Taiwan Mobile Co Ltd
TWSE:3045
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Taiwan Mobile Co Ltd
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Good afternoon. Welcome to Taiwan Mobile Conference Call. Chairperson today is Mr. Jamie Lin. Jamie, please begin your call. I'll be standing by for the Q&A session.
Thank you. Good afternoon, everyone. Good to have you at this edition of Taiwan Mobile earnings conference call. Things have changed quite a bit since the last time we congregate -- since the last time we congregated. I hope everyone is doing all right. It is in a sense comforting that we still get to do this the same way.
So before we begin, let's go over our disclaimer first, as always. The information contained in this presentation, including our 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. Now let's head straight to business overview. We will start with highlights of the quarter on Page 4. In the second quarter of 2021, our 3 growth engines, namely: 5G, e-commerce and home broadband, all gained further momentum.
As a result, Y-o-Y growth of our consolidated revenue expanded to 23% for the quarter, the highest among our peers, and accelerated from 6% a year ago and 11% for the previous quarter. Our e-commerce revenue surged by 45% to a record high during the quarter, boosted by consumers' stay-at-home purchasing needs and momo's superior logistics and fulfillment capabilities, which we will talk about shortly.
Our telecom business, on the other hand, reported Y-o-Y growth, both on mobile service revenue and EBITDA for the quarter, the first time in over 4 years, driven mainly by consistent ARPU lift from our subscribers upgrading to 5G.
Consolidated EBITDA grew by 10% as a result, our highest growth rate in over 5 years. And I want to highlight that all of these record-setting results were achieved while the vast majority of our team members worked from home for the bottom half of the quarter as the country went into Level 3 alert since mid-May. So kudos to my coworkers, you guys are really awesome.
Next, let's turn to Page 5 for a closer look at our mobile business. At its 1-year mark, our 5G services' postpaid user base has now grown to almost 900,000, underpinned by our Warp Speed infrastructure rollout and superior product offerings.
Despite some impact on our store traffic since the Level 3 alert, our outstanding bundle packages gained further momentum, aimed at growing home broadband and online shopping demand. These include Double Play or [Foreign Language] in Chinese, which offers 4G, 5G mobile services bundled with high-speed home broadband, starting at TWD 799 a month. And momobile or [Foreign Language] in Chinese, which rewards mobile subscribers as they make more purchases on momo.
We also saw Y-o-Y increases in direct carrier billing and gaming revenues as people consumed more entertainment at home. Coupled with a steady ARPU lift in our users upgrading to 5G, and as a result a growing 5G user base, our smartphone postpaid ARPU turned to a Y-o-Y increase in the second quarter.
Customers loved our unparalleled product offerings and value-added services, such as myVideo, MyMusic, GeForce NOW, League of Legends: Wild Rift and VALORANT. And as a result, our churn rate further declined from 0.97% a year ago to 0.77% in the quarter, decreasing by 20 basis points. Going forward, we expect it to remain at low levels.
Now, let's go to Page 6 for an update on our e-commerce business. The heightened online shopping demand as people stayed at home has served as a strong tailwind for momo's e-commerce business. In the second quarter, e-commerce revenue grew by 45% Y-o-Y to a record high. With the number of transactions rising by 48% Y-o-Y.
The surge in demand was a true test to all e-commerce companies' infrastructure and adaptability. And the results speaks for itself. Momo's investment in our satellite warehouse network and hybrid logistics capabilities, leading to this point, allowed us to capture the influx in demand better than any of our peers, accelerating momo's market share gain.
We also seized the opportunity to offer better incentives for our momobile bundle plan users in June, providing extra momentum to both momo and our mobile business. Going forward, as the market moves into a new normal, the ramp-up of our southern distribution center's construction and the further expansion of our satellite warehouse network and in-house delivery fleet will provide tailwinds to our share gain momentum.
In terms of profitability, bolstered by scale economies and operating leverage, e-commerce EBITDA, Y-o-Y growth soared to a whopping 129%, while its EBITDA margin widened to 5.5% in the second quarter.
Now, let's take a look at our broadband business on the next slide. In the second quarter, we continue to outperform our MSO peers in the Y-o-Y trends of basic TV subscriptions and broadband service penetration. More importantly, demand for faster home broadband access continued to grow amid work and study-from-home, lifting cable broadband line of revenue by 12% and more than offset the decline of -- the decline in basic TV revenue.
Now, let's turn to the next slide to talk about our accelerated transformation during and post-pandemic. On this slide, I would like to share with you how Taiwan Mobile has responded to the challenges brought about by the COVID outbreak in Taiwan.
During the first outbreak in the beginning of 2020, we immediately activated our business continuity plan and segregated our entire -- our entire company into A, B teams that can fully back up each other. At the same time, we started making all the necessary investments and preparations to make broad-based work-from-home a viable option.
That is the reason why when the country went into Level 3 alert in mid-May this year, we were able to immediately shift all of our back-office employees to remote work. Additionally, we make use of telecom data to monitor countrywide work-from-home trends and adjusted the opening hours and locations of our stores accordingly, resulting in a better workforce safety without having to sacrifice operating results.
Our record-setting quarter -- our record-setting quarterly performance showcased both our resilience and the efficacy of our strategy. While in time the pandemic will certainly go away, the transformation that took place for us during this time is here to stay.
Taiwan Mobile will emerge as a hybrid organization, which will, in turn, accelerate our growth and evolution into a regional tech plus telco group.
Now, let me turn the presentation over to Rosie for financial overview.
Hi. Good afternoon. Let's start with performance by business on Page 10. In the second quarter of this year, consolidated revenue grew by 23% on a year-on-year basis, supported by robust e-commerce business and improving telecom business.
Mobile service revenue showed year-on-year increases since March, which helped expand telecom revenues growth to 5% year-on-year in the second quarter. With a smaller year-on-year rise in handset subsidies and a normalized base in roaming business versus the previous quarter, telecom EBITDA turned to a year-on-year increase in the second quarter. Though the telecom D&A continue to post year-on-year growth given our 5G investments, the sequential hike diminished as a result of our front-loaded rollout strategy.
Our cable TV EBITDA year-on-year trends stabilized, driven by broadband. Mobile continued its growth trajectory propelled by e-commerce, which recorded a 45% revenue growth year-on-year and 129% EBITDA surge year-on-year in the second quarter.
Now, let's move to results summary. The 5G D&A still weighed on our telecom profitability, a successful 5G upselling and momo's upbeat performance helped consolidated operating income turn to a year-on-year rise in the second quarter.
The difference in the year-on-year trends of pretax income and net income was mainly due to a year-on-year decline in net income attributable to minority interest. For the first half of this year, consolidated revenue and EBITDA were both ahead of our full year guidance released earlier this year.
Let's move on to balance sheet analysis. On the asset side, the year-on-year increase in cash was mainly driven by momo's business expansion. PP&E rose on the back of our 5G network rollout since the second half of 2020. While noncurrent contract assets declined year-on-year as we featured rate plans with longer contract period.
As for liabilities, momo's rapid expansion in the second quarter resulted in an uptick in payable year-on-year. While inventory growth was constrained due to shorter inventory turnover and receivable days then payable days.
Other current liabilities spiked year-on-year, reflecting the larger 5G equipment payable to Nokia and momo's dividend payable. Net debt-to-equity and net debt-to-EBITDA improved in the second quarter, thanks to higher EBITDA and momo's strong cash generation capability.
Lastly, let's look at the cash flow analysis on the next slide. In the second quarter, operating cash inflow increased year-on-year. Thanks to better cash earnings in our telecom and e-commerce businesses as well as the scale effect from momo's negative cash conversion cycle.
For investing cash flow, although cash CapEx rose sequentially in the second quarter it was lower in the first half of 2021 and the second half of 2020 when we kicked off High Speed rollout.
Financial cash outflow dropped year-on-year in the second quarter due to the repayment of short term borrowings a year ago. And the different timing of momo's dividend payment versus last year.
With better operating cash flow along with stabilized CapEx, free cash flow improved, both quarter-on-quarter and half-on-half. Free cash flow calculated with pre-IFRS 16 operating cash flow reached TWD 7.66 billion in the first half of 2021, translating into an annualized free cash flow yield of 5.3%.
Let me turn the presentation back to Jamie for event update and key message.
Thank you, Rosie. So on Page 15, you can see a [ spread ] of the awards and recognitions we received during the quarter for your reference.
And finally, on Slide 16, to wrap up our presentation, here is the key message we'd like for you to take away with. We have weathered through telecom EBITDA compression and restored its Y-o-Y growth in 2Q '21, while accelerating momo's EBITDA upswing.
This turnaround in our operations shows our strategic resilience amid the pandemic. The societal shift to everything from home, where the world increasingly relies on digital connectivity for work, education and more, will lay the foundation for continuous expansions going forward. In this new normal, our accelerated transformation into a regional tech plus telco group will position us for an even faster growth while creating further long term value for shareholders.
With that, I would now open the floor up for Q&A session.
[Operator Instructions] Our first question comes from Neale of HSBC.
I have one main question around the EBITDA trend. If I'm right, your guidance at the start of the year was for a flat to 2% decline in EBITDA. And in the first half, you've reported 3% increase. Is that because the second quarter, momo and others were faster, perhaps the telecom business recovered faster than expected? And how does that affect your outlook for the second half? Do you expect cost to increase or these trends to continue?
Thank you, Neale. Yes. So the telco business and momo are both are doing better than we expected. And right now we are not revising our guidance, but we also don't expect things to significantly worsen in a bottom half of the year.
Could I follow up? You mentioned the momobile. Can you give any more details on that? How many subscribers or what you think the potential opportunity is to link your telecom services with momo?
Thank you, Neale. We're not disclosing the number of subscribers yet. But I can say that it's contributing more than 1% to momo's revenue already. So all of the subscribers are contributing more than 1% of momo's revenues.
[Operator Instructions] Jamie and Rosie, there seems to be no other questions at the moment. Do you have other comments.
No, we don't have any more comments at this point.
[Operator Instructions] There seems to be no other questions from online. Thank you.
Thank you, Charlotte. So if that's the case, thank you, guys, for joining us for this edition of the earnings call. Well, we're actually very happy with the results, and I'm also very proud of our team. And I hope you guys all stay well, stay healthy. And we look forward to meeting you again in our next earnings call. Thank you.
Thank you.
Thank you, Jamie, and Rosie for your presentation. And thanks, everyone, for joining the call. Have a good day. Bye-bye.