Taiwan Mobile Co Ltd
TWSE:3045
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Taiwan Mobile Co Ltd
Earnings Call Analysis
Q3-2024 Analysis
Taiwan Mobile Co Ltd
In the third quarter of 2024, Taiwan Mobile reported consolidated revenues of TWD 47.2 billion, showcasing a 9% year-over-year increase. This growth was predominantly driven by the merger with Taiwan Star, which significantly boosted the telecom business. Without the merger's impact, the telecom revenue still showed decent growth, affirming the strength of the underlying business. With synergies from the merger kicking in, the EBITDA reached TWD 10 billion for the third consecutive quarter, marking a substantial 20% year-over-year growth.
The company’s operating income hit an eight-year high, growing by 20% year-over-year, thanks to effective management of operational costs, especially in site rentals due to the consolidation of base stations. Lease payments have returned to pre-merger levels, which speaks to successful cost-saving initiatives. For the first three quarters combined, Taiwan Mobile surpassed its initial EBITDA growth guidance of 11% to 13%, maintaining a stellar growth rate of 20%.
The Mobile business demonstrated remarkable momentum with a revenue increase of 26% year-over-year. This surge was partially attributed to integrating Taiwan Star's user base, but organic growth was also solid at 8%. Additionally, the home broadband segment posted a strong growth rate of 18% in revenue, driven by effective cross-selling strategies that bundled packages with mobile and pay-TV services.
Despite rising financing costs linked to the acquisition of Taiwan Star's debt, Taiwan Mobile showed resilience with a y-o-y growth in cash earnings of 29%, underlining its ability to generate cash flow amid increased operational expenditures. The company’s net debt to EBITDA ratio rose to 2x, reflecting acquisitions and dividend payments, which highlights the firm’s robust financial strategy moving forward.
While management is cautious, they remain optimistic about delivering continued growth as they refine strategies that enhance customer loyalty and ARPU. The management discussed the possibility of future dividend increases, contingent upon earnings and Board approval, suggesting a focus on maximizing shareholder value moving into the next year.
Taiwan Mobile's commitment to environmental sustainability was highlighted by its participation in the Global Enabling Sustainability Initiative. The launch of electric vehicle projects and recognition in various sustainability awards reflects the company's dedication to integrating social responsibility into its business model.
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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 question-and-answer session. Thank you.
Thank you, operator. Good afternoon, everyone. Welcome to Taiwan Mobile's Third Quarter 2024 Results Conference Call.
Before I start our presentation, please do refer to our safe harbor notice on this page.
Now let's take a look at our business overview. Please turn to Page 4 for highlights of the quarter. It's been 3 quarters since we -- since our merger with Taiwan Star tech took place last December, and I'm proud to share that we have completed the consolidation of all 9,000-plus base stations in September, almost 3 months ahead of our initial time line. I'll talk about the benefits of this accelerated completion in more details as we get to the next slide.
But before that, as highlighted here, our Mobile business continued to build on strong momentum with revenue growing at 26% Y-o-Y. While a large part of this growth has been driven by the addition of Taiwan Star users, the organic growth of our existing user base also reached 8% Y-o-Y, driven by our sustainable growth foundation strategies.
On the other hand, our home broadband business reported a robust 18% Y-o-Y revenue growth during the quarter, thanks to upselling of faster speeds and effective cross-selling towards our mobile and Pay-TV customers through offerings such as Double Play or Hao Sùchéng Shuang in mandarin.
In 3Q '24, consolidated EBITDA went up by 20% Y-o-Y, primarily driven by our Mobile business. Excluding the T Star contribution, EBITDA still grew by 4% Y-o-Y, thanks to our Telco+ strategies. On the other hand, consolidated operating income also increased by 20% Y-o-Y reaching an 8-year high on the back of faster-than-expected network integrations.
Now let's take a look at our merger synergies on Page 5. Base station consolidation has led to significant savings in site rentals and related expenses. As you can see here, lease payment, excluding momo has declined steadily and already returned to premerger level by the end of 3Q '24. We did exclude -- we did include T Star's lease payment on a pro forma basis for 4Q '23 for comparison purposes.
As a result, on the right side of the page, you can see accumulated EBITDA and pretax income from T Star turned around in May and September, respectively. At the beginning of the year, we guided a consolidated EBITDA Y-o-Y growth of 11% to 13% for the full year. And we're glad to report that we have delivered a 20% growth in the first 3 quarters, with accumulated consolidated EBITDA reaching TWD 31.7 billion, a new record for the company. This is once again driven by merger synergies that we have realized ahead of schedule and our Telco+Tech strategies.
Now let's take a look -- now let's take a closer look at our Mobile business on the next page. In our core telco business, we have focused on building a sustainable growth foundation through long-term organic ARPU growth and enhanced customer loyalty. Maximizing each 5G conversion, supported by the new iPhone launch along with capturing every roaming opportunity, has been key drivers for our smartphone ARPU momentum. As a result, monthly fees for contract renewals increased by 49% for 4G to 5G upgrades and by 8% overall during the quarter.
Sequentially, ARPU and mobile service revenue continued to rise, as the team effectively executed our SGF strategies. Revenue momentum from our Telco+Tech businesses, including Game Publishing, DCB, [indiscernible] also contributed significantly.
Postpaid monthly churn rate remained low at only 0.8%, reflecting effective promotion of our unique bundles, including Double Play, momobile and OP Life. With 5G penetration in our smartphone postpaid user base currently standing at 39%, there is a long runway ahead for further ARPU and mobile service revenue upside.
Next, let's turn to Page 7 for updates on our Home Broadband business. Our Home Broadband business remained strong -- maintained its strong momentum, achieving double-digit Y-o-Y revenue growth, driven by a 3% increase in subscribers and a 14% ARPU improvement. This growth reflects sustained demand for faster connectivity and the popularity of our bundled offerings, which include cable TV, broadband, mobile and OTT services such as myVideo, Disney+, HBO GO, YouTube Premium and Max, that was just launched today.
Notably, broadband subscribers with speeds of 300 megabits or higher, including Double Play bundled users, rose by 42% Y-o-Y this quarter. The Y-o-Y decline in CATV's revenue was mainly due to the content reduction following Disney's exit from the cable TV channel market in Taiwan earlier this year. On the other hand, overall EBITDA showed solid growth Y-o-Y, supported by the strength of our broadband business.
Next, let's take a look at our e-commerce business on Page 8. In 3Q '24, momo's revenue growth remained subdued given the softer demand environment as consumers shifted their spending towards travel and leisure activities, especially during the summer months. However, active users increased by 10% Y-o-Y, the highest growth rate in 6 quarters, indicating strong customer engagement.
A new subscription-based membership program called [ mo+ ], launched in September, is expected to further enhance engagement and loyalty. Gross margin remained stable in the quarter, supported by operational efficiencies, while Y-o-Y decline in EBITDA margin was primarily due to investments in new businesses and associated marketing expenses.
Momo is actively scaling its 3P advertising and live commerce businesses. On the logistics side, its southern distribution center is now operational and is well positioned to support business growth during the 4Q high season.
Now let me pass the virtual mic to our CFO, George Chang, for financial overview.
Good afternoon, and let's start with the performance by business. In the third quarter of 2024, consolidated revenues reached TWD 47.2 billion. With the help of the T Star merger, Telecom business contributed majority of the Y-o-Y consolidated revenue growth.
Decent Telecom revenue growth was even if we strip out the merger's impact. As for profitability, consolidated EBITDA exceeded TWD 10 billion for 3 quarters in a row. The Y-o-Y increase of TWD 1.8 billion was mainly driven by Telecom, while Cable TV [Audio Gap] delivered Y-o-Y growth. Speaking of net income contribution, only 7% was from Mobile in this quarter.
And let's go to results summary. Consolidated revenue and EBITDA recorded 9% and 20% Y-o-Y growth, respectively, mainly driven by T Star merger synergies and 5G service adoption. Operating income hit an 8-year high, with growth accelerating to 20% Y-o-Y, supported by rental expense savings from base station consolidation.
Although financing costs increased due to inheriting and refinancing T Star's debt nonoperating income was boosted by one-off gains from overseas investments. Even excluding this onetime gain in July, EPS will still rise 4% year-to-date despite the dilution from the new share issuance to T Star shareholders.
Let's move on to balance sheet. Receivables and contract sales growth Y-o-Y, driven by the growth in postpaid subscribers, including T Star users and monthly fee contributions from our mobile bundle plans. The Q-o-Q decline in cash and cash equivalent was primarily due to momo's dividend payout this quarter.
Over the past 12 months, our long-term investment portfolio has grown with notable additions such as Systex, Fubon Green Power and KKCompany. Right-of-use assets saw another Q-o-Q decline with the benefit from the mobile network consolidation. Gross debt increased Y-o-Y as we inherited T Star's borrowing, while the Q-o-Q rise had to do with our dividend payment and the purchase of Systex's shares in 3Q '24.
During the quarter, we issued TWD 2 billion straight corporate bond with a 5-year tenure and an annual coupon rate of 1.89%. The Board also approved TWD 10 billion convertible bond issuance aiming to -- aimed at refinancing the TWD 14 billion corporate bond maturing in 2025. Net debt to EBITDA rose to 2x in 3Q '24 owing to the aforementioned investments.
Lastly, let's look at the cash flow on the next slide. In 3Q '24, cash earnings rose by 29% Y-o-Y on the back of solid growth in Telecom EBITDA and higher investment gains. The increase in investing cash outflow year-to-date reflected [indiscernible] associated with network's consolidation CapEx and our strategic investment in Systex, a leading listed ICT company in Taiwan. We acquired an 11.86% stake for TWD 4 billion and have begun recognizing investment income under [indiscernible] from mid-September.
Year-to-date financing cash outflow increased due to increases in dividend paid by Taiwan Mobile and momo. With higher cash OpEx, 3Q '24 free cash flow came in at TWD 3.42 billion. That said for the first 3 quarters of the year, free cash flow reached TWD 13.86 billion, representing a 21% Y-o-Y increase and 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, George. Just want to clarify when George says -- was talking about the 3Q '24 free cash flow, I think he was meant to refer to higher cash CapEx instead of OpEx.
All right. On the 15th page, I am pleased to share some of our ESG achievements from this quarter. Taiwan Mobile has joined the Global Enabling Sustainability Initiative, or GESI, as a corporate member and is actively participating in a digital with purpose movement. In July, our electric vehicle project, My Charge, received the Smart Cities Award at the DWP Global Summit, showcasing our innovative digital solutions to sustainability challenges.
Moreover, we are the first telecom company in Taiwan to push -- to publish a Task Force on Natural-Related Financial Disclosures, or TNFD, Report. We also made the top 10 list for the 17th time in the large enterprise category of the Commonwealth Excellence Award, the best among Taiwan telcos.
Last but not least, our IR team has been recognized by IR Magazine as a nominee for best in communications sector in the Greater China region.
Finally, to wrap our presentation today, please turn to Page 16. Here's the key message we would like for you to take away with.
Key message. Taiwan Mobile has executed effectively and delivered outsized merger synergies ahead of the schedule. Looking ahead, we aim to strengthen our sustainable growth foundation in the core telco business, focusing on long-term organic ARPU lift and churn reduction. Building on this foundation, we are enhancing our Telco+ offerings while working with Systex, CloudMile, AppWorks and other strategic partners to bring smart solutions to large enterprises, SMEs and government clients to accelerate our enterprise business in the AI era.
Finally, by uniting Telco+Tech, we are deploying our Gift-as-a-Service offerings to empower momo, Game Publishing, OP Pay Later and other tech ventures, delivering greater competitiveness and stronger results.
With that, let's open the floor for questions. [Operator Instructions] We will begin by addressing the telephone line questions before we move on to the web. So operator, please go ahead.
[Operator Instructions]
So operator, if we don't have any questions from the telephone line, we do have a question on the online chatbox we can address first.
Yes, please. Mr. Lin, there is no question from telephone line at the moment.
Okay. So our question from the online chatbox is from Tom Tang of Morgan Stanley. His question is: Congrats on the results. As we are well ahead of guidance, how should we think about merger synergies from 4Q '24 and onwards?
So Tom, thanks for your question. I think the way we can think about synergies from 4Q '24 onwards is if you compare the results Y-o-Y, we're still set to extract a lot of growth in that regard as the next 3 quarters we will be still comparing with the lower base. And from there -- like we said on the key message: From there, we will focus on delivering growth through our 3 strategies. So on the core telco side, we'll continue to build a sustainable growth foundation.
So as you can see from our reporting. We are able to deliver high single -- at least high single-digit organic growth through upselling and cross-selling our core telco customer base. On top of that, our Telco+ strategy would allow us to come to the market with smart solutions to be sold to enterprise segment to grow our business from that angle.
And finally, we're also going to invest into our Telco+Tech businesses to generate further growth from these businesses including businesses like momo, [ DCB ], Game Publishing and the likes. So I hope that answers your question.
So operator, do we have further questions from the landline?
Not at the moment, Mr. Lin. [Operator Instructions]. Mr. Lin, there are no further question at this point in time.
[Operator Instructions].
All right. If there's no further questions on the landline, we do have another one from the chatbox. So this is from Guest, and he or she is asking is the dividend expected to increase next year?
George, do you want to talk about it?
Well, it's a little bit early to talk about what dividend we are going to propose to the Board for next year. But again, year-to-date, we talk about the Y-o-Y increase in EPS as well as in earnings or even despite the fact that we issue more shares, probably 7% to 8% share dilution. So based on that, it's probably fair to assume that we are going to deliver a fairly decent EPS this year. So would that translate to higher EPS? All I can say is it's possible, but we cannot guarantee at the moment. Again, everything is subject to Board's decision next year.
Thank you, George. But I think we can say that our -- the management will work very hard to propose and seek for the most benefits for our shareholders.
All right. Operator, do we have questions from the telephone line?
Not at the moment, Mr. Lin. [Operator Instructions].
All right, if we don't have further questions, I guess, that concludes our quarterly results call, and thanks for dialing in. I wish you a very happy holiday season, and we look forward to seeing you again at our next quarterly call.
Thank you. Thank you, Mr. Lin. Thank you for your participation. This concludes the conference. You may now disconnect. Goodbye.