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 2023 Second Quarter Earnings Conference Call. [Operator Instructions] And for your information, a webcast replay will be available within an hour after the conference is 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. Gary, please begin.
Good afternoon, everyone. Thank you to attend Far EasTone's Second Quarter 2023 Results Conference Call. Our President, Chee, and CFO, Sharon, both joined the call with us today. Just a reminder, before Chee's presentation, please pay attention to the first page disclaimer in our material. Let me pass to Chee.
Thank you, Gary. Good afternoon, everyone. So I would like to report to you about our second quarter performance and also the first half since it's already closed. So as you can see from this slide, all of our KPIs have surpassed our guidance with strong year-over-year growth. So for example, our total revenue for the first half then has grown 3.2%. For this quarter alone, second quarter, it is a 4.7% growth.
And then, of course, our most impressive part is still remains with our net income and EPS. It remains to be in double digits, 19.7% for this quarter. And then for the first half, it's 19%. And if we exclude this onetime gain that in the first quarter, we are still looking at 15.9%, that's almost 16% of the year-over-year growth. In terms of achieving our Board of target rate, and then it is either meeting or exceeded as you can tell.
Next slide. All right. So just some highlights and then to give you a little bit of trending data. For our revenue, and this chart shows beginning of the first quarter of 2022. And then we are seeing this total revenue continue to go up for each Y-o-Y for the current period. And this total revenue for the second quarter actually has achieved a positive year-over-year growth for 11 consecutive quarters already. And of course, that is driven by consistent 5G customer upgrades that we are able to maintain. And then also the post-pandemic recovery that we certainly see more traveling. So the roaming revenue and also the prepaid revenue also helped.
In terms of the EBITDA and our EBITDA per quarter and then this trend is going up. And then for this quarter, in particular, the second quarter, the EBITDA is TWD 7.91 billion. It is actually our new high for the same period. And for the EBITDA growth, that's 3.5%, and it is basically attributed to higher gross margin that we were able to gain from our core business and our new economy services.
And in terms of the net income, our second quarter net income, it is TWD 2.77 billion. The EPS is at TWD 0.85. So it has reached a 6-year high for the same period. So the Y-o-Y growth rate is 19.7%, as I mentioned earlier. And then we continue to lead the industry in this category.
All right. And some more financial metrics for your reference. So the net debt and net debt-to-EBITDA multiples are improving, as you can tell, we have been paying down our debt. And then also the free cash flow continues to be strong, okay? And our CapEx is in line with our 2023 guidance that remains at TWD 9 billion.
And then in more mobile core business area, we continue to see the solid growth. It is powered by 5G. And then so our service revenue for mobile continues to grow. And then this is starting at first half of '21. So this -- this trend is very promising and encouraging. Of course, as we have been saying, the mobile service has been saturated and then it's declining. And then -- but since the deploying the 5G in 2021, we start seeing the rebound of it. But then, of course, we haven't reached before the TWD 499 problem in 2018, but we are certainly on our way getting there.
Okay. And in terms of the postpaid ARPU, it is also increasing -- has been increasing for Far EasTone, and we are looking at TWD 735 ARPU per month, okay, for our postpaid customers. And for the postpaid customers numbers per se, it is also increasing, even though this is a very saturated market. So we are still very happy to see the continuous growth area. And also in terms of our 5G penetration, it has come to more than 36% already.
Now if you ask me more specifically if this is for the smartphone users then this number will be even higher. Okay. And postpaid churn rate continue to go down. I think in the way it is kind of due to the merger cases ongoing. And of course, ours got already approved a couple of weeks ago. And I think that is sending some messages to the market that they probably wait and see. So -- but we welcome the stabilizing market. The less churn is better for us, okay?
Okay. And then for the new economy, so we are looking to -- especially this year. So we are now looking for aggressive growth in terms of the revenue in the new economy area, partly due to we want to derisk because the global economy is still very volatile. On the other hand, we want to continue to enhance our margin and then continue to deploy more ICT deployments with our homegrown solutions and to improve the margin.
And so as ICT remains the primary growth driver with -- we have a security service and also Smart ICT that is the one that is deployed with our solutions, they are leading the way, okay?
And then our main highlights for new economy revenue are shown on the left for the enterprise. The ICT margin has improved like 14%. And then the security service revenue has increased 15%. As I mentioned, we have been focusing on our homegrown solutions and their deployment. And then the revenue compared to the same year last year, if we exclude onetime EMS revenue, that was a huge revenue booked during the first half last year. If we exclude that, we are still seeing a very significant increase for this homegrown solutions in the Smart ICT area.
In consumer new economy driven -- the growth is driven by the e-commerce revenue, 13% Y-o-Y. Our e-commerce is relatively small, but then we are happy to see the growth, the double-digit growth that is compared to the market, it is better than the market. And for the media service, we also see a 9% Y-o-Y revenue growth as well.
And we have some highlights to share with you just on the enterprise side. And then as I mentioned, we want to grow our ICT business with FET's homegrown solutions. That is deployed across both private enterprises and also public sectors. And some examples for your information is, for example, we have deployed this intelligent coastal monitoring system for coastal guard administration. And then we also have the intelligent city sewer monitoring system for Taipei, Taoyuan in several cities. And then we have the smart uninterrupted power system that is the batteries from the electronic -- electric motorcycles like Gogoro, for example, and we recycle. This is also for the ESG per se.
So we use the recycled batteries to power up as a UPS for a busy intersection. So in the case of power outage by the Thai Power, and then these intersections will not be affected because the traffic for these -- we call them busy intersection because the traffic is heavy. So and then also there are lots of people walking on the street or across the street. So it's important we keep them in order while there is a power outage. And usually, for this instrument, it will -- it can last at least 4 hours until the power comes back.
Okay. And then we also deployed managed IT services for some Tier 1 hospitals. And then the infrastructure management center for a leading manufacturing company in Taiwan.
And then on the consumer side, we have all of this Guardian Network service, which is really preventing the users from visiting unsafe websites. So we have deployed onto our network. So this is now through an app that they have to download. It is part of our network service if the users subscribe to it, and with this they can enjoy this extra protection our network provides. So this is deployed in like January. So we already have like 400,000 subscriptions, and then it has successfully protected against an average of 47 attacks per user per month.
And I just look at my own report because I'm one of the subscribers service. I -- apparently, I was almost visiting 8 unsafe website and that were blocked, okay? So that was good. And this is part of our effort to make our network more safe for the users as now there are more and more Internet-related or telecom -- through the telecom network-related fraudulent events. So we want to do every effort we can to protect our usage from being abused.
Okay. And then also our AI-powered predictive fraud detection system has effectively flagged more than 90% of these fraudulent SMS, that's the text messages and also the scam call and then we refine -- we've been refining the AI models because these guys, they are really smart. They want to outsmart you. So we keep changing our algorithms as they change their patterns. So this is ongoing and this is why you need AI, the machine learning to learn as you go, okay?
And for our friDay video, it is ranked #1 for our domestic OTT platform for 3 consecutive years now by Taiwan Creative Content Agency's or public survey. And then also our Mobile Circle, which is our digital reach platform and also our members' application that the users of Far EasTone can use this app to do a lot of the telecom-related services on top of it, we have provided many services for our users. And this maintains #1 as the membership satisfaction score in the industry.
And then through this loyalty program, we really designed and then wanted to make sure everything that we could do to help our customers. And also, we want to, of course, improve the loyalty and engagement and all that. And then we also see a 72% increase in the daily active users, and they have generated an 800 million scale membership points in the fan economy, okay? And these are the things that we have been doing in the digital services for the consumer area.
And we have won some major honors, especially in the ESG and then corporate governance area. So this is just for your quick review. And the one on the last, that is Allot cybersecurity leadership award. It's a global award. Allot is a Israeli security company that they each year, they select 3 winners from their global partners that is almost 100 of them. And then for those that are best performing and then they were able to deploy the service and benefit their users. So Far EasTone was 1 of the 3 winners this year, and Allot CEO actually flew in in-person to grant us this award. Okay?
Just for that information. And also, everybody is curious about how are we doing with the merger because we did get the approval from FTC,that was kind of the last hurdle we have to pass. And now we have filed with the Taiwan Stock Exchange Commission. And so we just follow the procedure and go through the documentation, the filing and all that. And then at the same time, we are already working with APT on this merger integration-related activities. It goes from the network, the IT, and then also the back office and all that. So a lot of activities are going on.
But most importantly, our network teams are already working together. And the first thing we needed to do is to swap our rain equipment for the -- one of the major synergies that we were talking about for the -- for this merger. So there's a lot going on. And then last I checked my team and -- the joint team is ahead of the schedule. So it is good. And it started off really, really well.
So we are looking -- so this is what we will be busy with in the third quarter. And then fourth quarter is where we still maintain as a target, and we are confident that we will be able to meet that. So we should have our record day or the effective -- merger effective day in sometime in the fourth quarter. And when that is determined and of course, it depends on the progress with the stock exchange. And so once we learn more and once this is determined, we will have official announcement made.
Okay. All right. So because there is merger, the effective day is still TBD. And then so we are disclosing our third quarter consolidated financial forecast only at this point. And then in fourth quarter, we will have another IR meeting. And at that time, then we will disclose the fourth quarter one. And then very likely, then we probably will be already merged by then, but then we'll see.
So here, this is only for the third quarter. So the guidance for the revenue will be down TWD 23.07 billion compared to the same quarter last year, it is a 4.1% year-over-year growth. And then for the EBITDA, and we are looking at TWD 7.93 billion. That is also a 3% Y-o-Y growth from 2022.
Our net income is TWD 2.66 billion. It's roughly almost 10 -- a little bit shy of a 10% Y-o-Y growth. And the same case with the EPS. And then for this year to third quarter. So for the 3 quarters together, we are looking at TWD 67 billion for the total revenue, and it's a 3.5% Y-o-Y growth. If we go down, so it's about TWD 2.51, EPS wise, and that is like a 15.8% compared to the same 3 quarters in 2022.
So that is our forecast for the third quarter of this year. And to just recap our second half priorities. And of course, as I mentioned, we already kicked off the merger activity. So we will accelerate the network consolidation efforts and that we want it to go smoothly. And then so we can prepare for the merger and the effective date, which is targeted for fourth quarter. And then we'll continue to grow our 5G adoption penetration. And also for the digital services, we'll continue to enhance them. And then also, we want to improve the consumer engagement, so we can prepare for the -- for serving broader customer base once the merger is completed.
And then we will also continue to grow our Green and Smart ICT business, especially those with the home grown solution. And also, we have secured this Microsoft LSP like the license fee. And then so this is one area we will also focus on and this will provide us in the enterprise area -- Microsoft has a very good suite of products and also with the Azure service and also with the Generative AI, they are working to deploy these co-pilot programs. So they have gained a lot of attention and interest from our enterprise customers.
So I'm very confident this program, although we only just started this like in April, but then I'm seeing a steady growth in this area. So this is one area I think we should see a very steady cushion will be able to build on top of our ICT projects for the enterprise and then which will continue to be our growth driver.
And with that, I will conclude my summary for you all, and we will now welcome your questions.
[Operator Instructions] And our first question will be coming from Sara Wang of UBS.
So I have 2 questions. First is regarding the guidance for third quarter, may I ask what's the key assumption here? And then why the net profit growth is relatively slower than first half?
And then my second question is on the potential merger synergy with APT. So I recall at the beginning of last year, the guidance is like the EPS should be [ 1/4 ] from year 1. So it's been almost 2 years since then. So how shall we think about the previous target? Will there be any significant change?
Okay. Sara. So let me answer your second question first. Although -- so -- we have not yet complete the merger, right? So the effective date. So all I can say, yes, if you look at what we announced to the investors back in February last year, right? February last year. So what we said there and then from what we can see, I think we are still maintaining and that will be the case.
And so that's all I can say at this point. I think I am advised, right, at this point, since we are -- we already filed it with the stock exchange. So we really cannot give out any specific numbers, but then I could tell you that the expectation we have back then and then we are still our expectation.
Okay. So for the -- for what you said about the net income, like the 10% seems to be slower. Well, I think you just -- we just cannot take all those double digits, I get, almost 20% are for granted. So it is still very good. And also, we do have some nonoperating income that was realized in the first half of the year. So then we don't -- especially those are like fluctuating, right? So I cannot count on that in my budget. So you can look at this, maybe this is more conservative, but this is without considering the fluctuating operational gain and which did help me in the first half with some of the net income, okay? Did that help?
Yes, very clear.
[Operator Instructions]
Maybe I made it too clear. So you guys making it very easy for me.
Yes, of course.
Please take the chance to ask management more questions.
Or you can always follow up with Gary and Amy. So they will be happy to answer any questions. If there is a need to schedule a separate meeting and if the schedule allows, and then, of course, we'll also make an effort to do that. But as always, FET thank you for your support.
And it appears that there is no questions at the moment. And now I'll pass the call back to Mr. Gary Lai. Gary, please proceed. Thank you.
Again, thank you, everybody, to attend our second quarter results conference call and see you next quarter. Thank you very much.
Thank you.
Ladies and gentlemen, we thank you 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.