Taiwan Mobile Co Ltd
TWSE:3045
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
97.2
118.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches TWD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Taiwan Mobile Co Ltd
You don't have any saved screeners yet
Good morning and good afternoon, ladies and gentlemen. Welcome to the conference call. Our Chairperson today is Mr. Jamie Lin. Mr. Lin, please begin your call and I'll be standing by for the Q&A. Thank you.
Thank you. Good afternoon, everyone. Welcome to Taiwan Mobile's Third Quarter 2020 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, 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 turn to business overview. I will start with operational highlights for the third quarter. So since the launch of 5G commercial services in the beginning of the quarter, we have seen encouraging 5G sign-ups and ARPU lift among the upgraders despite limited 5G handset options and the lack of a 5G iPhone. On the other hand, amortization of 5G spectrum also started to kick in and has had a negative impact on our telecom business bottom line performance for the third quarter. Meanwhile, competition in the telecom industry has remained irrational since 5G service launch as 4 out of 5 operators have set a base tariff of 5G unlimited data plan at TWD 1,399 per month.
Given the lengthening smartphone replacement cycle, Taiwan Mobile also has led the market into offering 48 months handset bundle contracts for consumers, which is now emulated by both of our major peers. This movement will not only encourage users to upgrade to higher-end 5G phones at higher ARPU but will also further rationalize the competitive landscape in the long run.
As for momo, our e-commerce business, delivered another set of solid results in the third quarter as it took more market share and further strengthened its logistics capabilities. Going forward, we will continue to leverage group resources to support momo's business expansion. Overall, our net income arrived 10% ahead of our third quarter guidance.
Now let's turn to Slide 5 for a closer look at our telecom business. So for the first 3 months of 5G service launch, the rate of adoption was 50% higher than that of 4G. Moreover, we have seen a healthy ARPU lift in the user upgrading to 5G to the tune of 22%. And if you are talking about monthly fee, it's around 25% ARPU lift.
And 90% of all 5G sign-ups opted for a TWD 999 or higher rate plans and a healthy 58% of them went up for TWD 1,399 plus plans. Excluding IoT subs, postpaid monthly fee already turned the corner and posted month-over-month growth in September. It's also worth noting that our mobile service revenue recorded its first quarter-over-quarter stability since the TWD 499 frenzy in the second quarter of 2018.
With the release of iPhone 12, increasing Android 5G handset options as well as improving network coverage, handset bundle sales and device sales should pick up steam in the fourth quarter this year, boding well for ARPU. In addition, our Double Play bundle, which is unlimited mobile data plus high-speed home broadband, posted a 44% Q-o-Q surge in new sign-ups in the third quarter with rising proportion in 1Gbps super high-speed fixed broadband, which acts as a complementary indoor coverage service to 5G.
Now let's go to Slide 6 for an update on our cable TV business. In the third quarter, we again fared better than our MSO peers in the Y-o-Y trends of basic TV subscriptions and broadband service penetration. Supported by growth in TV content aggregation, revenue and rising broadband momentum, CATV revenue went up by 3% Y-o-Y, and EBIT was flat Y-o-Y amid competitive operating environment. As demand for faster home broadband access continued to increase, cable broadband related revenue expanded 9% year-over-year in the third quarter.
Last but not least, let's take a look at our growth engine, momo, on Slide 7. So despite a sequential slower quarter, momo's e-commerce business continues to outgrow its peers and delivered strong results, with the total number of transactions jumping by 30% year-over-year. On the logistics side, in addition to expanding its in-house delivery fleet, 2 more satellite warehouses were added in the third quarter, taking the total number of satellite warehouses to 19, which is 6 more than a year ago.
As a result of increasing scale and operating leverage, momo's e-commerce operating margin improved meaningfully from a year ago. Payment processing fee as a percentage of revenue also dropped, aided by rising adoption of its private label credit card.
Now let me turn the presentation over to Rosie for financial overview.
Hi. Good afternoon. Let's start with the performance by business. In the third quarter of this year, our consolidated revenue once again grew on a year-on-year basis, mainly driven by momo, which accounted for half of the company's consolidated revenue.
Telecom revenue and EBIT, on the other hand, recorded steeper year-on-year declines than the previous quarter, mainly due to soft high end handset bundle sales, especially in contrast to the boost from iPhone 11 sales last year as well as 5G spectrum amortization.
While cable TV EBITDA dwindled year-on-year in the third quarter, mainly attributable to competition in basic TV business, its EBIT was flat year-on-year. It was because of the falling depreciation of set-top boxes, though this tailwind has subsided.
momo continued on its growth trajectory, propelled by its e-commerce business, posting a 26% surge in revenue and further expanding its EBIT by 38% in the quarter.
Let's move to results summary, next page. In the third quarter, combined operating income of cable TV and momo increased 15% year-on-year and helped mitigate the slide in telecom profits.
For the first 3 quarters of this year, total revenue tracked slightly behind. However, the muted telecom performance was offset by lower selling expenses and momo's operating leverage at the operating income level.
Overall, our operating income for all major businesses achieved management expectations. Net income also came in ahead of -- also came in ahead on the back of lower than expected nonoperating expenses brought about by higher dividend from investees, downward trend of interest rate and momo's disposal gains. EPS for the period reached 83% of the company's guidance.
Let's move on to balance sheet analysis. On the asset side, PP&E rose year-on-year and quarter-on-quarter on the back of the 5G network rollout while the year-on-year surge in concession was the result from the acquisition of 5G spectrum in the first quarter this year.
On the liability front, gross debt increased quarter-on-quarter to TWD 73 billion at the end of the quarter as we bumped up short-term borrowings to fund our dividend payment. The year-on-year rise in net debt-to-EBITDA was associated with the incremental debt we took on for the acquisition of the 5G spectrum.
As for shareholders' equity, the year-on-year and quarter-on-quarter changes in paid-in capital and capital surplus were insignificant as majority of our convertible bonds had already been converted.
Lastly, let's look at cash flow analysis on Slide 12. In the third quarter, the year-on-year drop in operating cash inflow was attributable to momo's inventory expansion, if we exclude an impact of around TWD 5 billion from a couple of one-off factors. Investing cash outflow narrowed quarter-on-quarter and year-on-year due to shrinking cash CapEx and the sale of Taiwan High Speed Rail shares.
On the financing front, short-term borrowings climbed quarter-on-quarter to fund the dividend payments. As 5G rollout is still underway, cash CapEx showed a year-on-year decline in the third quarter.
Cumulative free cash flow calculated with pre-IFRS 16 operating cash flow was TWD 14.8 billion for the first 3 quarters of this year, translating into an annualized free cash flow yield of 7.3%.
Okay. Let me turn the presentation back to Jamie for event updates and key message.
Thanks, Rosie. So on Page 14, we summarized the awards and recognitions we received during the quarter for your reference. And finally, on Slide 15, I would like to wrap up our presentation with the key message we like for you to take away.
The competitive landscape in Taiwan's mobile industry has become more benign, evidenced by the continued decline of ported numbers since 5G launch in July, as all operators introduced higher monthly fees for 5G unlimited data plans.
Meanwhile, our 5G service is poised to gain momentum on the back of accelerated network rollout, iPhone 12 release and a wider range of 5G android phone options. Enhanced synergies from momo and cable broadband also give us an edge over our peers.
With that, I would now open the floor up for Q&A session.
[Operator Instructions] Our first question comes from Neale Anderson with HSBC.
I have 2 questions, please, on the wireless side. The first one is the 5G status relative to now. So we're seeing a -- I'm sorry, relative to 4G, so we're seeing a 25% increase in spend. How does that compare to the early phase of 4G? Is it any better or roughly the same?
And the second question relates to when we can start to see an improvement in the year-on-year trends. So you pointed to a Q-on-Q stabilization. But given what you can see now with stabilizing competitive dynamics and 5G uplift in revenue, when would you expect that to translate into a year-on-year improvement in telecom revenue and EBIT?
Thank you, Neale. Let me answer the second question first, as our coworkers look into the 4G numbers.
So in terms of revenue, the timing of revenue turning a corner, we're expecting it to happen in the next 6 to 12 months. In terms of that translating into bottom line, it's probably going to be a longer-term phenomenon. So anywhere from 12 to 36 months from now, depending on the competitive landscape.
Okay. We're calculating the ARPU lift situation in the 4G launch era. So we'll get back to you in later time of the call.
Okay. That's great. Just in terms of that, the time line you outlined, does that assume the 5G pricing remains roughly stable? Is that the basis on that and -- for that estimate?
Yes. So it looks like the market is pretty rational -- the competitive landscape is pretty rational right now. And also, the fact that all major -- 3 major operators are offering 48 months plans with further stabilized landscape in the mid to long term. So -- but it still depends on how things play out sort of 12 to 24 months from now.
[Operator Instructions] Our next question comes from Amber Lee with Yuanta.
Two questions here. The first one is a follow-up on Neale. I think you mentioned a 20% more in spend. Does this number compare SIM-only to SIM-only plans and bundle sales -- bundle plans to bundle plans? Or is this a mix of SIM-only plans upgrading to 5G handset bundle plan? This is the first one.
And the second one is on the iPhone sales. I think for the sequential trends in mobile device sales that you mentioned, what kind of growth momentum should we be expecting? Is it substantially stronger compared to the seasonality in the third or the fourth quarter of last year?
Amber, I'm sorry, can you repeat your second question?
Okay. Second one is on the device sales momentum. As you mentioned, there would be a strong sales growth in the fourth quarter. Just wondering what kind of sales momentum should we be expecting? Would it be substantially stronger than the third and the fourth quarter of the last year?
Got it. So in terms of monthly fee lift, we're observing a 25% lift from 4G to 5G upgrades. Right now, we're not separating the SIM-only plan versus handset bundle plans as more than 90% of the customers would opt for handset bundles. So if we're talking about SIM-only plan, the ARPU lift is even higher.
In terms of device momentum in the fourth quarter, based on the initial numbers we're observing, it's -- the demand is 2 to 3x higher than the previous year, in terms of iPhone, but the problem is with supply. So right now, we're not getting enough supply from Apple.
And on the other hand, our exclusive Google 5G phone, the Pixel 5, is also observing similar Y-o-Y trends, but the problem is also with supply. So right now, we're affected by the global supply chain situation.
But other than that, some of the other Android phones are being provided to us healthily. So our momentum is still much better than we expected.
Do you expect the supply shortage problem to be resolved in the coming months?
We're expecting it to resolve in any time in the next 2 to 4 weeks.
[Operator Instructions] Our next question comes from Sara Wang with Morgan Stanley, Hong Kong.
Just one question on the CapEx. So what's our latest, say, CapEx budget for the whole year? And then like from some new sources, it seems we have increased our CapEx budget for the full year. Would you please give us more details on the rationale behind? And also, do we seek any partner on network sharing, especially after like yesterday Far EasTone announced further network sharing with APT?
Well, our overall CapEx for this year is TWD 20.4 billion, which has been disclosed. As to our network sharing, Jamie will give you more color on that.
Okay. So I think the rationale in terms of a faster rollout, an accelerated rollout of our 5G base stations, our thesis is for most customers they're not looking for the operator that provides a higher speed. But rather, they're looking for an operator that provides the best coverage. So Taiwan Mobile's strategy is to be that provider that they can get 5G signal in the most areas they go to.
And right now, based on our own in-house estimate, we have built the most 5G base stations -- the high-speed 3.5 gigahertz 5G base stations than any other operators here in Taiwan. We're at almost 4,000 base stations, and we're going to continue to build out towards 6,000, 3.5 gigahertz 5G base stations. And I think that is contributing very well to our commercial side of the equation. That is why we're observing healthy take ups and healthy monthly fee lift.
In terms of network sharing, we're keeping all the options open. If we have more developments, we'll be sure to update everyone.
Just one quick follow-up. So the 6,000 is the target for 2020?
Yes.
[Operator Instructions] Our next question comes from Billy Lee with Crédit Suisse in Hong Kong.
I've got 2 quick questions. First one is a follow-up on base station. So you said 6,000 is the target for this year. And how many 5G base stations do we have right now? So that's the first question.
And the second question also relates to CapEx. I notice across the first 9 months, the cash CapEx is just 5 -- roughly TWD 5 billion. This looks quite small when you compare with the overall full year CapEx guidance. So does that imply there will be around like TWD 15 billion CapEx coming in the fourth quarter?
Thank you, David (sic) [ Billy ]. So like I said, we have built almost 4,000, 3.5 gigahertz 5G, high-speed 5G base stations, that is much more than any of our peers. So some of the peers would claim similar 5G base station numbers, but they have built a mix of 3.5 gigahertz and 2.1 gigahertz of 5G base station. So if you would compare apple-to-apple, only 3.5 gigahertz of high-speed 5G stations, then we have almost 4,000, that is the most than all of our peers and by far. And towards the end of the year, we intend to build close to 6,000, 3.5 gigahertz 5G stations.
In terms of CapEx, I'll have Rosie explain a little bit.
Well, as you know that the rollout is continuing, so the payment will also be continuing. It will be slightly later. And maybe some of them will be delayed until early next year.
Our next question comes from Jack Hsu with SinoPac Taipei.
Sorry, can you hear me?
Loud and clear.
Okay. My -- I have 2 questions. The first question is about do we have any our 5G customer target in the end of 2020 and 2021. So this is my first question.
Then my second question is about -- because I just -- I was informed the 5G base station will need more power, need more electricity in comparison with the 4G. So will the electricity fees will -- electricity expense will higher in comparison with the 4G era and how will we control this added expense on core cost?
Thank you, Jack. So we do have a 5G customer target, but we're not sharing the number for now. All I can say is we're -- like we said, we're ahead of 4G era in terms of penetration, and we expect it to remain the case throughout the rest of the year.
In terms of electricity consumption, yes, with 5G base stations operating live, it will increase the cost of electricity for us. Exactly how much it will increase, I think, we'd rather keep it a confidential information.
Okay. I think -- and just another quick following question is about outlook now and will we change our financial forecast in 2020?
We do expect to reach our target for this year. We have no intention to change our guidance for now.
[Operator Instructions]
Neale?
I'm sorry, we do have a follow-up question.
No, I just want to reply to Neale of HSBC. I just want to let you know that we don't have the numbers with us now. We'll get back to you separately after the con call.
Our next question comes from Sara Wang with Morgan Stanley, Hong Kong.
Maybe just 2 questions. First one is that previously in the call, you mentioned like 5G spending is 25% higher. So would you please elaborate more? So what's the comparison? Is it for the same customer 5G spending versus previously when he or she was on 4G plan?
And second question is that what's your longer view on the market share dynamic? So it seems competition remains matter of concern. So going into 5G, what other factors do you think will drive, say, change in the market share?
Thank you, Sara. So when we talk about 25% monthly fee lift, yes, it's an existing customer renewing his or her contract from a 4G contract to a 5G contract. We're seeing overall on average, it would mean a 25% increase in their monthly fee.
In terms of the competitive landscape in the longer run, we feel that it looks like things are cooling down. Especially with a smaller operator working closely with one of the major operators. So -- but things like this is really hard to predict. Generally, we feel that over the next 3 to 5 years, it looks like things will be a lot of rationalized than before.
[Operator Instructions] And we have a follow-up question from Jack with SinoPac.
I have one question. My first -- my question is about the iPhone subsidy, I mean the 5G iPhone subsidy will higher than the 4G iPhone. This is my question.
Thank you, Jack. So it depends on which plan the customer chooses. If it's a shorter period contract, then it's similar, but if he or she chooses a longer period contract, for example, a 48-month program, then, of course, it's going to be higher, but then the subsidy will also be -- you can also view the subsidy as being spread out through a longer period.
Okay. Sorry, I just want to clarify if that would use almost the same tariff and almost the same period, 5G iPhone subsidy will higher than the 5G iPhone -- iPhone subsidy higher than the 4G iPhone.
So for apple-to-apple comparison, then the subsidy is very similar.
[Operator Instructions] And we do have another follow-up question from Jack with SinoPac.
I have just one question. My question is about -- I just want to -- I would like to want you to share your thoughts, how much percentage of our customer, their tariff plan is above TWD 999, also include a TWD 999 tariff plan. This is my question.
Okay. So for 5G customers, around 90% of them chose TWD 99 (sic) [ TWD 999 ] or up plans and then 58% of them chose TWD 1,399 up plans. And I don't think we're disclosing the number for the entire user base.
Okay. So you mean the 99% is above TWD 99 (sic) [ TWD 999 ], 99%. And so 59% is they choose 1,399% (sic) [ TWD 1,399 ]. Is that correct?
Around 90%...
Around 90%.
Chose TWD 999 plus. And then 58% chose 133 -- TWD 1,399 plus.
[Operator Instructions]
So if we have no more questions, shall we call it a day?
Mr. Lin, there are no further questions at this point in time. Thank you.
All right. Thank you, everyone. We look forward to speaking with you again next quarter.
Thank you.
Thank you. Thank you for your participation. This concludes the conference.