Earnings Call: H1 2020

Aug 21, 2020

Good morning, ladies and gentlemen. On behalf of Compass Telecom Systems Holdings Limited, I would like to welcome all of you joining 2020 interim results investor presentation web conference. In today's meeting, there will be a presentation followed by an Q And A section. In the Q and A section, if anyone wishes to ask questions, please click on the raise hand button located at the bottom of the screen. Today, we have 4 senior management joining us today from Hong Kong and Guangzhou. From Hong Kong side, may introduce the Chairman, Mr. Fockdong Ling. The Executive Director and Group CFO, Mr. Kang Chang. The executive director and senior vice president of the group, Ms. Horsing Wu, And from Guangzhou, may I introduce the Executive Director and President of the Group Mr. Xu Hu, Wei Jun? Now may I invite Mr. Ken Chang? Executive director and group CFO to present the 2020 interim financial highlights. Mr. Chang, please. Good morning, everyone. I'm here to, introduce our financial result for the first half of this year. In the first half, we have the COVID pandemic that, affect a lot of industry, including our telecom industry. The 5 g target is still on track. However, we have seen that the pandemic have affected the progress somehow. The revenue, for us in the first half is 2,200,000,000 Hong Kong dollar. Which is about 18.6% down year on year. The gross profit margin is 32.5%, is 0.8 percentage point up is because of two reasons. First is we have been introducing new product. Second is we have been optimizing the operation, that result in a higher margin. The net profit to the shareholder is 53,000,000, which is 35.4 percent down. Net profit margin 2.4 percent. Basic earning per share is 2.09¢ per share. We are paying dividend, 0.7¢ per share, which result a dividend payout ratio of 33.5%. And let me talk about, our OpEx, operating cost structure. So most of the cost structure, have decreased. For example, our finance costs, it means expenses, selling expenses. Finance cost decreased by 12,300,000 Hong Kong dollar, down by 23% because of two reasons. First of all, our net debt have decreased resulting our gearing ratio dramatically decreased from 15.7% to 13.5%. And over the last 6 months, the interest, measured by HIBOR or LIBOR have in general decreased. That result in the decrease in the interest expenses. And second of all, the admin expenses decreased by 46,000,000,000, down by 16.5%. Selling expenses, decreased by a larger degree, by 85,000,000 Hong Kong dollar, down by 30.6%. R and D maintained similar level at 7.8%. There are 2 expenses that have increased year on year. First of all, it's the income tax. Increased by 14,600,000,000 Hong Kong dollar because of 2 reasons. First of all, at the end of last year, we have restructured certain businesses. We have, aligned certain businesses in different groups, and that result in a one off restructuring tax related expenses around 10,900,000 Hong Kong dollar. We believe the long term benefit for the restructuring is definitely can offset the short term shortcoming for the tax expenses. 2nd of all, the deferred tax asset have decreased resulting a tax expenses of 9,900,000,000. If we take out this 2 nonrecurring costs. In fact, our tax income should have come down year on year. Other expenses increased by, 45,000,000 because of, 2 major factor. 1st of all, our AR provision have increased by 31,000,000 because of more rigorous analysis on the AR side. 2nd of all, the, ETL, our operator, the 1st largest operator in Laos that we own 51%. The new fixed asset has started to depreciate, the beginning of the year. And, after taking the 51 percent stake, the effect, affect our bottom line is around 14.7000000 dollar. And on the, balance sheet side, let me make also the highlight here. At the end of April, we have conducted the acquisitions and raised 680,000,000. And as a result of that, also, we have seen the net cash have dramatically improved. Net asset is standing at $4,100,000,000, up by 20.3%. NAV per share is 1.4900 per share, up by 8.8%. And let me go over the, operating matrix. So first of all, let us look at the turnover day. So although we see the turnover day, in inventory AR and AP have increased by 30 days, 35 days 51 days, respectively. And this is mainly due to the fact that the revenue has declined by 18.6%. And the denominator effect has, the denominator has decreased and because of that effect. Inventory, if we look at inventory particularly, Inventory has increased by 169,000,000. This is mainly due to the fact that we have been busy preparing the 5 g antenna, which will be shipped in the second half of the year. And we believe that the the temporary increase is a, more like a one off event. For AR turnover day, it has, increased in the number of days, but if we look at the AR absolute amount, the AR actually has decreased by 150,000,000. AB29 today has, although, has increased by 51 days, If we look at the absolute amount on the payable, trade payable decreased by 264,000,000. Other payable decreased by, around 400,000,000,000. So altogether, more than, 500,000,000 of, the payable, has amount have decreased. Cash conversion cycle, we still maintain at the low number. Gross, gearing ratio standing at 15.5 percent is a 3.1percent point improvement. That to asset ratio is 57.9 percent. It's, 8% point percent, dividend payout ratio 33.5 percent. So now at our gearing ratio, may I share by the net debt divided by the interest bearing debt divided by total assets standing at 13.5%. We look at the peak. It's around 2018. The peak standing at 18.9%. And from there, it's, about 5.4% down. And now our gearing ratio is back to the level of what we have seen, in 2016. And we believe it's a a pretty healthy sign. And let us let us look at, the breakdown of our revenue. First of all, let's look at the revenue breakdown by customer. So because, in the, because of the pandemic what we have seen is, we have a slower progress, in the network, deployment. And as well, we are also in a transition period from 4 g into 5 g. So what we are seeing is although, on the mainland operator side, we have a decrease in the free operators. We have seen China Tower particularly now representing our 4th largest customer in mainland. And now we're presenting, 7.7 percent of total revenue, up by 63.4% year on year. Because of the, indoor network and the last mile network solution, demand have increased. International customer have increased by 4.9 percent year on year. So the market have done, particularly well. For example, our Asia Pacific Europe Middle East, our European market have increased by 10% year on year. Indian market has increased by nearly 3 folks. Also, we are making progress in the OEM customers as well. So I think we have a pretty good, growth profile, from second, from second, half and onward. For international market. For the other businesses, mainly is, has been dragged down by the railway transit revenue, which represent about 3.5 percent, and down, around 18% year on year. And because of the, pandemic that slow down their orders. Now looking at our, revenue by businesses, the, antenna business, down by, 45%. And besides the antenna business, network system services and others, have increased by 7.8%, 11.6%, and 30.8%, respectively. The down in the, antenna business is mainly due to the fact that I previously mentioned, we are in a transition from 4 g into 5 g. And the first half of the, 5 g deployment specialized procurement has been, slower than expected somewhat. However, we are excited in from the second half onward particularly the 700 Megahertz and the 2.1 gigahertz network, would demand more of this type of antenna, and we are in a great position, for the shipment for that from, second half and onward. So, we believe that we will have a recovery, in the second half. Network system up by 7 7.8%. This is due to, continuous, the recurring, demand from the indoor and the last mile solution. Services, a similar reason, also because the indoor and the last mile services demand and also our enhanced and improve operation efficiency. Other businesses are also worth mentioning the wireless transmission currently account for 5.3 percent of revenue, up by almost 250% year on year. So and obviously, you know, because of the pandemic, the result is slower than expected, we lose roughly about 1 to 1 and a half months of revenue. However, we are confident we are in a quick position for catch up. First of all, as mentioned, I think we are in a much greater shape in liquidity, in the net cash position. We have stronger financial profile. And, second of all, over the last 5 over the last few years, we have been, rigorously invested in R and D capacity. And operation enhancement. We believe we are in a much stronger position to capture the 5 g opportunity set and beyond. So with that, I will end here and then, our president, Mr. Xu Jujin, will, illustrate our business and strategy side. Thank you. Thank you, Mr. Chang. May I now invite Mr. Xu Hui Jun Executive Director and President of the group to present industry development and company outlook. Great. It was somebody in the car. Number So that I do go ahead and get you in when I can't assist you. So come out. So you don't even pocket, coaching, reactable, so Number there. To from the MDD but you got to. Take a 1, 2, woman I mean, you say that's it. Because So you gotta Thank you, Mr. Xu.