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. Our chairperson today is Jamie Lin.
Mr. Lin, please begin your call, and I'll be standing by for the Q&A. Thank you.
Thank you, operator. Good afternoon, everyone. Welcome to Taiwan Mobile's Third Quarter 2021 Earnings Conference Call.
Before I start our presentation, let's go over our disclaimer first, as always. 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 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's markets or developments referred to in this presentation.
All right. Now let's start with our business overview. Please turn to Page 4 for the highlights of the quarter. So as we can see from the slide, all 3 of our main growth engines delivered solid top line expansions in the third quarter.
Revenues from both our mobile services and broadband business posted faster Y-o-Y increases than the previous quarter. Meanwhile, momo's e-commerce revenue growth was slightly lower than the second quarter due to a COVID-related high base, but is Y-o-Y trend remained robust.
As a result, our consolidated EBITDA for the quarter rose by 9% Y-o-Y to a level that is higher than the third quarter of 2020 and the third quarter of 2019. For the first 3 quarters, consolidated revenue and EBITDA increased by 18% and 5%, respectively, both well ahead of our full year guidance.
Next, let's turn to Page 5 for a closer look at our mobile business. In the third quarter, our mobile service revenue's Y-o-Y growth accelerated as we delivered a strong Y-o-Y ARPU improvement against -- amongst our mobile peers. This was mainly driven by continued 5G upselling as the monthly fee uplift from customers upgrading to 5G remained at about 26% in the quarter.
The take-ups of our exclusive Double Play or [Foreign Language] in Mandarin and momobile or [Foreign Language] in Mandarin packages remained solid. We expanded our MSO partnership this quarter. And as a result, our Double Play footprint now covers over 70% of the island's households. On the other hand, momobile users' contribution to momo's e-commerce revenue reached 1.6% in September, increasing from 1.1% 3 months ago.
The launch of the iPhone 13 series on September 24 also provided more fuel to our upselling momentum as majority of the sign-ups opted for TWD 1,399 or higher 5G rate plans. To better position ourselves against future ARPU erosion and churn, we continued to focus on our 48-month contracts, providing the best value for our customers by offering the greatest bundle options. Currently, our 48-month program accounts for close to 30% of our TWD 999 or higher 5G user base and 49% of our year-to-date iPhone bundles.
To leverage intra-group synergies to further edge or 5G momentum, we have recently launched the Open Possible co-branded credit card with Fubon Bank. It offers a host of cardholder benefits, including a rebate of up to 5.5% for carrier bills, the highest in the industry by a wide margin.
Open Possible card is well received by the market, so far, yielding 2x more issuance versus its predecessor that was launched in 2017. The growing cardholder base will bode well for 5G, our direct carrier billing business and customer loyalty.
Last but not least, as many -- as you may have seen in the news, Disney+ is the latest addition to Taiwan Mobile's technology and media services portfolio. We are the exclusive telecom partner of this highly anticipated streaming service in Taiwan, and we look forward to unveiling attractive bundle packages very soon.
As we increase our lineup of products and services to offer unique values to different market segments, we expect our momentum to continue, while churn to remain low going forward.
Now let's turn to Page 6 for an update on our e-commerce business. Coming off the high second quarter base boosted by COVID, our e-commerce revenue saw a slight sequential decline in the third quarter. However, Y-o-Y growth remained strong at 38%, with the total number of transactions increasing by 44% Y-o-Y.
Thanks to economies of scale and operating leverage, momo's e-commerce EBITDA soared by 102% Y-o-Y, translating to 172 basis points of EBITDA margin expansion and 5.4% in the -- expansion to 5.4% in the third quarter.
Looking ahead, as e-commerce penetration of the retail market still has plenty of room to grow in Taiwan, the construction of the southern distribution center, along with the continuous expansion of our satellite warehouse network and in-house delivery fleet should allow momo to continue to outgrow its peers.
In addition, our investment in Tiki, Vietnam's leading B2C e-commerce player, will also serve as a platform for our e-commerce business to grow beyond Taiwan.
Now let's take a look at our broadband business on the next page. In the third quarter, we continued to outperform our MSO peers in the Y-o-Y trends of basic TV subscriptions and broadband service penetration.
As demand for faster home broadband persisted even after the alert level was lowered in July, subscribers and ARPU both saw sequential increases. This resulted in an expansion of broadband revenue growth to 14% Y-o-Y in the third quarter, where Double Play remained a significant contributor to the growth.
Now let me turn the presentation over to Rosie for financial overview.
Hi. Good afternoon. This is Rosie. Let's start with the performance by business.
In the third quarter of this year, consolidated revenue grew by 20% on a year-on-year basis, supported by robust e-commerce business and improving telecom business. Mobile service revenues year-on-year growth expanded with steady ARPU improvement, which helped increase telecom revenue growth to 7% year-on-year in the third quarter.
Our strengthening top line performance and the government subsidies Taiwan Mobile started recognizing in August helped telecom EBITDA grow even more year-on-year in the third quarter. Although telecom D&A continued to rise year-on-year given our 5G investment, the sequential hike further subsided, thanks to our front-loaded rollout strategy. As a result, telecom EBIT decline narrowed significantly to 4% year-on-year in the this quarter.
Cable TV EBITDA increased year-on-year in the third quarter, too, underpinned by accelerating broadband revenue momentum.
momo continued on its growth trajectory, bolstered by e-commerce, where its revenue grew 38% and its EBITDA doubled on a year-on-year basis in the third quarter.
So let's go to the results summary. In addition to solid top line growth, telecom and cable EBITDA saw elevated year-on-year growth in the third quarter. Unlike telecom and cable TV, momo EBITDA fell quarter-on-quarter due to a high base. That said, momo was still the contributor to the year-on-year increase in consolidated EBITDA.
As 5G D&A's impact on telecom profitability started to diminish, effective 5G upselling and momo's upbeat performance helped consolidated operating income growth expand to 10% year-on-year in the third quarter. Net income also turned to a year-on-year increase, the first time since the first quarter of 2020.
The difference in the year-on-year trends of pretax income and net income was mainly due to a year-on-year increase in net income attributable to minority interest.
For the first 3 quarters of this year, consolidated revenue and EBITDA were both ahead of our full year guidance released earlier this year.
So let's move to balance sheet analysis. On the asset side, cash increased year-on-year, mainly driven by our stable operating cash inflow, along with much lower CapEx, inclusive of 5G license payment during the past 3 quarters.
The year-on-year rise in long-term investment stemmed from our investment in the Vietnamese e-commerce player, Tiki, in the third quarter.
PB&E rose on the back of our 5G network rollout since the second half of 2020, while noncurrent contract assets climbed year-on-year as we featured rate plans with longer contract periods.
As for liabilities, the release of the iPhone 13 series and momo's business expansion caused an uptick in payables year-on-year. Gross debt rose quarter-on-quarter owing to an increase in bank borrowings to fund our dividend payment. Other current liabilities went down quarter-on-quarter in tandem.
Lastly, let's look at cash flow analysis on the next slide. In the third quarter, operating cash inflow increased year-on-year on the back of growing cash earnings from our telecom business, while the quarter-on-quarter drop reflected the fluctuation in momo's revenue.
For investing cash flow, the year-on-year rise in the third quarter was attributable to a low CapEx base, and the disposal of Taiwan High Speed Railway shares a year ago, in addition to our investment in Tiki during this quarter.
Financial cash outflow went up year-on-year as the increase in bank borrowings was smaller than a year ago.
Free cash flow calculated with pre-IFRS 16 operating cash flow reached TWD 10.3 billion in the first 3 quarters of this year, translating into an annualized free cash flow yield of 4.9%.
So let me turn the presentation back to Jamie for event updates and key message.
Thank you, Rosie. Let's turn to Page 14, which summarizes the awards and recognitions we received during the quarter for your reference. And then finally, on Page 15, let me wrap up our presentation. Here's a key message we'd like for you to take away with.
With our strong market positioning and growing intra-group synergies, we expect our 3 main growth engines, namely 5G, momo and home broadband, to continue firing on all cylinders. Recent by 4G price rationalization will provide additional tailwind to the continued expansion of our EBITDA. With cash flow compression from 5G CapEx behind us, sequentially lower cash CapEx and improving consolidated EBITDA should help strengthening our -- should help strengthen our free cash flow. Looking ahead, Taiwan Mobile will accelerate our strategies to plant ourselves in emerging paradigm shifts, such as metaverse, in order to capture more growth opportunities in the 5G era for our shareholders.
With that, let me open the floor up for Q&A.
[Operator Instructions] Our first question comes from Neale Anderson with HSBC.
I have a couple of questions on the broadband business, please. So you mentioned that momo, there's been a sequential decline relative to the second quarter because that was the peak of COVID-19-related restrictions.
So my question is how sustainable is your 14% boadband growth? Do you expect that to continue? Are there structural factors that underpin that? Or is it also the result of a COVID-19 and homeworking-related strategy? So that's the first question.
And the second one relates to Disney+ and how that might fit with the Pay-TV service where you booked a 5% decline in revenue in the third quarter. So do you think that can be complementary and help reduce that rate of decline? Or is there any risk of cannibalization?
Thank you, Neale. So in terms of broadband, right now, we're observing the momentum to be quite sustainable. And on top of that, we're also into the cycle of our first batch of Double Play customers. Their contracts are entering into a phase where they're up for renewal. And we're also observing many of them choosing to -- choosing higher bandwidth and higher rate plans in order to have a better broadband experience.
So we have essentially 3 growth engines. So number one, we're expanding our MSO partnership on our footprint to be able to serve more customers. And then number two, like you said, people's increasing need for broadband. And number three, our existing customers upgrading their broadband plans. So right now, we're not expecting the growth momentum to slow down anytime soon.
In terms of Disney+, yes, we do have a Pay-TV business, but its market share is relatively smaller. And we are always observing the industry dynamics that is happening in countries that are a few steps ahead of us, for example, the U.S. So sooner or later, the cord cutting will accelerate and you either be disrupted or you be a disruptor. And I think our strategy is to work with services like Disney+ and be the disruptor instead of being disrupted. I hope that answers your question.
[Operator Instructions] And we have a follow-up question from Neale Anderson of HSBC.
Just jumping in again. You mentioned the expansion into Southeast Asia for momo. Are you in a position to give any more to try and quantify that in terms of relative levels of investment? Or if not now, can you give us any guidance on when you will be able to give more details on the size of that investment?
Thank you. I don't think we have anything to share right now. But we are indeed in the process of trying to accelerate that. We will hopefully be able to share more details in the coming quarters.
[Operator Instructions]
If we have no more questions, should we just thank everybody to -- for their participation in this installment of our investor conference call, and we look forward to seeing you guys again at our next conference call.
Thank you.
Thank you for your participation. This concludes the conference. Goodbye.