Far EasTone Telecommunications Co Ltd
TWSE:4904
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Far EasTone Telecommunications Co Ltd
Earnings Call Analysis
Q3-2023 Analysis
Far EasTone Telecommunications Co Ltd
The company emerged with a robust report card for the third quarter, outperforming guidance with significant year-over-year (Y-o-Y) growth. The overall revenue increased by 4.8%, sustaining a positive trajectory that marks the 12th consecutive quarter of Y-o-Y growth. Operating above the 100% achievement rate, the company also registered an EBITDA growth of 5%—a new high since 2019—and a net income that continues to rise in double digits.
The firm's mobile core services have seen a 3.5% Y-o-Y growth over the current year. Subscription statistics are promising, with 5.4 million postpaid customers, a 5G penetration exceeding 38%, and a reduced churn rate of 0.9%. The new economy services, accounting now for approximately 20% of total revenue, have displayed a remarkable margin improvement of 7.4%, buoyed by strategic optimizations and successful consumer digital and enterprise service expansions.
The company is gaining ground with Smart and Green ICT solutions, homegrown IoT 5G solutions, and an expanding telemedicine service. The consumer division profited from the iPhone 15 launch, resulting in more 5G upgrades and higher-value contract signings. The commitment to membership satisfaction is evident in their customer loyalty application, while their friDay video streaming service noted a 20% growth in memberships, driven by engaging and exclusive content.
The company has been a frontrunner in implementing generative AI and AI-driven apps in the e-commerce domain, experiencing deep growth in revenue. Recognition for its achievements includes a National Sustainable Development Award, demonstrating the firm's commitment to innovation and sustainability.
The forthcoming merger remains a focal point, with an official completion date set for December 15th. The company has abstained from providing financial forecasts for the fourth quarter due to the silent period mandated by the stock exchange; however, the executive tone remains optimistic about completing the merger and ending the year on a strong note.
In responding to an analyst's query, the company underscored the positive margin developments in their new economy business, which continue to grow steadily. While acknowledging the competitive cloud resale market and potential wage inflation, the company has indicated effective management of such challenges. The executives offered reassurance regarding seasonality concerns, emphasizing their focus on deepening enterprise relationships to mitigate revenue volatility and capitalizing on the increasing demand for digital transformation and sustainability solutions.
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Welcome, everyone, to Far EasTone's 2023 Third Quarter Earnings Conference Call. [Operator Instructions] And for your information, a webcast replay will be available within an hour after the conference ends. Please visit www.fareastone.com.tw under the Investor Relations second. Now I would like to introduce Mr. Gary Lai, the IR Officer. Gary, please begin.
Good afternoon, everyone. Thank you again for attend Far EasTone's third quarter results conference call. As usual, our President, Chee; and CFO, Sharon, will join the call with us. Just a quick reminder before Chee's presentation, please pay attention to the first page, safe-harbor statement. Let me pass it to Chee. Thank you.
Okay. Thank you, Gary, and good afternoon, everyone. Thank you for joining us for the third quarter IR call. So we had a good quarter. So we beat guidance across all KPIs with solid Y-o-Y growth. So you can tell that our total revenue actually grew 4.8% and then our achieved rate is over 100. And also, our EBITDA is looking at a 5% Y-o-Y growth and our net income remains double digits on Y-o-Y growth.
If you combine the first quarter through third quarter together, we come to the TWD 2.56 EPS and this actually matched our full year EPS for 2020. So, so far, as you see the guidance on the right-hand side and our achieved rate, it's all above 100.
Okay. So a little bit more information. So if you look at the total revenue and then the quarterly chart, this 4.8% Y-o-Y, compared to the third quarter last year and then it's at 4.8%. And then overall, we are really happy to see this overall revenue continues to grow steadily. And this is -- this has been the 12th consecutive quarters that we see the positive Y-o-Y growth for the quarterly report.
And then on the EBITDA side, it's a 5% Y-o-Y increase. And also, this is a new record high for us since 2019. The third quarter EBITDA came to TWD 8.08 billion. And this 5.0% Y-o-Y EBITDA growth is attributed to higher gross margin from both the core business and our new economy services.
Okay. For the net income, that is TWD 2.83 billion for the third quarter and the EPS is at TWD 0.87, and that is also a 6-year high for the same period. Okay. So -- and as we understand this double-digit -- 16.7% double-digit growth continues to lead our industry for 9 quarters in a row now.
And some more information about our financial metrics. So our net debt has come down from TWD 54.2 billion same quarter last year to TWD 49.11 billion, and our net debt to EBITDA multiple has come down to 1.54, okay? And our free cash flow remains very healthy and it's at TWD 16.21 billion. And our cash-based CapEx and it still remain on target and right now, it's TWD 5.6 billion and our guidance remains at TWD 9 billion for this year.
Okay. Now look at our mobile core service. So the mobile service revenue continues to grow. If you look at the year-over-year for the last 2 years, it was 2.9% and 1.4% year-over-year growth, respectively, for the last 2 years. But then so far for the 3 quarters combined, we are looking at a 3.5% year-over-year growth. So we are very happy with this mobile service revenue kind of coming around, and it has been several quarters now. Okay.
And then for our mobile postpaid ARPU, also, we are looking at 3.3% compared to the 2 years Y-o-Y. That is also a lot better, okay? And for our postpaid customers, and we are at about 5.4 million subscribers. And our 5G penetration has now exceeded 38%.
And our postpaid churn rate continues to come down and is now reaching another record low, it is 0.9% for the 3 quarters combined. And our new economy is steadily growing and also the margin is improving. So right now, it currently accounts for about 20% of the total revenue. And the margin improved 7.4% compared to the same period a year ago.
And because we continue to optimize the ICT project portfolio and also, we continue to sustain our steady growth in the consumer digital service part. Enterprise sales, still the Smart ICT solutions, especially the Green ICT solutions has been our focus for several years now. But then we now have more projects delivered with our homegrown solution, which, of course, would improve our margin as well.
And also the security service is performing well and then looking at a 10% Y-o-Y growth. The security, we have seen the demand for quite some time. But in the past, we were -- our subsidiary, [ ICU ] was a little bit struggling with retaining the talent because it was very competitive, but then now they have stabilized it and then so start seeing the Y-o-Y healthy improvement.
Okay. And our consumer services continue to grow steadily. And in the e-commerce, friDay video entertainment area and also direct carrier billing and enhance their insurance. They continue to grow, help with the revenue and also the profit as well.
Okay. And some highlights for the enterprise business and the enterprise business includes our public sector as well. So we have, as I mentioned, we have delivered more Smart and Green ICT projects with homegrown IoT 5G solutions in the public sector. Some of the examples included in the EV area, electric motorcycle and electric vehicle charging. So this is not just a car charging stations themselves, the management system, the service, manage these charging stations, and that is the IoT base.
And also for the power plant that we have the meter monitoring and also overheat detection system -- management systems that we have in our national power plants. And then our telemedicine service continues to grow and we have deployed for additional [indiscernible] residents as well. And then the expanded 5G telemedicine, we now applied for the rural chronic disease care and such as diabetes, those kind of long-term care. So this has continue to expand the use or the application of telemedicine technology.
And for the consumer business highlights in the third quarter, in particular, because of the iPhone 15 launch. So it definitely boosted our 5G upgrades, the bundle sales and brought in more customers with longer contracts and also at a higher monthly fees. And so over 80% of them signed up for contracts that is 30 months or longer. And then over 90% have chosen a monthly rate plan that is at TWD 999 or higher, okay?
For the FET's customer loyalty application, that is the Mobile Circle, the app, it continues to score the highest for membership satisfaction in the market. And the number of transactions that it was able to divert has grown 352% Y-o-Y, and this is helping our other FET digital services sales, such as e-commerce and our video services, OTT video services as well.
Okay. And then for our friDay video in terms of number of members has grown 20% year-over-year in the third quarter, and then because it has very popular and exclusive Korean drama. And our team is very good at picking the right content for the right audience, which shows in terms of membership growth there.
And then also our network security feature we call the Guardian Network service has gained 50,000 subscribers since some beginning of the year and since its launch, okay? And for friDay shopping, it has deep market in terms of the revenue growth and also it leaves AI adoption in the e-commerce industry.
It has onboarded more than 1,000 e-stores for small business -- small and medium business and that is powered by generative AI and also it launched the fully AI-driven app for personalized shopping experience. And we also have got some recognition, especially in the sustainability. And then -- so we just -- we were just awarded National Sustainable Development Award. This was part of the press.
And then for the TCSA, we were #1 winner for the number of awards that -- for one single company and this is for the Taiwan Corporate Sustainability Award, okay? And then there are some more -- quite a bit of awards in this area, and I just won't go over one by one for you, okay? Next slide.
Okay. Now talk about our merger as you probably have seen in the news, right? So we continue to pass each of the hurdles and we are now in the last sprint to the final effective date, which is set for December 15, that is the official FET APT merger effective day. Okay.
So for the fourth quarter focus, unlike before and because we have submitted to our stock exchange office that we -- for listing our new shares of stock because of the merger. So we have entered the silent period. So we will not be able to share with you our fourth quarter financial forecast or guidance.
But in terms of our focus, of course, it's going to be finished the last sprint to the merger effective day. And then also, we will finish the year strong. And please expect, it's coming soon, the new FET. Okay. That should be all the presentation I have, and we will now welcome your questions.
[Operator Instructions] The first one to ask question, Neale Anderson from HSBC.
Can I ask about your new economy business, please. So congratulations on getting that margin up 7.4%. So can you provide more detail on that? I remember at the start of the year, you said that the cloud resale market was very competitive and you were worried about that. So is pulling back from that area the main reason? And it also sounded from your comments like the enterprise area is a little bit more volatile with concerns of the staff costs, et cetera. So is that the correct understanding? And what is the outlook for the different businesses there?
Okay. Thank you, Neale, and you remembered well. I did say I think it was last year, we were talking about we were looking at derisker, so some of the ICT project. We actually been pulled back per se, from our cloud services. It still continues to grow quite well. But then there is also more managed service in the cloud service area our subsidiary has been providing. So that helped. But then still, with other ICT projects, as I mentioned, we have more deployed with our own homegrown solutions. So that helped improve the margin as well.
Got it. Okay. And any sort of forward-looking concerns about staff costs, wage inflation, I guess, is a pretty hotly contested area. So people with the right skills are probably in quite high demand.
Right. So if you were asking about the inflation, it was -- so we do see the utility price go gone up, right? But then other than that, and then also the interest rate, but we manage it very well. So that's part of the reason our nonoperating or the interest expense was less than we initially forecast. So I think we still manage it so far so good. Because if this is like looking at employees like a salary increase, we have been doing that every year anyway. So it's really not changing much if that's what you're referring to.
[Operator Instructions] Next one to ask question is Sara Wang from UBS.
So just one quick follow-up on the previous topic. So basically, the new economy where ICT revenue would present a higher share of our revenue. And I believe the trend will be the same going forward. So when we look at other telcos in the region, when they expand their enterprise business, their revenue or margin actually will see more volatility across quarters compared to like previously mostly the businesses consumer faced. So just wondering how shall we think about the seasonality or like volatility of our revenue and margin going forward?
Okay. Thank you, Sara. That is a very good question. We do see some seasonality. For example, like last year, we had won the big project from the government, that was like TWD 1 billion, so -- which increased our base for Y-o-Y, right? Because you don't get those kind of size of a project every year. And so we do see something like that. But then of course, we welcome them. But then, I think one other thing is because we have both public sector and then those projects are not as much recurring, right? So it adds to the seasonality. But then for the -- or the randomness list. And then -- but for the enterprise accounts, that's what I have emphasized with my team that we need to go deeper with these enterprise, especially now because of the digital transformation trend and also the efforts or the demand on the ESG. And that has been our kind of focus where we have our solutions, right, designed and then deployed for them. So because the demand is continuous, so that actually helped stabilize the demand that we are looking at. And I cannot say anything I expect. So -- but let me just finish that. Yes. I hope that helps.
[Operator Instructions]
That's all right. If no more questions, maybe we'll see some of them in Singapore, right? Two weeks later. We still have a chance to catch up.
There are currently no questions at this point. I'll pass the line back to Gary. Gary, please proceed.
Thank you, everyone, and thank you for your understanding that this is a silent period for us. So see you soon and I think everything will go well and we'll update to you sooner. Thank you very much. Bye-bye.
Okay. Thank you. Goodbye.
And thank you, ladies and gentlemen, for your participation in Far EasTone 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. Thank you again, and goodbye.