as D&A turned to increase year-on-year due to our ongoing investment in broadband and new setup boxes.
Momo continued on its growth trajectory, propelled by robust e-commerce business, which posted a 25% growth in revenue and a 58% surge in EBITDA in the first quarter.
Now let's move to results summary. Similar to the previous quarter, 5G D&A and higher marketing costs weighed on the year-on-year performance of our consolidated operating income, while combined operating income of cable TV and momo increased by 25% year-on-year in the first quarter. That said, consolidated EBITDA year-on-year decline narrowed sequentially and already turned positive year-on-year in March.
Let's move on to balance sheet analysis. On the asset side, inventory rose year-on-year because of momo's business expansion and a low base a year ago due to the undersupply of iPhone 11 amid the pandemic. PP&E rose on the back of 5G network rollout and land purchase for momo's southern distribution center.
As for liabilities, accounts and notes payable increased year-on-year in the first quarter on the back of our growing e-commerce business, that was partially offset by the supply tightness of iPhone 12 Pro. Higher 5G equipment payable to Nokia, along with growing online purchases from mobile users, are reflected in the year-on-year rise in other current liabilities.
Net debt-to-equity and EBITDA improved sequentially as a result of lower cash CapEx. Lastly, let's look at cash flow analysis on the next slide. The year-on-year decrease in operating cash inflow was due mainly to higher handset subsidies from our longer handset bundle plan. Larger payment made in the quarter due to delayed release of iPhone 12 in the fourth quarter last year and lower iPhone availability amidst COVID-19 related supply shortage a year ago.
Other than 5G-related CapEx and license fees, which caused quarter-on-quarter and year-on-year drop, respectively. The main investing activity in first quarter with momo's full divestment of Taiwan Pelican Express shares. Cash CapEx rose year-on-year in the first quarter on the back of 5G deployments, which started in the second half of last year, but have declined sequentially, resulting in a quarter-on-quarter improvement in free cash flow.
We also expect to receive the government's 5G subsidies by end of this year. Let me turn the presentation back to Jamie for event update and key metrics.
Thanks, Rosie. So turn to Page 14. 2020 earnings distribution. On May 4, 2021, which is today, Taiwan Mobile Board approved the proposal to distribute TWD 12.1 billion in cash dividends, translating to a 4.3% yield to shareholders. Dividend per share is TWD 4.3 on 2.81 billion shares, excluding treasury shares held by 100% owned subsidiaries. Post earnings distribution, there will be TWD 38.5 billion of excess reserves remaining.
Now on Page 15, summarizes the awards and recognitions we received during the quarter for your reference. Finally, on Page 16. To wrap up our presentation, here is the key message. We would like for you to take away with. Taiwan Mobile is currently growing at full speed and expect to further accelerate as our three main growth engines: 5G, momo and broadband continue to gain traction. As a result, we are on track to reach our 2021 guidance for consolidated EBITDA. Given that 5G CapEx has peaked, our free cash flow should also improve over time.
With that, let's now open the floor up for Q&A session.
[Operator Instructions] Our first question comes from Neale Anderson of HSBC.
Congratulations on the improving trends in March. It's good to see it's been a long time coming. I have 2 questions relating to the EBITDA decline in the first quarter and how that might evolve going into the second quarter. So you mentioned the -- two of the drivers of that were higher upselling costs related to marketing and also lower roaming compared to the quarter -- first quarter last year. So could you give us a bit more color on that? The first quarter marketing cost, do you expect that to continue into 2Q? Or is that likely to tail off as the iPhone 12 sales, say, for example, wind down? And then the roaming part of that, how large a factor might that be?
Thank you, Neale, and thank you for the kind words. So in January and February of 2021 -- so we're still steering from a Y-o-Y decline of roaming EBITDA. But starting from March, roaming becomes almost a non factor on a Y-o-Y basis. In terms of marketing costs, we do foresee that to be -- to remain pretty consistent. So -- and we're investing for longer-term growth and longer-term uplift in ARPU. So yes, that's what I can say for now.
Okay. So just to clarify on the second point, if I remember rightly, you were really trying to save costs during the 4G or the later half of the 4G period in terms of marketing. So with this early stage of 5G, you've increased your spending on marketing and upgrade costs, and that's likely to remain consistent. Is that the right understanding?
We're -- so right now, we're observing a pretty healthy ARPU lift of 26% monthly fee, and we want to lock user in for a longer period. That's why we're offering the most comprehensive 48 months $0 bundle plan. And we foresee the uptake of that bundle plan to remain relatively consistent over time. Of course, the marketing cost, as a percentage of revenue, will continue to decrease as our top line continue to grow of the increased users upgrading to 5G.
Our next question comes from Sara of Morgan Stanley.
So I have 2 questions, first on 5G. So the 26% 5G ARPU lift, may I ask how is this number calculated? Is it like apple-to-apple comparison, for example, for the same person, they're paying 26% more before and after migrating to 5G? And then the second question is on the dividend. So it seems we cut dividend for 2020 payment. And then going into 2021 because like for this year, there will be a full year impact from the 5G spectrum amortization cost versus half year last year, so do we see any further pressure to cut dividends further?
Thank you, Sara. For the first question, yes, it's calculated based on the pre- and post-5G signed up monthly fee difference. So we take -- when the users renew their contracts from 4G into a 5G contract, we compare the monthly fee before and after to calculate that number. And right now, we're observing a 26% uplift. In terms of dividend, I'll let Rosie talk about it.
Well, we have a rather stable dividend policy. And I think the dividend policy will still be decided by the Board every April. That's all I can share with you.
Got it. Just a follow-up question on the dividend. So would you please share any color on what kind of metrics the Board is considering when deciding the dividend? It seems we have a very sufficient equity reserve and then all the operating metrics, cash flow is improving. So what do you think is the key metrics going forward?
I think I'm not in a position to share the metrics with you, but they do have thorough discussions on this and decided this number.
[Operator Instructions] The next question comes from Jack of SinoPac Securities.
I have 2 questions. My first question is about -- could you give us about some -- the EBITDA rate in the 2021 originally our forecast -- internal forecast because I'm interested how will we compare the actual result in the forecast -- internal forecast by ourselves. This is my first question.
Thank you, Jack, for your kind words. We only gave a full year guidance of EBITDA Y-o-Y between negative 2% to 0%. That's the only guidance that we gave. And right now, as we said in March, we're observing EBITDA Y-o-Y to have turned positive.
So is that -- does that mean the EBITDA margin rate well above our internal forecast?
Like I said in the key message, we're -- right now, we're expecting the company to achieve our EBITDA guidance for 2021.
So because I -- can I just check what's our target for our EBITDA margin for the 2021 full year?
Sorry, we don't disclose full year guidance for this year. So we cannot disclose the EBITDA margin to you.
Okay. Got it. And do we -- will we provide our financial forecast for the second quarter 2021? Because now we haven't seen our full year financial forecast in this year, so could you give us about -- some forecast about our second quarter 2021?
I'm sorry, we won't do that.
Okay. But do we have any -- the revenue well as -- second quarter revenue growth and also how well our EBITDA margin will go in the second quarter? Do we have any guidance or the view for the second quarter?
Jack, thank you very much. I might have to ask you to refer to our full year guidance. We will not segregate that number into quarterly basis.
Okay. Okay. So -- but do we have any direction even in comparison with the first quarter, how will the second quarter 2021 will be back to maybe we'll grow maybe mid-single digit or something else? Do we have this kind of view, could you provide?
So qualitatively, like I said, in a key message, we do expect all three of our growth engines, so namely 5G, momo and broadband to continue to accelerate. So qualitatively, that will be the guidance that we provide.
[Operator Instructions] Jack has another follow-up question.
Just one follow-up question. And my other question is about, could you give us about -- some information about our 5G base station? How many 5G base stations we have deployed now -- until now?
Thank you, Jack. Like I said in the presentation, we have deployed more than 6,000 3.5 gigahertz high-speed 5G stations as of today.
More than 6,000?
Yes.
Okay. And then Sara from Morgan Stanley has another follow-up questions.
Just one question on 5G. So how is the use case we have seen so far from the consumers? And also, I think previously, there's some market concern that Taiwan Mobile might acquire less sufficient spectrum bandwidth than peers. So given the 5G service has been launched by almost like over half year, so do we see any, say, caller feed -- or service feedback from users on our 5G services?
Sure. Thank you, Sara. So the 5G use base -- use case on the consumer side right now is still continuing from 4G. So users are mainly watching videos, playing games, listening to music and conducting live video calls, et cetera. So there's not a huge difference in their behavior versus 4G. Of course, they're doing all these at a much higher speed and using a less congested network. So they are having a much better user experience. And it's also providing a better user experience for some of the users who are remaining on 4G.
In terms of the fact that we have less spectrum, at this point, we don't think it's any disadvantage. So if you look at our monthly fee lift and our 5G penetration, I think we're doing as well as any of our peers are doing. And we are able to roll out a much wider coverage certified by NCC because we saved some cash on the spectrum. And in the end, we're providing a much better 5G experience because of the coverage. So I think we -- if you look back, I think our strategy does lend us some competitive advantage.
Just one quick follow-up. So given our 5G network rollout is actually faster than peers, for example, the number of base stations is, say, higher by the end of last year and also so far. So do we see any cost pressure from running the 5G network?
Yes. So if you look at our bottom line, it is that the added D&A is indeed taking some toll on our bottom line. But we see 5G as a growth engine. And the -- if you want to harness the momentum with this engine, you have to be committed to the strategy. So we're going to continue to accelerate our 5G user base growth so that to make the investment worthwhile.
[Operator Instructions] Jack has another follow-up question.
And I have 2 questions. And my first question is about, so for the revenue guide in 2021, we also understand with the last earnings call, we have mentioned that this year maybe revenue will rose above the 12% over the overall year, because momo is still -- has been raised some of their revenue guidance, so will that mean will we change our revenue growth guidance in the full year?
Thank you, Jack. At this point, we're not giving a new guidance, so we're going to stick to our original guidance.
Okay. Got it. And my second question is about, we have announced we will invest the green power in the following years and try to use the all green energy until -- not until [ 2040 ]. And so could you give us about how -- some information how does this kind of strategy will affect our revenue or cost in the following years?
Thank you, Jack. So we have identified some of the sources of renewable energy to actually provide a lower cost than the electricity you obtain from Tai Power. So going forward, we will do this methodically and make sure it's a triple win for both the company, our shareholder and environment.
So how -- when will the positive effect for the cost -- I mean when we test this -- when we do this strategy when will the cost lower?
Thank you. It is hard to predict at this point because to implement renewable energy investment strategies, there's a lot of new type of stakeholders that we were previously not extremely familiar with. So we're still figuring things out as we go. So that is why it's a longer-term strategy, and we don't expect it to affect our top or bottom line anytime soon.
Okay. Got it. But we have also mentioned we may invest to build the power plant -- renewable power plant. Will that renewable power plant will -- I mean, whole energy from the renewable power plant will that -- will be used by ourselves or will we sell the renewable energy to other companies in the future?
First and foremost, we want to satisfy our own usage needs. And of course, if we have gotten to a point where we're pretty good at doing this, then we might consider to commercialize it into a business, but it's really a longer term thing. We're not expecting any of these to have any material effect in the short term.
[Operator Instructions] Jamie, there seems to be no other questions online. Would you like to...
All right. So if that's the case, thank you, and thank you, everyone for joining this installment of our quarterly results communication, and have a good evening. We look forward to seeing you next time. Thank you.
Thank you.
Thank you for everyone's participation. This concludes the conference. Goodbye.