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 afternoon, everyone. Welcome to today's conference call. And our Chairperson today is Mr. Jamie Lin, and Mr. Lin, please begin the call, and I'll be standby for the question-answer session.
Thank you, operator. Hey, good afternoon, everyone. Welcome to Taiwan Mobile's Third Quarter 2022 Earnings Conference Call.
Before I start our presentation, let's go over our disclaimer 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, further events or otherwise. And Taiwan Mobile Company Ltd or 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 that's out of the way, let me start with business overview. Please turn to Page 4 for highlights of the quarter. So in the third quarter, we continue to see solid momentum across our 3 main growth engine, namely 5G, e-commerce and home broadband. Our mobile service revenue grew Y-o-Y for the sixth consecutive quarter, reaching 2.5%, though driven by the Y-o-Y increase in smartphone postpaid ARPU amid the new iPhone launch and continued 5G conversion.
E-commerce, on the other hand, with revenue rose by 14% Y-o-Y, outperforming our peers. Finally, broadband revenue reached recorded a 9% Y-o-Y growth, thanks to steady demand for faster home connectivity.
As a result, consolidated revenue went up by 8% Y-o-Y in the third quarter. This offset the impact from higher subscriber acquisition costs due to the earlier launch of the new iPhone versus last year and led to a flat consolidated EBITDA for the quarter. For the first 3 quarters of 2022, consolidated EBITDA grew by 3% Y-o-Y versus our full year guidance of 1% to 3%.
Next, let's turn to Page 5 for a closer look at our mobile business. In the third quarter, our postpaid subscriber net adds hit 51,000 while 5G penetration in our smartphone postpaid user base reached 25%. Monthly fee uplift from the renewals remained steady at about 25%. Our Unique Bundles now account for about 15% of our smartphone postpaid subscriber base and remain instrumental to ARPU improvement. The momobile bundle or [Foreign Language] in Mandarin, continue to gain momentum and its users contribution to Momo's e-commerce revenue grew further to 6.7% and in September, up from 4.9% a quarter ago, adding resilience to Momo's top line.
Our Double Play bundle or [Foreign Language] in Mandarin continue to add subscribers, especially in the 999 or above rate plan section, providing healthy tailwind to ARPU. Disney+ surged Q-o-Q in the third quarter, boding well for customer stickiness.
In September, we launched a sub-brand in consumer segment called OP Life or [Foreign Language] in Mandarin along with its first product line, OP Home Cinematic Suite or [Foreign Language] in Mandarin. It is a one-stop shop that allows customers to effortlessly enjoy state-of-the-art home theater experiences through seamlessly integrated bundles of TVs, routers, speakers and setup boxes, along with Taiwan Mobile's unique services, such as myVideo, GeForce NOW and Disney+ at a fraction of their total listed prices. We are very pleased to share that the initiatives gained solid initial traction amongst premium users as 60% of its sign-ups were worth TWD 1,399 or higher rate plan, much greater than the average ratio.
On the other hand, thanks to a wide variety of unique and appealing rate plans and add-on services as well as our strategy to focus on 48 months contracts since 5G launch. Postpaid monthly churn rate stayed at a low level of 0.85% in the third quarter.
Separately, our game publishing business had another strong quarter. with its revenue rising 64% year-over-year. Roaming business also recovered nicely, albeit offer no base. On the enterprise side, data and access, cloud and IoT services all delivered healthy growth in the quarter.
Now let's turn to Page 6 for updates on our e-commerce business. As the pandemic eases in Taiwan, the retail industry is observing a short-term Y-o-Y demand spike for the breakout modern stores. Despite this, momo once again outperformed its e-commerce peers and delivered a 14% revenue increase in the third quarter, implying further market share gains. As for profitability, Momo's EBITDA fell Y-o-Y this quarter. In addition to higher marketing expenses, Momo is also [indiscernible] logistics efficiency. That said, momo's pricing power remains strong with the B2C take rate standing at 13.15% in 3Q '22, which is 38 bps higher than the FY '21 average of 12.77%.
Although there are short-term headwinds, we believe Momo secular growth story is still very much intact. Given the relatively low e-commerce penetration in Taiwan, our continuous investment in logistics should ensure that our leadership position will be further solidified and the popularity of Momo card and momobile bundles will only then to Momo's [indiscernible].
In the third quarter, about 25% of Momo's deliveries were down by its own in-house suite. Moreover, the Southern and Central distribution centers are expected to come online in the next few years. These investments will help the expand the coverage area of our rapid delivery services and pave the way for mid- to long-term growth.
Now let's take a look at our broadband business on the next page in broadband service penetration. Steady demand for faster home broadband as well as the success of our double play bundles, led to a sequential increase in broadband subs and ARPU. The ratio of broadband subscribers, including double play package taker, signed up for speed of 500 megabits or higher rose by 38% Y-o-Y. As a result, broadband revenue grew by 9% year-over-year in the quarter.
Now let me pass the virtual mic over to our new CFO, George Chang, for a financial overview.
Well, thank you, Jamie. Hi, everyone. Good afternoon. Let's start with the performance by business. In the third quarter of 2022, consolidated revenue rose by 8% Y-o-Y as our 3 growth engines all delivered positive growth. Mobile service revenue grew Y-o-Y for 6 quarters in a row, thanks for ARPU improvement amidst continuous 5G conversion and benign 4G pricing. In fact, our smartphone postpaid ARPU has [indiscernible] seen 16 consecutive months, that's 1/6 of Y-o-Y increase.
In terms of profitability, telecom EBITDA came in flat Y-o-Y in the third quarter, mainly due to higher subsidies associated with an early release of new iPhone versus last year. Momo's profitable performance in the third quarter reflects the efforts to reach the optimal level of logistics efficiency, along with the increase in marketing expenses. Cable TV EBITDA remained resilient as broadband momentum offset pay TV weakness.
Let's go to results summary. With the healthy momentum from mobile, e-commerce and home broadband, consolidated revenue rose by 8% Y-o-Y in the third quarter. This offset the aforementioned subsidy for the early iPhone released and resulting in a flat consolidated EBITDA Y-o-Y. The Y-o-Y change in nonoperating expenses was mainly driven by gains from Momo's overseas investment disposal and FX revaluation.
For the first 3 quarters of the year, consolidated EBITDA increased by 3.45% Y-o-Y, that's compared to our full year guidance of 1% to 3% growth, thanks to well-managed subscriber acquisition costs and income from 5G government subsidies in addition to revenue growth.
Excluding the onetime tax credit we received in the first quarter of 2021, a year-to-date net profit or net income would have increased by 5% Y-o-Y.
Let's look at the balance sheet. On the asset side, receivables grew Y-o-Y in the third quarter owing to Momo's business expansion, together with higher monthly fee from our unique bundles and further 5G conversion. Long-term investment client Y-o-Y on the back of ventures into cloud services, food delivery platforms, et cetera. Write-off used assets rose Y-o-Y along with Momo's warehouse expansion, noncurrent contract assets jump Q-o-Q and Y-o-Y due to more 48 months or longer.
Our strategy of increasing the proportion of longer contracts should cushion the impact from potential pricing change down the road.
As for liabilities, Payables saw a Y-o-Y uptick driven by Momo's business [Audio Gap] iPhones and Google phones. Gross debt went up Q-o-Q on the count of bank borrowing to fund our dividend payment in the quarter. The Y-o-Y rise in other noncurrent liabilities reflect the cash we received from 5G government subsidies.
Benefiting from the decent free cash flow generation, our net debt [Audio Gap]
5G government subsidies were classified under operating cash flow in 3Q '21, but were moved under investing cash flow from 4Q '21 onwards. And therefore, 3Q '22 operating cash flow would have increased by 15%, on a like-to-like basis, thanks to telecom business strength.
Cash CapEx strength as 5G investment had peaked, resulting in lower investing cash outflow. On the financing front, cash outflow grew Y-o-Y due to Momo's higher cash dividend and lower cash inflow from borrowings again, given declining CapEx. Year-to-date, cash CapEx fell by 16% Y-o-Y and only reached 51% of our full year guidance. This is in line with our expectations as payments for our network consolidation with T-Star, and part of Momo's new distribution centers will not be made this year. Free cash flow calculated on the pre-IFRS 16 basis was stable at TWD 10.35 billion for the first 3 quarters of the year, translating into an annualized free cash flow yield of 5.1%.
With that, let me turn the presentation back to Jamie for event updates and key message.
Thank you, George. So on Page 14, you can see there's a summary of the awards and recognitions that we received during the quarter for your reference. And then lastly, to wrap up the presentation, here's a key message we would like for you to take away with.
So seeing dependable increase in 5G penetration, solid traction of our unique bundles and growing group synergies, we will keep our full year EBITDA growth guidance unchanged. Looking ahead, we will maintain a disciplined approach while we broaden our high-value customer base and maintain our growth momentum.
All right. With that, I would like to open the floor for questions.
[Operator Instructions] Our first question is coming from Neale Anderson with HSBC.
Two questions, please. First relates to the operating cost increase in the quarter. So you said that was mostly due to the change in the iPhone timing release. I'd like to know if you're seeing any other inflationary cost pressures around maybe labor or utility costs, whether this increase is really the majority of that relates to the change in timing of the iPhone.
The second question relates to the pending merger approval and the spectrum discussion. So could you give us the latest update? I appreciate you may not be able comment in full, but at least the timing of what you expect in terms of next steps should be very helpful in your views if you can.
Thank you, Neale. So I think I'll take your second question first, and then we'll hand it over for George to take your first question. So in terms of TSC, pending TSC merger is still pending [indiscernible] regulators approvals, namely NCC and FTC [indiscernible] feature this, say publicly that this hope we can have -- the agency can have a decision for us within 3 months. So we're optimistic about so that -- things will move a little bit faster from this point on.
In terms of your first question, George, can you talk about it?
Sure, Neale. To answer your question, year-to-date, we haven't seen that much of an inflation impact. In terms of -- you mentioned about utility and labor, please bear in mind that the major cost items for our business, our network costs and subscriber acquisition costs, so those 2 have probably less to do with inflation.
On the handset subsidies and channel commission, for example, these are more I mean I will probably say on a fixed basis. Other items such as manpower electricity, they are not that significant. So again, year-to-date, we haven't seen that much of an impact to our business.
Got it. If I could just come back to you on the query regarding the merger. So the guidance from the regulators that they will consider that the merger proposal at the same time as a spectrum consideration. Is that right? There'll be a decision on both. So possible having to divest some of the spectrum that would be announced at the same time? Is that your understanding?
Well, they will make a decision based on -- they will make a decision b bigger in terms of, number one: a green light or merger or not. And number two, what are general responsibilities though give us if they were to greenlight our merger and the handling of spectrum will be one of the sort of additional items that they will give to us. And upon which, of course, we can still decide if the deal is fair or not.
[Operator Instructions] Our next question is come from Sara Wang with UBS.
So I have 2 questions. So first question is regarding third quarter, say, service revenue or EBITDA growth seems to be lower than the other 2 peers. Many ask if there is any specific reason.
And then my second question is that regarding the approval from NCC or FTC, do you think there is any like is hurdle to get approval from them besides, say, the weather rolls of spectrum or keeping lower-end pricing plans? Do you see any risk of potential further delay of the like 3-month time line mentioned by NCC?
Thanks, Sara. So in terms of third quarter service revenue growth, I'm not sure how it's calculated for the other players. So I'm not sure if we're comparing apples to apples. But in terms of EBITDA, based on the number we're getting from our handset partners, we're selling much more handset bundles than our peers this quarter, resulting in a sort of a short-term headwind for our EBITDA.
And then for a particular peer, we know that they're booking their government subsidy for 5G base station construction and also their collaboration with other telco into the interest item that add to EBITDA. And because the government is essentially giving out 5G base station subsea in correlation to your 3.5-gigahertz spectrum bidding cost. So we're getting a bit less of that from the government.
And then on top of that, we're also not engaged in spectrum and network share relationship with the peers. So we don't have those 2 items that would add to our EBITDA, even though I think those items should be contraction items, could be subtraction items to your DNA, but they're booking them as additional items for the EBITDA. So yes, to provide a bit more color on that.
In terms of additional hurdles to get approval, I think the regulators would also be sort of cautious in terms of how we plan to take care of Taiwan mobile employees, which, like we communicated before, we are sort of, we can keep 93% -- 97% of their employees and all of the manager down staff members. So we don't foresee that going to become a big issue for the regulators. But in terms of things that the regulators look at beside spectrum and more cost-effective, more economic great plan, they'll also look at how you take care of the employees. George, do you have anything to add?
Yes. Regarding Sara's first question, looking at the monthly data from 1 of our competitors, I think our monthly -- I think our mobile service revenue growth was actually quite similar. So -- but in terms of EBITDA, yes, I admit that. On a consolidated basis, our EBITDA was a little bit impacted by momo's business this quarter. I think we mentioned that upfront that for the third quarter, momo's EBITDA actually declined a little bit on a year-over-year basis due to higher cost on logistics side.
[Operator Instructions]
By the way, for all the investors on the phone or online, starting from this quarter, we also take questions online. So feel free to write to us on chatbox. So operator, maybe we give that a couple more minutes.
Sure, no problem. [Operator Instructions]
There's actually a question online. The question is, what are the key hurdles for NCC's position of the proposed merger? So Jamie, I don't know if you want to just reiterate that a little bit.
Sure. So similar to Sara's second question. So I think the key hurdles are #1, spectrum; number two, taking care of the more underprivileged TSG existing customers; and then number three, taking care of their existing employees. I think the Taiwan Mobile team did a great job during the public hearing addressing all of those issues. And I think NCC is considering our proposals. So at this point, I don't think -- these are the key issues NCC look at, but I don't assess then the huge hurdles to this deal.
And for our overseas friends, maybe you have already seen the press that the NCC officials have publicly said that they will speed up on the decision process within the next few months.
Yes. So OUR NCC chair did communicate publicly that he promised that the law makers that he will lead the commission to a decision within 3 months.
Jamie, there's also another question online. It says our 5G penetration is already 25%. How do we plan to uplift the other 75% for remaining 4G customers?
That's a good answer. So right now, I think -- should the #1 application is still phone. So whenever people buy the 5G phone, the majority of them would sign up for a 5G service. So I think right now, the bread and butter for us is working with the phone companies to bring appealing 5G phones to the marketplace so that it would entice users to sign up.
And then on top of that, we also have all the different products that we continue to market to customers to entice them to upgrade to 5G. So our momo mobile bundles are double play bundles, Disney+ bundles and then our newest product line, our OP Finance Cinematic theater bundles. So we'll continue to come to the market with creative bundles where the remaining customer base that are not highly interested in swapping to a 5G phone, but they're interested in other 5G offerings. I hope that answers your question.
And if I may add on that, Jamie, at the beginning mentioned that these -- the so-called unique bundles already account for 15%, 1/5, our customer base. That's not 15% of our bundles. That's actually 15% of our customer base. So if you look at on a bundled basis, that ratio would be even higher. And I think the good thing about this unique bundles, few things. One, that definitely help us differentiate from versus other competitors; and two, usually create some group synergies, such as momobile.
And also don't forget that because lease bundles are usually unique and we are proprietary. So usually, that means implies higher profitability as well.
Thank you, George. So operator, if we don't have any further questions, should we call -- sort of wrap up this installment of our conference call?
Sorry, management, we don't have questions at this point of time.
Okay. That's great then. Thank you very much for joining this session, and we wish everybody well and then we'll see you guys next time.
Thank you for your participation, and this concludes the conference.