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 2022 Third Quarter Earnings Conference Call. [Operator Instructions].
For your information, this conference call, the webcast replay will be available within an hour after 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. And Gary, please begin.
Good afternoon, everyone. Thank you for attending Far EasTone's third quarter 2022 results conference call. As always, our President, Chee and CFO, Sharon, both join the call with us today. And just a reminder, before I hand over to Chee's presentation, please pay attention to our Safe harbor statement in the first page of presentation.
Let me hand over to Chee. Thank you.
Okay. Thank you, Gary. Good afternoon, and happy Friday and Happy Double 11. I hope you have got a chance to create some orders with Friday shopping.
Okay. So let me just give everyone some update on our financial performance for the third quarter and also year-to-date. So as you can tell, we have been doing very well. And then this Y-o-Y growth continues, and we're beating our guidance across all major performance indicators.
So our revenue has grown 7% Y-o-Y and then also EBITDA is 7.9% for third quarter, because if you would -- if you remember last year in July we sold a building -- a office building. And then so with that nonoperating income at the higher base, the net income difference will be minus 28%. However, if you exclude that onetime gain from selling the building, we -- our net income and also the EPS actually grew 15% Y-o-Y, okay?
And for the year-to-date, for the first 3 quarters, overall, we're also looking at a 6.1% revenue growth and then 9.5% in EBITDA, okay? And then for the net income and also EPS, we have almost 20% increase Y-o-Y, excluding the nonoperating income, okay?
And then in terms of achieving our BOD target, it's above 100%. So we have exceeded our BOD target. And then what we have there on the right-hand side is, for your reference is, what we have for this year's forecast or budget, I should say. So TWD 2.83 is still our EPS target, although as you can tell, we have been doing pretty well in reaching or above that target.
All right. And then the next chart shows the trend on some of the key performance indicators. For the revenue, so this is by quarter kind of view. So as you can see, or if you remember, last March, we already have posted positive under Mobile Service revenue because of 5G uplift, and that certainly helped the total revenue growth. And of course, at the same time, our ICT is very strong, so that has been the case. So we have had a good year and more than that.
And for the third quarter, in particular, because of the iPhone launch, the new iPhone and usually that is the booster for our Mobile Service and also for the 5G upgrade. So all-in-all we have a 7.0% Y-o-Y growth for the third quarter alone, okay.
In terms of the EBITDA in this quarter, we actually reached a record high since I joined Far EasTone in the fourth quarter of 2019. So we are definitely on the right track and then it's going up. So we are happy to share that.
And then this 7.9% Y-o-Y growth mainly attributed to the better service revenue margins across all services that we offered. And finally, if you look at the EPS, right? So the third quarter net income, we reached TWD 2.4 billion, and then EPS is TWD 0.74. It grew 15%, and it is highest in the industry, okay?
Okay. And some financial metrics for your reference. So as you can tell that our net debt is very stable, and we continue to pay down our borrowings. And then the net debt-to-EBITDA ratio is also stable and has improved even. And then also, we show a very strong cash flow. And of course, part of that is our CapEx. Cash CapEx has decreased, because last year it is really a 5G-related investment kind of peak. So this year, we did scale back, so this reflects in the less cash-based CapEx spending, okay?
All right. So on the core business, so like 5G continues to be the driver for our steady growth. So for the third quarter, and you can see this Mobile Service revenue alone it posted a 3.0% Y-o-Y growth. And the postpaid ARPU, we continue to be the industry leader.
And also, the monthly fee for 5G renewal maintained more than 20% uplift, okay? That is very helpful. And then our postpaid penetration percent actually has already reached 30%, which is our year-end target, okay? And the postpaid churn rate has continued to hit record low, and we come to 0.92%, okay?
And then for our new economy, this growth momentum has continued. So even though this year we still are kind of under the cloud of COVID-19, but that didn't stop us from the new economy, especially on the enterprise side to grow really nicely.
So you can see up to 3 quarters -- so for the first 3 quarters, the new economy revenue already accounted for 19% of the total revenue. And our goal for this year was to achieve to have 18.9% of the total revenue for new economy. So for the first 3 quarters, we have already exceeded that, even though our core business is also growing. So this is good. And then year-over-year, it is now 22.5% growth, okay?
And the main drivers on the enterprise side is the cloud service and also our homegrown solutions for AI, IoT and big data and also digital transformation, all contributed to the growth on the enterprise side. And for consumer, in the consumer IoT devices and our e-commerce, that's Friday shopping also have posted good year-over-year growth.
And the media service is also close to 5%. Media services is where it's -- usually it's kind of flat. But then last year, because of pandemic, we actually see really a boost in terms of using the text kind of services. So this is a big base. But then this year, we still managed to have 5% of Y-o-Y growth.
All right. So just a little bit more on the ICT side. We did see strong ICT demand. So if we compare in the first 3 quarters, the total contract value that we have signed compared to what we did last year, it shows a 40% increase on Y-o-Y. And that's spread across several areas, such as smart building, digital transformation, smart city and big data platform and then also from smart learning areas. And these are especially because of pandemic that brings on remote learning kind of needs and the demand.
Okay. So if we further break down. So in the year-to-date, we look at enterprise revenue growth areas, 5G telemedicine service continues to grow very well, and it's a 87% Y-o-Y. And also, we just -- the latest news, we just received a National Innovation Award for our telemedicine service platform.
And on the 5G private network part, we are also showing a 21% growth. In big data analytics, these are part of -- like quite a bit of the digital transformation projects who require big data analytics related work or data platform-related work. So we also see a very nice growth year-over-year. Then the cloud service. So we have a subsidiary Nextlink, and its growth is very impressive. So this continues to be one of the growth engines for our enterprise side of the new economy.
Okay. So some other business highlights to share with you. So for example, we are leading the telco industry and our peers in offering the free VoLTE service and also increased connection speed for 5G users that are not on unlimited data plan. And all these changes are really to consider more for the customer's sake and what would make more sense for them as a consumer.
So these are very welcoming for the users. And this will also help us to eventually sunset 3G. So all this has a reason for it, and that, that also makes our customers very happy. And I know our peers also followed. So that was a good trend we are leading.
And then our -- on friDay video, we have continued to invest in the content investment and creation, curation and we're going to have our first movie that we co-produced with Public Television Service Taiwan, that will be in -- on the 1st of December, I think. Yes, in December, it will have its preview.
Okay. And then for our Mobile Circle application, that is our digital reach to more of the users. So right now, it already has 4 million downloads. This is almost like a 4x more than -- 6x of what we started.
So this was a app that we started with some mobile app or just for Mobile Service related, like a billing and all that. But we expanded to Mobile Circle. So where we offer many digital services and then related information. So we have come from like 600,000 to 4 million downloads, so that was just in less than 2 years. So this is a very good growth. And then this has also helped us to develop the new economy, okay?
All right. And we also completed our first 5G Metaverse Accelerator. We kicked it off last year December, and then we started this application process. So then we announced the 20 start-ups that we selected in March. So we worked with them for about like a 6 months during that period. And many of them that we took them, so on the enterprise side, we have various projects where they can co-create with us or actually see real problems where their technology or solution can apply.
So we have had quite a few successful cases and then that amounts to about TWD 100 million worth of contract values for the startup. And then we -- as we mentioned at the beginning, so these are our candidates where we will look at some of them that we can have strategic value in and to go deeper and then we'll invest in some of them. Okay. And also, we issued the second social bond for TWD 1.8 billion to finance our 5G for ESG-related development work.
Okay. And then we have get some awards and then some recognition. So on the top, it's like ESG related. Like we got ISO 20400 for sustainable procurement guidance. And then this is the first operator in Taiwan to get this certificate. And also, our TV commercials that we produced in earlier years that we actually got YouTube Brandcast Taiwan for Outstanding Social Contribution Award.
And these 2, in particular, were about -- during the pandemic, how some of the chemical -- the soldiers that they have to do all those spreads and then just to keep people safe. But then at the same time, they have to be apart from their family or loved ones because of the germs and all that people are afraid of.
But then that is when the communication service, of course, by Far EasTone's communication service would help them still connect. So we had a couple of them. One is from the nurses, those are working day and night during that time at a hospital. And so both of these commercials got a lot of good rewards, a lot of good feedback and also got this award from YouTube.
And as we were told, this is actually the first time they were giving out this award. Last year, there was no one named after this. So we are the first one to receive this award. So we appreciate that.
And then we were also named most outstanding company in Taiwan in the telecom sector this year by Asiamoney. And then -- and we have a few other awards that recognize our transformation, leadership and also for IDC 2022, they have some future enterprise awards. And then we have a Best in Future of Operations, there myself get recognized there as well. And then we have our Project Management Benchmarking Award. We also received that for our ICT project management.
And last but not least, as you may already been aware, our service -- customer service has always been recognized in many years in a row already. And this time, it is another 15 awards that we received from CSEA Association. So this is just something we continue to do and to do better every year.
All right. And so finally, and you probably have seen this similar slide last time. I said, well, but this is what we need to do. We just don't change it every time we have an IR call. So I just modified it a little bit to be even more targeted. So we will continue to sustain this momentum for the telecom core business, especially with the 5G penetration. As you heard that we already reached our annual target for 30%, so we'll continue to grow that.
And then our current EMS, that's an Energy Management System, which has got a lot of success this year in the ICT project. And then we are investing in this and then evolving it to account for more of the demand in the green ICT ESG solutions area. So this is something we see the demand from the industry, from the enterprise. So we already have a very solid EMS platform, and this is where we will do some more investments so that we have -- so we will expand our solution set for the ICT or clients.
And then in recent months or -- you may remember, one of the major focus I have said there is something we will do differently with some enterprise is, we have started this so-called consultant service. So what we have found out is especially with new economy or digital transformation related, the client relationship is no longer account kind of relationship. We really need a technical expertise to get the trust, the confidence from the customers.
So how we can engage through the IT personnel and then train consultants to engage with IT from the clients. So then it's not a project based that we do the business with. But then we will become their strategic partners and then help them build their roadmap for digital transformation. And because usually, that would include from like an infrastructure migration to the cloud and then so how do you do that?
And then Far EasTone being a big IT company ourselves, a lot of this we have done it. We don't just talk about it. We have done it. So when we use our own expertise and experience for the technology we use and then to try to help our clients, it is a lot more convincing, and then we demonstrate our results as well. So we will continue to do that.
And then we do see that it has been proven very successful, especially in terms of our engagement with some public sector with Universities and big companies like that. And then we'll continue to grow our Mobile Circle and then digital services and then finding the right partners to offer the kind of services that will benefit our users and then build the kind of membership economy.
Also, we are expanding in the digital services like we -- as you may have heard, we have joint ventures with [ China Trust ], and we applied for this Neo Insurance or the online insurance license. So, so far, it is under review, but we are very confident it will get approved.
So that will be a new kind of fintech engagement that we will start. And then on top of that, in the video content business that we have, we will continue to invest. And we also have some alliance and joint ventures as well.
Okay. And of course, the mergers. This is as more folks are paying interest or attention to this matter, and then this is getting some momentum to move again. So we are actually asked to present to the NCC Commissioner on 23rd, so I believe that is an indication that this whole thing is moving again. So it depends on what will be discussed or what the Commissioner may have for us. And then I suppose this is -- this should be close to the end in terms of when NCC will be able to grant their approvals or not.
And then after that, there will be the FCC. But at least, I think the good news is, we are not in a kind of suspension kind of mode, but again it is actually moving. So we are optimistic about it. And as we have been doing very well this year so far, and then we will just finish the year strong.
Okay. With that, I conclude my presentation for you all. And we'll welcome some questions.
[Operator Instructions] And first question is coming from Neale Anderson of HSBC.
Congratulations on hitting some of your year-end targets early. I have 2 questions, please. The first one is on the 5G private network. So I wonder if you could give some more details here.
The 21%, I assume that's revenues or I'm not sure if that's contracts or bookings. And with the 5G private network, is that exclusive to the corporate or the business that's requested done? Are you offering any network quality guarantees within that or any additional services which aren't available in the broader 5G network. So some more detail there would be very much appreciated.
The second one is more of just a reminder for me, please. Could you remind me about the 5G subsidies from the government. Is that a regular amount each quarter and when will that end?
Thank you, Neale. All right. So for the 5G private network. So last year, we are -- well, we started this kind of like in 2020, and it did take some time for the business to step to it. So we are now seeing the momentum. So I think this year, we probably have 20 some engagements and then -- or some contracts on the field with that.
In terms of the type of service, so we have different models in what type -- A, B, C, D. But then these usually, they would have their dedicated WAN, and they may ask for the MEC, the Mobile Edge Computing. And so in terms of the kind of quality of service or slicing that you were looking for, that is not in one of these.
Then in one of the public sector engagement it's about using our macro network. So now the -- because this is like a full coverage, right, island wide or nationwide. And then there, we will be using the slicing to guarantee some service. But then that is still -- and we have done the PoC. And then again for these other private network engagement, we haven't used that one. So they are dedicated to themselves. So this quality of service kind of or like slicing kind of arrangement wasn't needed, okay?
And in terms of the subsidy. So the way that we do this because it's a subsidy for the equipment, right, and related to hardware. And then those equipment has a year for -- like up to 7 years kind of amortization, depreciation, so that's how we would divide it. So every month -- actually, not even quarter, every month, we'll depreciate accordingly, evenly. Okay? So I -- so it's altogether like about 7 years, and then we get -- we started like last year for 2021, yes. So this is how we would do it.
So is the amount increasing or is it fairly regular?
It should be regular, pretty regular because what we have a for that's a lump sum and then so then you divide it by however many months, yes. So it's even. Pretty even, I would say.
And just sort of on the network. Sorry, on the network slicing side, so that's to come or you've launched that already? And it just seems like network slicing is still quite early days with a lot of other operators, so just interested in the timing on that one.
Well, so actually, we were the first one with Ericsson that we did the first slicing application worldwide. And then in terms of the local implementation, we have done that with police station in Kaohsiung. So it's really beyond a PoC. So that licensing is turned on and then that is for the Kaohsiung area, a special area.
And so what I was saying, this is actually kind of like what we did in AT&T for FirstNet in the U.S. So that is to give the first respondents their like a guaranteed bandwidth on the mobile network. So that's kind of the same concept, and I ask my team to implement with this slicing. So we proved that with the police station in Kaohsiung.
So for a broader application that we haven't really engaged for the -- because that, you have to go through the central and all the local police and all that. But this is definitely a proven technology as far as far as Far EasTone is concerned because we have done it. And then even with Ericsson, we have done that earlier, too. But then if you ask for other telcos, this is probably still early for them, but we have done it.
Next question is from Sara Wang of UBS.
So I have 2 questions, yes. First is mainly on CapEx. So maybe, say, for next year or even like next 3 years, do you see any change in the CapEx structure, meaning it seems like large-scale 5G spending is already peaked. So going forward, do we have any plan to develop in-house capabilities for SaaS or cloud or anything besides 5G?
And then my second question is, what are the key topics to cover for the presentation to NCC on November 23. And do you see any key hurdle to overcome in order to get the approval from NCC?
Okay. In terms of the CapEx structure. I would still say network CapEx usually is the biggest item, right? But in overall, last year is our CapEx peak, right, because of the 5G construction. Now assuming this merger will get approved, as we have presented before, we will have a lot of synergy because of the merger. So that includes CapEx and OpEx savings. So that itself wouldn't increase the CapEx.
But then on the other hand, right, so we have the 2600 band on spectrum. So if we are ready, if we see the need to increase our capacity on 5G to use the 2600 band, then we may invest some in that area. Other than that, for the 5G, 3.5G spectrum investment, I think we are pretty happy about where we are.
And then, of course, we -- later on, we will have the core network migration, and then we will have some transportation -- transport network migration as well. But in those kind of CapEx is still -- I wouldn't say it's significant, especially compared to what we would have to spend for 5G. So those are all manageable. And then so I think the CapEx is -- the structure wouldn't change much, but then definitely lower.
Okay. On the second question for NCC. Well, I was asking the same question because for -- what we can say we have said it many times now through different presentation through different forms. But I think one of the or the most sticking point is if you haven't heard, is about the spectrum over the 1/3 limit. And that, in particular, is for our peers in their case, because the 1/3 ceiling is especially very important for the sub 1G spectrum, and that's where they have exceeded by a lot, 20%.
And then depending on how you interpret the regulation, right, for us, for Chunghwa and for Far EasTone. If we really have to delay the change on the regulation and all that. And then they said we exceeded too, but then even if that's the case, what we have exceeded is really compared to what Taiwan Mobile has exceeded that is like a nonissue. So we have already stated, that has to be the case, and we can return as needed. So that's no issue for us.
But then I think the other, our peer has different opinion. They definitely are exceeding no matter how you interpret the regulation. But the question is, would they be willing to return it or what would be the conditions in return or for the NCC to grant them the approval. So I think that is indeed a sticking point. And then we are just like, okay, we are impacted as well, but then certainly, the major impact would be for the other party.
And then what we do have in common is we all -- we both have to deal with employees, right? And that is just for any merger you have to consider the company that is going to be acquired and whether the employees are going to do. So the employee arrangement plan is what will be an issue. But we have had some reasonable conversation, open communications with the labor union of APT. So far, I think that is progressing well or reasonably well. So we don't think that should be an issue.
And then anyway, that should not be the focus of NCC anyway. So I think they were still going to ask us, so how are you doing with your employee arrangement plan? And then I would guess they will have to talk about this possible resolution or different options to resolve the spectrum ceiling issue. And then we'll see what they offer and then see what we -- how we will respond and what are acceptable, what maybe not. So I think that is the kind of issue that will be discussed.
And of course, they asked about the rate plans and all that, that is really business as usual. We have indicated from the day we submit our application to even FTC and then through any kind of meeting they ask for. We talked about or -- so I would say probably at least 5 times already. So really nothing new. And then -- but the more recent issue that came up is the ceiling issue for the spectrum, especially for our peers.
[Operator Instructions]
Okay. If no more questions, I'll just wish everybody have a great weekend. Enjoy your shopping.
Thank you, President Chee. And 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.
Thank you.
Bye-bye.