Far EasTone Telecommunications Co Ltd
TWSE:4904
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Far EasTone Telecommunications Co Ltd
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Welcome, everyone, to Far EasTone's 2021 Second Quarter Earnings Conference Call. [Operator Instructions] And for your information, the webcast replay will be available within an hour after the conference has finished. Please visit www.fareastone.com.tw under the Investor Relations section. And now I would like to introduce Mr. Gary Lai, the IR Officer. And Gary, please begin.
Good afternoon, everyone. Thank you very much to attend Far EasTone Group's Second Quarter 2021 Results Conference Call. Our President Chee and CFO Sharon, will join the call with us today. Before she's brief presentation, please pay attention to our safe harbor statement in the first page of the presentation. Then we have Chee Ching. Thank you.
Thank you, Gary. Good afternoon, ladies and gentlemen. So I will report to you our first half and the second quarter, in particular, our performance.
So if you would turn to Page 3, we start with Taiwan's mobile market status. And as you can see on the left-hand side, the chart shows that Taiwan's market -- Taiwan's mobile market penetration has already reached more than 125%. This is a very saturated market.
However, the good news is, I think thanks to 5G, the mobile service revenue, the declining path has finally come to an end. So in the second quarter, the combined -- for the big 3 combined, mobile service revenue has turned around and then Y-o-Y becomes positive. However, FET has taken the lead and we turned positive in March.
All right. And for our financial performance, for the second quarter, our total revenue reached TWD 19.4 billion or TWD 19.5 billion, and then it is 1.5% better than our Board target, and it is actually 4.4% better -- 4.4% better than a year ago. And also our EBITDA is TWD 6.9 billion and almost TWD 7 billion, and then it is 5% over our target and 2% year-over-year growth.
And for the net income. Now remember, for the first half last year, right, we had -- we did not have the 5G amortization yet. And then, of course, we started amortization in August. So for the first half, the net income and the EPS, if we compare Y-o-Y, it wouldn't be very good. However, our achieve rate for target -- for our Board target is 20% for the second quarter. So it was a very good quarter. And -- but then year-over-year, with the different base and then it is almost 12% less.
And then for the first half, the result, we have reached TWD 40.3 billion for revenue and TWD 13.8 billion for EBITDA, and our net income is TWD 3.8 billion. And then if you look at achieve rate in terms of our target, it's 15% better, and so is the case with our EPS.
And then if we look at our debt or free cash flow situation, we are improving our net debt and also net debt-to-EBITDA ratio. So our net debt, from the first quarter, it was at a TWD 63.8 billion or so level, and has come down to TWD 61.5 billion. And the net debt ratio also has improved from TWD 2.33 billion to TWD 2.24 billion. And our free cash flow has increased from TWD 3.8 billion to TWD 6.6 billion at the end of the second quarter.
And for the cash-based CapEx, for the first quarter, we only spent about TWD 2.2 billion, and then -- but then in the second quarter, we sped up a little bit -- speed up a little bit, and it's now in -- it's in TWD 53 billion -- TWD 55.3 billion. And our budget for this year is actually at about TWD 14.9 billion. And then -- so we do have more cash OpEx -- cash CapEx expected for the second half. And then so we are in line with our guidance.
Now in terms of FET's mobile service growth, this is -- as I pointed out, in March, we already turned positive year-over-year. And then if you just look at the month-over-month from this chart on the left, you can see, in the second quarter -- after second quarter, that's when we launched 5G commercially, so you can see, for the amount of the mobile service revenue, every quarter, it has continued to grow. And finally, in March, we have already turned positive. So for the entire second quarter, it is positive by 1.7% year-over-year.
And then this 5G also helped our postpaid and blended ARPU. So for FET, our blended ARPU and postpaid ARPU resumed growth in March and May respectively. And the percentage is not a lot, but then it is significant in terms of we have had this declining ARPU for so many quarters now and then that has finally been turned around.
And then in terms of our total revenue, that is including both telecom and our new economy. So it is also very encouraging for 3 quarters in a row that our Y-o-Y growth continues. So when it comes to the second quarter, we have TWD 19.5 billion of revenue total. And then on the right-hand side, for the EBITDA, we also have -- it has rebounded year-over-year. It's turned positive and mainly attributed to the margin improvement and our cost optimization.
For the revenue, even though 5G is helping with the uplift in all that, but then telecom basically, it still doesn't -- it's a saturated market. So it doesn't grow as fast. So a big part of the revenue growth was driven by better handset sales and also the ICT revenue that has been our growing engine.
Okay. So the next is business highlights. In terms of our number of postpaid subscribers, even though this is a saturated market, but then we have been increasing the number of postpaid customers for 11 quarters in a row now. And then it is still the case for the second quarter this year, and the Y-o-Y is 1.3% better. And in terms of the churn, the market has been colder, granted, and we also continue to work on our churn. So it continues to hit our record low. It is now at 1%, but then we are continuing to improve it with more data analytics and customer insights.
In terms of 5G, so, so far, we have already deployed more than 7,500 5G stations out there, and we already covered 90% of the 6 metropolitan areas. And then for the nationwide, it's already above 80%. So we are targeting to deploy 9,000 by the end of the year, if not sooner. And also, the coverage for the whole nation or whole island will be more than 90% as well.
And we are also approaching 900,000 5G subscribers, and we're still targeting to reach 1 million by the end of August. And also for those that sign up for 5G and then, 90% -- more than 90% of them sign up for the high rate plan, that is TWD 999 a month or above, that is like TWD 13.99. So -- and then, more than 20% of a monthly free uplift is contributed by the 5G renewal.
And then our 5G had -- it didn't take us long to reach the world-class 5G performance. So we have had our #1 for several quarters in a row. And recently, one of the third party has certified Chunghwa, our peer, to be the #1, and we congratulate them, and -- because we have been expecting them to catch up eventually, and we are glad they caught up. And so now we can -- we are really improving together.
And I think that's good competition, and that is good for the consumers. And then -- so they know, other than Chunghwa being always the #1 or incumbent, they do have a choice and alternative that is Far EasTone to choose from. We are glad we are both in the top 2 or the top performance, world-class performance together.
All right. And then on the -- for our new economy, just a little bit of history. So when we started this journey back in 2016, the new economy accounted for only 5% of our total revenue. But today, the first half in this year, we actually had 16% as our target. But then for the first half, we already reached the target. So in the first half, the new economy revenue already accounted for 16% of our total revenue. So we are happy to see the growth that -- from many areas of the new economy.
On the right-hand side, we gave some examples. For example, like our ICT business [indiscernible] ICT business. Even though because of the pandemic last year, it has a long-haul effect, so for the first half in terms of revenue realization, it's only 6% growth, but it's still -- it's growth. And then if you look at the contract that we were able to win in the first quarter, and that contract value is almost 50% growth than the year before.
And for the media services, those are like the text, the SMS, which is a traditional service, granted, but then because of all the onetime password, and then because of the pandemic, a lot of transactions are completed online. So this becomes a very popular way of security confirmation and all that. And on top of it, we also have this data analytics service that we offer to companies for more targeted marketing. So this is also growing and contributing to the media service growth here for the 30% year-over-year.
And another thing that is definitely warrants mentioning is our mobile commerce. Although it is very small still, and then last year we had TWD 2.3 billion -- TWD 2.1 billion of revenue from this small friDay shopping, but then our -- its growth for the first half is very impressive. In May, it has reached 73.6% growth. In June, it's like a 56.6%, but then for the first half as a whole, that we see 37% of growth. And then this will continue to grow as we have this mobile circle that we launched, and it help -- will bring more traffic, and also with our personalized recommendation engine that we will be able to boost -- help boost our private shopping sales as well.
And then also, we continue to be the #1 direct carrier billing business. And then it is also showing a growth of 13% year-over-year.
And then in the ICT area, we do see the rising demand, especially it's a smart ICT demand. And a lot of this is really boosted by the government's attention, and then also, government itself is going through digital transformation. So we see smart government type of initiatives. And then also the Smart Health. This is the first application we have been advocating that is a telemedicine, because we see the real need, and then that 5G is able to fulfill for the society.
And especially it benefits those rural areas residents from lack of -- or insufficient medical resources. And this -- with the Ministry of Health and Welfare support, this service that we launched for one province that's Taitung -- well, one county actually -- one county, Taitung County, is now going to be prevalent to all the rural areas in Taiwan. So this is also an opportunity for us since we are the first to launch this service. And the model and then the platform become the standard for the Ministry of Health and Welfare.
And then, also we have provided this national health insurance card. That is like another form of ID for Taiwan people here. And then we also provided a mobile version of it as a POC for the Ministry of Health and Welfare. And the use of it will support more use of the 5G telemedicine service. So it will complete this service, because right now we have the 5G telemedicine service, and the patient is in the far end. But then for the doctors in the hospital here, you cannot have the physical card to scan or to process the payment. So with the mobile card, then this will be just resolved. So each piece to the puzzle is being put together. And then Far EasTone is definitely defining that solution and is delivering that solution.
In the middle column, we talked about various projects that are funded by the government. And then I have to mention, in the past, Chunghwa being the incumbent -- so it is very hard for us to compete in the government section or segment. But then I have to say my team has been really doing very well. We worked very hard, and I think we have earned our credibility, and so people start seeing that, and we actually start getting a lot more -- winning a lot more contracts with the government, which is now encouraging, and then we definitely appreciate that, and then we welcome more opportunities in this area.
So this has also helped fuel our growth in the ICT area. So various government agency, they are going through the digital transformation. And we provided not only the IT kind of support from infrastructure to build the data warehouse, data platform or to provide the data analytics for the government. And also we have a subsidiary that is focused on cybersecurity. So this is combined with our software capability that Far EasTone has. So we are into the cloud and cybersecurity applications as well.
And then recently, there is air condition in every classroom initiative. The government is -- has already passed the budget for it. And then among all these counties that have this -- have these projects already formulated, we actually won more than 50% of it. This is big win for us, and then we are using our homegrown solution energy management system. And then this is software-based solution. So this is a good win for us. And then also it will contribute to about TWD 1 billion or so revenue once it's all completed in the second half of the year.
And the 5G private network, since we have really world-class performance 5G, and then so the 5G private network is another area of our focus, one of the verticals that will, in particular, require that private network is in the smart manufacturing area. So we -- our collaboration with one of the biggest, Delta Electronics, so that is the first 5G private network smart factory that we deployed or launched early next year -- last year, I'm sorry, early last year.
And then because of the pandemic, so certainly, a lot of companies were more tight or more cautious in terms of their capital spending. But we do see from this particular example that the good return for this kind of investment to upgrade your factory with 5G kind of private network, the communication network, and with smart -- with AI. And then this productivity increase from the factory is well -- is going to well justify the investment.
And also, we have other different verticals or in the southern areas that -- where they need private networks that we can design for them as we have very good network solutions and also best performance 5G that we can provide. So this is one area we continue to grow. And with the pandemic almost behind us, then we see the -- even during the pandemic, we actually were asked for some emergency help and support to upgrade some of the factories with the 5G network. So that actually gave us some business opportunities, business deals as well.
All right. And okay, then you come to the -- some of the major awards that we received in the second quarter. And the first one is from the institutional investor. And some of you probably have voted for Far EasTone, for us, and we appreciate that. Certainly, it's a great honor, and we'll continue to do better. Thank you.
And we also have some other awards in ESG areas such as our carbon disclosure project. And now we are one of the CDP supplier engagement leader that is rated A. And our company is again ranked top 5% corporate governance companies. That's 7 years in a row. And then we have other innovation-related awards as well just for your information.
And then we -- even during pandemic, we support our community, and that just didn't stop. So earlier I mentioned about our telemedicine service. That was for the rural areas. As always, that is what the government has planned. But then as the pandemic hit Taiwan in May, so we saw what other -- the rest of the globe saw last year, right, people do not want to go to the hospital. And then that was quite sudden in May. So we worked with Far EasTone hospital and then make this telemedicine available on the mobile as an application.
So for patients that they don't want to go to the hospital for non-COVID-19 related issues, that they can actually use our platform, this communication platform to consult with the doctors. And then so this was deployed. And then shortly after that, we already have thousands of patients benefit from that. And then we are working with 5 other hospitals at the same time to deploy the similar solution.
And then so I'm sure this will become more prevalent as people start seeing the benefits of it. It's not just for rural areas, even for urban areas. People don't have to spend that much time in the hospital waiting if we have a better communication system over a good 5G network, over a good 5G phone, and then they can be seen by the doctors over this mobile communication.
And also, as Taiwan government has finally approved to have more testing vehicles or stations to be set up for vaccination or testing, and then there was a great need. And then so we were setting up the 5G boosters or -- just to make sure that their communication needs can be better served. And also, because of the pandemic, a lot of people started working from home. So the network traffic definitely changed. And a lot of people cannot work from home and they stay home and like the -- for students, they will have to do this online learning. So all that contribute to the 30% year-over-year growth in terms of our network usage. So that's a lot of the increase in a very short of time.
So we do see more complaints coming from the users over the -- from the consumers. So we have been deploying additional 4G network capacity for this relief. And then now it's already getting better as more people now start going back to work. And then life resumes a little bit more normal now.
We also provide cloud service for the COVID-19 vaccination registration. This is a big thing, right, because everybody wants to -- or almost everybody wants to get vaccinated. This registration and reservation system is hosted on the cloud service that's provided by Far EasTone, and also for the COVID-19 contact tracing. And this is using the geofencing and geolocation, and then this has a lot to do with the capability for geofencing and geolocating, and FET is best at that among all the telcos, I can say that, and then to support this government solutions.
And also, we have donated SIM cards, tablets and the wireless routers for rural students or for those that are in need, in order for them to be able to do the -- more learning. And that is just some small things that we do as kind of part of our profession, and we can easily or readily help our communities.
And so for our second half priority, we will accelerate our 5G coverage and user penetration, and that is in terms of covering the nationwide for -- to reach 90%. And for our user penetration, our first major milestone will be the 1 million that we are looking at end of August. And then hopefully, another 102,000 in -- by the end of the year. And also we will continue to grow the total customer value -- and then on the consumer side.
So we use this mobile circle that will combine our telecom services and the new economy service that either we created from in-house like our friDay video and then our shopping. And then we also work with many customers, many partners that will provide and will curate different services that will best suit our customer needs, because we have good customer 360 kind of insight, and then we can do more personalized recommendation for our consumers. And then so it's not just a commercial to them, but it's some helpful information for them. And then so we can grow the total revenue or the total contributions of these subscribers that they can consume through this mobile circle for the services that we provide to them.
And on the industry or enterprise side, we will continue to expand our ICT business. And also we have won many projects. So the second half, we will have a lot of projects to finish. And then at the same time, we'll continue to build our alliance with other partners that may be across different industries. And then as we see many of these ICT projects or ICT-related work, one company cannot do it all. So the ecosystem kind of support is very important.
And then we will continue to control our cost and we will use our capital smartly. And so even we only give ourselves a 9,000, even though that is already more than some of our peers, but then we want to make sure we deploy the stations at the right place, and then they will -- and then it will also maximize the return on what these patients can generate in terms of the customers that they can then benefit from them.
And last but not least, we will continue to enhance our customer experience, customer first, customer-centric. It's always something that we want to emphasize, and that should be part of Far EasTone's DNA, and we need to continue to do better.
And that will be my last slide. And I now welcome your questions.
And ladies and gentlemen, we will now begin our question-and-answer session. [Operator Instructions] And the first question is coming from Sara Wang of Morgan Stanley.
I have 3 questions. So first is on would you please elaborate more on how would you enhance mobile customer value besides like operating customers to 5G? And then second question is regarding the ICT revenue. So when I ask what percentage of the ICT revenue is recurring rather than project base? And then my third question is regarding the full year CapEx guidance. Does that remain unchanged? And then what's the target number of 5G base stations at the yearend?
Okay. So for the first question about mobile circle. So we have -- this is a 1-year loan project that we actually kicked off. So, so far, we have 252.5 million downloads of this app. So through this app, the user not only can look at their telecom services, they are built -- and then different rate plans, and then also different kind of devices that they need. They also see the other services that we offer, such as the digital entertainment, so our friDay music, our friDay video.
And also, it has this difference like a product of the month, product of the week or product of the day, those kind of offers from our friDay shopping. So -- and then every customer that -- with their different information or insight that we have, so 2 different people that they log into the application, they may see different first homepage, what will show on the homepage, what are recommended for them from -- in terms of video choices will be different.
And then what are the products that we show on the first page for them, to recommend for them to buy is also different. So we use personalized recommendation engine in this. So each time the customers log in or sign into the app and then they stay actually active, and they will see different things that will trigger their needs and then to buy things.
Or -- and then we have with customers, or with other partners that we also offer, because we don't own restaurants and all that. But then we have aligned with -- like partnership with 7-Eleven. We have, like -- with the 3 major convenience stores in -- convenience store chains in Taiwan. So we offered this like a coffee in any of them. So you have this coffee coupon that you can redeem in any of these 3 chain stores that you can get coffee. And then that is for the convenience.
And also with Kentucky Fried Chicken, for example, and then they offer better discounts to Far EasTone subscribers. So -- and then we gave this -- we kick in these discounts for our subscribers. And this mobile platform is for Far EasTone subscribers only.
So this is a reward, a membership program kind of thing, and then it serves several purposes. First is like we want to strengthen the engagement with our consumers. We want to strengthen their loyalty so they see themselves as the Far EasTone customers. And then there is a lot that we offer to our valued customers.
And then through this engagement, there are different services that we can provide to serve their needs. And once they consume through this mobile circle -- and then those become -- and then either we have profit sharing with the partners, or those are the services that we created ourselves. So by doing this, we are no longer only -- look at these customers as they pay TWD 1,399 or TWD 999 a month for the telecom service, but there's all these additional things that they consume or they buy from us. So that's how we can add up the value or contribution -- every customer of ours that we'll be able to contribute.
Okay. That answer your first question. And the second question is regarding the ICT revenue, like how much -- or what's the percentage of a recurring -- and do we have an answer right away?
No. We have -- I think we have some of the maintenance service, so we can have the kind of maintenance of the [indiscernible] warranty period, so they will be around 10% a day. It depends on the different contract.
Okay. Yes. So for the ICT business, a lot of them actually would have after the project is finished, but it's not the whole thing is finished, because what would come after that is the maintenance, the managed service that they will ask us to provide. So that is -- that will become the recurring part. We don't -- and then that usually is about 10%. So right now, we actually don't have the exact number on that, we can look into it.
There's some project also going from here. So that's also different.
Right. Right. Just like the smart street light project, right, that is 15 years contract. And then so we will get this manned service for 15 years. Yes. So it varies. It varies. But then we can look at that percentage overall. All right. And the third question I think is about 5G. And then...
Guidance.
Huh?
Guidance.
Guidance.
Sara, are you talking about guidance on EPS -- base station numbers or...
Yes. So -- yes, is there any change in the start of guidance, yes, for this year? And then what's on the target number of 5G base stations by the end of this year?
Okay. So that's what I have said, 9,000. That's our budget numbers. And also, right now we already have deployed 7,500. So there's like another 1,500 to go.
[Indiscernible].
Okay. Sara, is that what you're asking for?
Yes. Yes. And then is there any change in the guidance…
No.
CapEx or even revenue or profit? Got it.
[Operator Instructions]
It's Friday, and everybody wants to go home.
There are currently no questions at this moment. Then I'll pass the call back to Mr. Gary Lai. Gary, please proceed.
Okay. Thank you very much to attend our second quarter results conference call. So see you next quarter.
And if you do find some questions later, you can always contact Gary and his team, [ Ami ]. Thank you.
Thank you very much. Thank you. Bye-bye.
And ladies and gentlemen, we thank you very much for your participation in Far EasTone's conference. There will be a webcast replay within an hour. Please visit www.fareastone.com.tw under the Investor Relations section. You may now disconnect. Goodbye.