Earnings Call: Q2 2021

Jul 16, 2021

Good afternoon, everybody. Very happy to have all of you here. Today, this is the Q2 of financial year 2021 earnings call for Digi. Now it's our pleasure we have almost the entire Digi management team with us. You can see we have Alvin, our CEO also Inge, our CFO Praveen and Eugene, both our CMO and CBO as well as Koseven and Jo Kim, our CTO and CCAO. Now we are also joined by a special individual today, who is Oto, our new CFO. Hai Auto, who is currently in quarantine in Malaysia. That said, this is Inger's final DG presentation. So let's make it a very sweet one before we release her for some summer fund. Okay? Now, just a couple of house rules. You are all muted by default. If you wish to ask question later, kindly unmute yourself. Now if you are joining through your mobile here, you can also reach out to me via WhatsApp. I can address your questions shortly. So without any further delay, let me invite Alban to kick start the presentation. Hi, Alban. Over to you, Peter. Hi, Christine. Hi, good afternoon. Okay. Hi, everyone. Good afternoon. Welcome to Digi's Q2 2021 announcement and financial numbers. I hope everybody is staying well and safe, both in Malaysia and abroad. It is continuing to be a challenging time for us here in Malaysia with COVID, but let's continue to observe SOPs and try and help And sure we get out of this safe. So let's go through this afternoon's presentation. Next slide, please. We will cover a couple of items. As I mentioned, the highlights from Q2 2021. Today, I will be joined by a few members of the management team that will to take us through the presentation. Also, Inger and Kaesebel will walk you through some of the points as well. Then we will run through the financial review and come up with at the end with strategic updates. Next slide? Let me start off then with the first two slides. So giving you a little bit of overall context of second quarter. First of all, in my introduction, I talked about the impact of COVID continues to challenge both us and the market. And hence, I want to talk a little bit about the support that we continue to provide both consumers through government led initiatives, Particularly keeping consumers connected, there's a variety of items that we are providing, including special plans for students, the 3 Hatin package, which we will talk about later and also that we continue to extend the productivity and education 1 gig program. We delivered revenue growth in this quarter with stabilized EBITDA momentum coming from better execution coming from Q2, Q1 when we shared where we had made some changes to the product offering going into Q2, and we'll talk a little bit more about that as well. Then lastly, it's about modernization of our network. We had sustained number one position on network consistency and continue to provide good network experience for the customers. Although the changes in traffic Captain shifts or location of traffic usage shift has caused customers to raise some request for us to review coverage in some areas and we have done so accordingly. Keesun will talk a little bit more about that. Next slide. Some financial numbers and then performance numbers and then Inge will go through a little bit more details as always. So let me start off with giving you service revenue update and the total revenue. Service revenue grew 1.7% year on year and the total revenue was 11.4% year over year. This also was driven by higher ARPU, both on a prepaid at RM34, which is an increase of 5 ringgit year on year and a blended ARPU that took us to 43 ringgit. Both of these driven by data and Internet Plan take ups, the switching strategy that we looked at for both postpaid and prepaid and introducing affordable plans for the market given the period that we are in. B2B revenue also then took a strong growth with a 1.9% year on year. As you know, we've talked about this before on focus areas and it's good to see that we were able to serve our customers and also grow our base during this period of time. As I mentioned, besides the ARPU improvement, there was a postpaid subs improvement as well, 153,000 subs was added in this quarter. On EBITDA, on EBITDA declined minus 3.5% year on year. A normalized figure would have taken us to flat EBITDA and a profit after tax was minus 2.8% year over year. If a normalized version of supply, it would be at 4.4. Inge will cover a little bit more of these details. So I don't steal any limelight from her, Conventura covers it later. Subs, I've touched on. And maybe the last point here, which is important, is to show that the usage with the new affordable plans I've also then taken average usage of a customer to 21.4 gigs. Next slide. I'll hand over to Keesevan. Yes. Good afternoon, all. Let me just give you a view of where we are with our network. We have to now maintain our network stability and consistency. I'll cover this in 3 areas. 1 is talking about Growing our coverage and network capacity and then Zendela which is supporting the government's initiative to meet our digital society ambition. And then in terms of how we are increasing our spectrum efficiency through 3 gs sunset and moving the spectrum into 4 gs. But let me start with the first pillar. On 4 gs LTE and LTE A, we have now covered about for 92% and 75% Respectively on the top coverage, we have actually been able to expand our fiber footprint to about 10,000 kilometers today. And we have also been able to sustain our number one position on consistency in network and also download speeds. When it comes to OpenSignal, we have been rated number 1 with reference to video experience and also group video calling. And we have during this time, we have also recorded a much higher data consumption, which is 8.7% quarter on quarter and also 18.3% growth year on year. On the Jindela front, in the year 2020, we met our ambitions that was set with new sites and also upgrades. You would see a 99% there. The 1% was due to Some delays from the state backed companies in delivering their sites, but we have now put them on air. For 2021, we have a very tight ambition with a lot of sites to be done. We have to say as of first quarter first half of twenty twenty one, we have met our targets and we are at 42% 62% Over and above our own build sites, we also have the USP clawback, which gives us about 79 new sites, 13 73 upgrade sites and another 1100 kilometers of fiber to be built. We are on track. We Half this to the year 2022 to complete. So we are progressing on that and we are on track. With reference to increasing spectrum efficiency, We are on track with 4 gs integrations into existing 3 gs sites. We are continuing with that. There is no add up and we are very focused to meet the target for end of the year. At the same time, in preparation for the 3 gs shutdown, we have now instituted a 3 gs shutout pilot in Port Dickson, which is ongoing more to understand what are the implications, what do we need to do from the customer front, How do we work together with business to drive this and also what do we need to do technology and also take feedback from the customers so that it will help us prepare towards the shutdown of 3 gs network at the end of this year. On 5 gs, we are continuing to work with many different verticals, whether it with the ports or with the banking system, to try and use cases that we are learning and we are getting and also working together with Telenor with the experience that they have behind them on the 5 gs, so that we can launch some use cases when the 5 gs network is ready. That's all I have on the network side. Passing it on. Thank you. Hi, good afternoon. I will cover the status on the consumer business. So in the last quarter across the 3 main segments of our business, the postpaid segment, we have continued to progress. We've seen higher take up in our mid level plan since we relaunched in the beginning of this year. Our ambition has been to drive more sales in the RM60 ARPU plans and above. We've done well there. And then we've seen positive response towards our service add on contracts. So as we've mentioned in the previous quarter, We have also now introduced a way to contract customers beyond just a device and this is using services And it has been a very good response so far. And with the recent introduction of the Jarringan prehyatdin program, we're also seeing strong demand in the entry level plan. So at RM40 together with the phone bundled together, a very good demand in that area. Moving on to prepaid, we continue to focus on our high speed Internet passes ranging from RMB30, RMB30 to RMB35, RMB45 a month. That remains our main focus. We've seen a growth in our Malaysian subscriber base both quarter on quarter and year on year, 2.2% Q on Q and 5.2 percent year on year. Our prepaid ARPU has also shown growth both quarter on quarter and year on year And this is driven again by a lot more of the focus towards the Internet subscription passes that we're driving at the moment. Similarly with Jarian and Prehatin, we're also seeing very strong demand here for both the smartphone bundles that we provide as part of the program as well as the SIM based offers on prepaid and I'll cover that after this as well. With the fiber business, Our mission continues to be the same, which is to continue to cross Sell fiber to our existing postpaid base, existing Digi customers. We continue to maintain a very Good entry level price point on fiber and our current promotions are targeted at the mid level ARPU, which is about a RM130 and above in addition to your postpaid accounts. So that's a quick status of our consumer business for Q2. And then a quick overview of Jariman Prehatin, which is a government program that kick started on the 5th May. It has now been extended to 31st August 2021 and Digi is one of the operators providing services for this program. In summary, there are 8,000,000 Malaysian citizens in the B40 segment that are eligible for the government subsidy ranging from RM180 to ringgit in subsidies. About 6,000,000 of these citizens are eligible for a ringgit subsidy, which they can use to subsidize their Internet plans, their monthly Internet plans or a device and 2,000,000 Citizens are eligible for a ringgit ringgit subsidy on a brand new phone. So we are actively participating. Today, We provide very strong offers across prepaid and postpaid and we're seeing steady demand for this and we believe that It will also contribute towards our revenues this year. That's it on Jering and Prehatin. Then I'll move now to Eugene who will cover B2B. Thanks, Praveen. On the B2B side, Digi business has continued to maintain a consistent growth trajectory despite challenges from the lockdowns related to COVID. Tim will continue to focus on execution of our game plan, specifically in 3 areas. First, we will continue to support our SME customers in their digitalization journey via the Panjana bundle, both in enabling them to have a digital front end as well as to like digitalize their operations in the mid or at the back office. 2nd, we'd like to continue to strengthen the Digi business product portfolio, both on connectivity and digital. In connectivity, the idea is basically to extend where we are strong in mobile into the non mobile products as well, including Cloud PABX, you can see on this picture, and also dedicated Internet access. On the digital side, we leverage partnership. For example, touch and go for payments, Cisco for cybersecurity, Avona Facebook for e commerce marketplaces. Finally, I think on the large enterprise side, our approach is to be very targeted in terms of the industry sectors that we are approaching, Specifically in financial services, imports, in oil and gas, and also in smart manufacturing. This has proven to work well for us in that You've seen in the last 3 to 4 months, the Large Enterprises deal book has expanded significantly with some very exciting deals that we have signed recently, for example, with Petronas and CMB. We are also excited to have launched a 5 gs smart port trial with West Ports, one of the largest container port in Malaysia. It is live today and it will be a showcase of how 5 gs together with digital, will enable a significant step up in terms of business productivity. Moving forward, we will stay true to our ambition that is disclosed in the DG Integrated Annual report, 33% revenue growth by 2023, right. And we'll continue to enhance our product and our value proposition beyond connectivity, for example, in Edge Cloud, in Managed Services and IoT. Thank you. This is for B2B. Next, I pass on to Jo Kim. Thank you, Eugene, and good afternoon, everyone. I'll just spend a minute talking to you about some of our responsible business focus in Q2 of this year. This has been, of course, for Malaysia and for many communities around us as well, a trying quarter with rising COVID cases and a lot of business closure that has come along with it, with students and individuals needing to work from and be productive from home. First focus was on really health, safety and environment. As our business is classified as an essential service, we need to keep our services running and our retail running. And so we have worked quite hard on focusing on how we can enable our workforce to continue working safely and unencumbered during the extended EMCO periods as well. We have now also put in very strict monitoring So that we can keep customers and our frontliners safe, both our retail frontliners and our technology frontliners as well, at our premises or at our partner premises who work alongside with We've also now gone on a very active awareness drive to encourage as many digits as possible to be vaccinated and have looked at some alternatives over and above the national vaccination program to support our frontliners here. As Albert mentioned before as well, with extended lockdowns, we see a lot of learning and productivity from home. The network team has continued to prioritize our data traffic for essential locations, particularly the vaccine distribution centers and hospitals. And then we are also focusing a lot of efforts in maintaining high stability and quality of network at all times. As Keesevan mentioned before, we are now seeing traffic usage up to about more than 21 gigabytes per user per month as more and more people work and learn from home. Stable networks, consistent experience, super important at these times. Future skills continues to be our focus. These are part of Some of our core programs that we've done for many years, we've extended our partnership with UNICEF to collaborate on projects to reduce inequalities and to build Charles Wright is in the Digital Link and Future Skills in Schools as well. This is done in collaboration with both UNICEF, and with the Ministry of Education in Malaysia. Then finally, this quarter, as we have done every year for several years now, we've had a Responsible Business Summit just last week. This is an annual organization wide initiative linked to employee KPIs on learning and development to attend and to upscale themselves across the range of topics on responsible business, to anchor our commitment, to drive internalization on our staff and to build competency. These These are topics ranging from privacy, diversity, anti corruption, cybersecurity and others. In prior years, we were able to, of Welcome a lot of participation, physical participation from SME partners and other business partners in this. We believe we have a shared aspiration of raising ESG awareness and focus among the Malaysian community and take a leading position among new Asian corporates to do this as well. So this will continue to be a focus for us to just build our own competency on this and spread awareness and leadership within the community. I will now pass it on to Inge for the next portion. Thank you. Thank you, Joakim. Okay. Now I will go into the 2nd quarter results. On the subs and revenue Our precise, we have delivered good growth in the data users this time around. The postpaid is continuously growing In terms of users, we had a net add of 95,000 quarter on quarter and also over 50,000 year on year, which shows that we have now stabilized our acquisition, and we have also seen a lower churn rate coming together with that. On the prepaid side, we definitely see a growth in our Malaysian database, 2% quarter on quarter and 5% year on year. There's been, of course, driven a lot by the favorable responses that we see in terms of the pre Hatten initiative that Praveen was covering earlier. And we were early out with very good offerings in the market. And despite the lockdown, we see great take up on this. We do continue to scale back on the rotational migrant subs. It doesn't mean that we are not offering to the migrants. In fact, we are very attractive to the migrants, but more now in the retail distribution segment. So as you can see, the slowdown year on year on subs is now only a reduction of 33,000 quarter on quarter. On the ARPU side, we have stabilized the ARPU at R43. It's higher by R3 year on year, very much driven by the acceleration of Internet adoption and on the prepaid side, where, as Alban mentioned, we have ZAR5 on the prepaid increase year on year and ZAR1 quarter on quarter. On the postpaid side, there is a slight reduction of ZAR1, partially due to the lower roaming ARPU that we see. But we see also that it is due to also very good that we are giving in the market that also retains our customers and impacts the lower churn. On the gigabyte per user, we are again at the highest We're now at 21.4 gig. It's 19% increase year on year, but it's a healthy growth that we welcome. And we have also continued to optimize our network in order to deliver very good customer experience on this. So despite the increase, We have sustained the most consistent network in the market. Moving on to the next area, which is on the revenue side. So our total revenue year on year has increased by 11 point 4% and 4.4% quarter on quarter, primarily driven by the Internet and digital revenue that rose 7%. And we have a higher share of this reaching now 76% of our total revenue compared to 72% last year. The service revenue that we have has increased 1.7% year on year, mainly driven by the areas where we want to grow, such as data revenue and also that has been driving the prepaid revenue of by 2.6% year on year. The postpaid revenue continues to see some pressure due to the customer spend and the market slowdown due to the lockdown in this quarter. But we also see, as I said, that the acquisition is still healthy and we are trying to Into the right packages to meet also the share of wallet, which is under pressure in the market right now. On the device revenue side, Hira has actually had a significant increase of 78% year on year. This is if we exclude a nonrecurring adjustment that we did this quarter of SEK37 1,000,000, which is linked to the device revenue. It's a device liability we had in our books that we have reduced this quarter after reviewing the need of this liability in our book based on the usage. So if you look at the Total revenue normalized, it's an 8.9% if you exclude this nonrecurring impact. And quarter on quarter, it's similar that you also have quite a good increase on devices and others. The SEK37 million, as I said, is also driven by this nonrecurring impact. But both postpaid and prepaid revenue are improving quarter on quarter, which is good to see. And then we have some software gaming activities on SEK6 1,000,000 quarter on quarter. Then I move into the higher costs. So I mentioned earlier the 37 device revenue liability. In fact, this has an equal reversal on the COGS side. So it actually is an increase of our COGS. So it will zero rise on both gross profit and EBITDA. So you will see here that year on year and quarter on quarter, our COGS are also higher, but this is again a nonrecurring effect. So if you look at the total COGS, It is a 52% increase but also driven by over 300 1,000 devices sold in this quarter compared to slightly over 90,000 in the same quarter last year. It is driven by the Priatine initiative as well as our Phone Freedom 365 drive on ground. And on the OpEx side, there is also an increase year on year due to the nonrecurring benefits we had last year, which we also reported to the market. Last year, we had €25,000,000 of nonrecurring cost benefits. This one, we this year, we have a cost adjustment on the negative side of €1,000,000 So in total year on year, it's a €26,000,000 impact on the OpEx. And on a normalized view, it would have been an underlying OpEx increase of only 1.3%. And this is due to the higher sales, operation and maintenance as well, alongside our better collection process because what we see is that these Unprecedented times makes people really want to pay their bills. And in fact, so far this year, we have achieved a much lower PSDD ratio compared to earlier years. Same half last year, we were at a 2.6% PSTD ratio. And first half this year, we are at a 1.9% PSTD ratio. So very good collection, but also very good payers out there. Of course, we need to monitor this very closely given the current On the other OpEx things that I want to mention on a quarter to quarter basis, you see also that it is down due to good focus on cost management, both in sales and marketing and O and M and staff cost aspects. So I think this is and on a quarter on quarter basis, also has slight increase in PFCD due to Quarter 1 being exceptionally low. So the trend we see on OpEx here is a good one on the underlying perspective. Then let's move to the EBITDA. So our EBITDA has, in fact, stabilized. As I mentioned earlier, the Margin on EBITDA will be impacted by the nonrecurring effect on the total revenue because the denominator will be higher. So the margin is at 45.9% reported, but on a normalized view, It's at 47.1%, which is pretty similar to the previous quarter. And we do see that the absolute EBITDA is quite stabilized quarter on quarter. Actually, in fact, we see that we have an increase to 744. Then moving to the profit after tax. We are also stabilizing the PAT margin at 17.3%. We have a normalized view there as well at 17 8%, which is showing also good traction as well. Last quarter, if you look at the quarterly view, we had fair value loss in Q1 due to the interest rate swaps that we do. But this quarter, quarter on quarter, we had a gain again. Overall, the evaluation of this interest rate swap program that we started on in 2016 has gain. So we will continue to monitor this and drive this. On the normalized CAT. It is a +4.4 percent and the reported was a minus 2.8%. Then I will move on to the CapEx side. This quarter, we recognized BRL 196 €1,000,000 in CapEx, whereof €2,000,000 were the asset retirement obligation. It's at 12.1 percent of the total revenue and was 15.5% in the same quarter last year. So as Alwyn will probably come back when we wish the guiding, we have decided to do a little bit different CapEx profile this year due to the 3 gs shutdown. So the guiding is still towards the 14% to 15% CapEx total revenue for the year as most of the rollout will be in the second half of the year, and we are running as planned. And on the operational cash flow, we have a healthy margin still at 33.8 percent and it is SEK547 million this quarter. So then my final slide is showing the shareholder return. Our dividend per share is ZAR0.36 per share. It was actually 100 percent dividend payout this quarter, and it is a total of ZAR280 1,000,000 in dividend. On the total assets, we have the and still around DKK8 1,000,000,000 of assets, whereas 19% is current assets and 81% is noncurrent assets. We continue to prioritize an efficient asset management. The composition of borrowings remains quite stable. We have finance leases enlarged a little bit due to the MFRS 16 and inclusion of more sites. And then we also have Sharia compliant as our conventional debt is at only 5.5%, which is well below the 33% requirement. And our net debt over EBITDA is only at 1.6x at this point. Okay. So then now moving to the guiding. For the first half of this year, we have delivered a minus 1% service revenue growth or decline in fact. Now given the unprecedented times that there is a continuous lockdown in Malaysia and record high numbers, We believe that from a year on year perspective, we will sustain our guiding on the low single digit decline. We are initiating a lot of implants and initiatives to go to the positive side, But these external factors are still challenging, especially also with the continuous border closure and impact also on the roaming revenue side. But we see good traction on the areas where we can grow, which is positive. On the EBITDA side, So far this year to date, it's a minus 3%, which is in line with our guidance on medium single digit decline. I would also like to remind you that In the second half of twenty twenty, we also had some nonrecurring effects, especially in Q3. So we believe that this will impact the year on year as well on the EBITDA guiding, and we sustain our guiding as per previous medium to single digit decline. And as I I explained earlier, the CapEx to total revenue ratio we sustained, although it's at an average of 11.1% so far this year, It is because we have skewed a lot of the investments to the later part of this year due to the 3 gs sunset program. We are committed to maintain business as usual during this unprecedented time. We are focusing on building and delivering on our priorities and building our robust financials and organizational agility. We have a trusted brand. We drive business standards. And at the same time, we are committed to have full focus on our business, although we are at the site also having the proposed merger discussions and completions of that. So with that, I actually leave the word to Alban for him to say a few words on the status on the merger process. Alban, please. Just a couple of last slides before we go into Q and A, everyone. Let me just touch a little bit about the merger discussions and announcement that went out on the proposed merger. DG, as you know, signed a conditional share purchase agreement on the proposed merger. We talked about the structure before. Let me just recap that. The corporate structure post merger will be an equal ownership in Ternod of 33.1%, Azietar 33.1% and then the Digi minority shareholders at 33.8%, and that will fall with the merged company. Some key selling points, of course, this will create the top 5 Bruxa stock In terms of value, equity value has approximately JPY 50,000,000,000. It is about digitizing Malaysia's future into connectivity. There is a significant amount of synergies and growth opportunities along which will give a big platform for talent Next steps, just that was maybe to recap what we had announced. The next step is keep everybody updated so that we take your questions upfront here, it is basically the regulatory filing to the relevant authorities is in process, subject to approvals from all these parties, including non interested shareholders. The expected completion date is within Q2 of Next slide please. Let me then summarize Q2 as well as just a Going forward, Inger gave you guidance for the rest of the year. Today's key takeaways for us. There will be continuous expectation and for us to Deliver, make sure that society and connectivity is prioritized, to make sure that customers can stay connected during this period of recovery as we move into the various phases that the government has announced. Also for keeping our employees and our customers safe and they interact within our stores and helping them online as much as possible. The network is going to be critical for us to do this and therefore maintaining our network stable network and keeping our leading position in some of the key areas around consistency and quality is going to be key. Financial performance, you've always known to focus And we want to keep that resilience on financial performance going forward. And we're committed in improving returns through growth and dividends to our shareholders. I want to just have one slide now before the Q and A to also just recap an announcement that rental of course you know that Inge is finishing up her tenure as CFO at Digi. She will be leaving Digi at the end of the month as CFO. This will be her last quarter announcement and quarter results, Sherry. As CFO, I just wanted to thank Inge on behalf of Digi and also for you all to have a chance to step out Inge in this instance. And just want to thank Inge for a great opportunity done throughout the whole period with Digi and also in the engagements with all of you and shareholders of DG. So Inga, thank you so much for the full of the almost years of support that you've done with us and the fantastic job you've done as CFO. I also want to welcome Otto. I will give both of you a little bit of a few words, both of you, when I'm done in the auto. But I want to welcome Otto, who is coming in quarantine in Malaysia. He is assuming his role and Hispanic is 14 days in quarantine and hopefully he's well and comes out safely. Otto comes with a tremendous amount of experience and has During DGS, yes, rotating over from Inge. So welcome, Otto, to the DG team. Inge, Otto, maybe that order just a few quick ones from you to everyone. Thank you. And then we can move to Q and A. Yes. Thank you so much, Alban. And I will just say Very quickly, thank you to everyone who's listening in and thanks for always listening to our earnings call and also asking us Very good and challenging questions. And thanks for all the separate sessions I've had with many of you. It's always been a good learning experience for me and also quite a lot of fun. So I wish you all the best. I will definitely Follow DG from the outside and wish this company all the best in everything they embark on. It's a fantastic company to be part of, and I'm very proud of what we have achieved so far. And I will follow you and see the great things you will achieve going forward. All the best. Otto, give it to me. Yes. Hello, everybody. So I'm very proud to join Digi, and I'm starting very well in the quarantine. Nice hotel. So A little bit about myself. I've been 13 years with Telenor. Last position was CFO of Telenor in Denmark, and then I spent 8 years as Head of Group M and A in Norway, overseeing all transactions worldwide. Before that, I have had many different roles and CFO roles in other companies. So I'm very happy to join and look forward to talking to you going forward in the quarters to come. Great. Thank you so much for the solid presentation. Now we are going to allocate the rest of the time today for Q and A sessions. We have already have a couple of attendees here. Let's take the first from Isaac, followed by Feng and Alex. And then I will want to address some questions online as well. Over to you, Isaac, please. Hi, good afternoon. Thank you, everyone, for the opportunity. I have two questions, please. First is, can Can we get some color on the Jialingam pre Huttin from either the like where are we seeing The demand is more on the postpaid and prepaid. And more importantly, can you share with us some color whether The whether you see an increased consumptions of data or telco services or was it just a replacement? I mean that When the money was channeled to the user, do they come in and buy more things or it just replace what they wanted to spend anyway? That's question number 1. Question number 2 is that now that the Digital National Berhad has been formed and there have been discussions, can you share with us some of your CapEx outlook beyond this year, either be the number or be your priority when it comes to your CapEx Thanks, Yi and onwards. Thank you very much. And just before I cut off, all the best, Yi Gein, for Inger for the next endeavor. Thank you. Praveen, you want to take question 1 and then Inder maybe question 2. Yes. Thank you for the question. So the question was with regards to where the demand is coming from, prepaid or postpaid. Right now, I think what we can see is It's following a little bit of the current mix in the country and also what you see in our own base. The ratio of prepaid to postpaid doesn't differ from what the market numbers are already like. We believe the prepaid number will probably be in the range of about 70% plus following the market And then on the second part of that first question, the people who are coming in, Where are they spending the money? There is a very clear requirement that the subsidy is used on monthly data plans. So that's where we believe we can get more customers to also Stay connected on those monthly plans, which with Digi, it starts from RM30 and above, so So they can get it subsidized by RM15. Plus, there will be a segment of users that will now get a chance to move from occasional data passes every week, now they can upgrade to the monthly pass. So it is unlikely that this money can go to be used on other things. It is all intended for Internet or they get it as a subsidy for a new smartphone with an Internet connection. Thank you. Yes. Maybe I can start and Ketevan, you can fill in. Thank you for your question. I think We never guide on CapEx this early for the next year. But of course, this is still very early days also for DNB and setup there. There are, as you know, ongoing tenders out there. So we are still in the midst of also setting the strategy and the CapEx needs for next year. But maybe, Ceeservan, you can give some flavor on other modernization initiatives we will be doing. No further comments, I think we covered the DNB next year CapEx. Thank you. Okay. Thank you. Okay. Thank you. Thank you. Thank you so much. We actually have questions online already, but let me give the word to Phong first. Phong, you're up. Yes. Hi. Good afternoon, guys. Thank you so much for the opportunity to ask some questions. Three questions from me. Firstly, I wanted to go back The question on the pre Hakim plan. So just to clarify a little bit more there, The additional SIM cards that you sell under the free Huapin program are these just basically your existing customers that have maybe left their original plans and just moved over to these new SIM cards because of the subsidies from the government? Or are these New new subscribers that are contributing incremental revenue for TG. And Related to that, can you also perhaps comment a little bit on the profitability of the pre harting plans? Because I note that there are Quite a fair bit of free data that's given in there. So I wanted to understand a bit more on the profitability side as well. So that's question number 1. And then number 2, with regards to the MCO and the EM CEO in the Klang Valley as well as in a couple of other areas in the country, Any updates on the impact on revenue so far? And have you seen any signs of deterioration, Perhaps in collection from postpaid subscribers. And do we sort of expect potentially some increase in the PFTD going into the Q3? And my last question regarding staff costs, it was down Q on Q again. Is that just Basically timing or are we starting to sort of see the cost benefits of some of the business model shifts that we have been implementing? Those are my 3 questions. Thank you. Hi, Phong. I'll take the first question. Firstly, to clarify, we don't have A brand new pre Huttin Platts. So all our current in market offers are applicable for the government subsidy. And the only qualifying criteria is the customer has to pick 1 of the monthly Internet plans We have on prepaid or postpaid. On postpaid, that starts from the ringgit plan and above. In prepaid, it starts from our ringgit plan and above. So they don't move to a different product altogether. That's just to clarify the baseline. And then so have they left the existing SIMs and the existing plans to move to this? They are still on the same plans. However, a number of customers will have to upgrade to the monthly plan in order to qualify for the subsidy. That's how it works. And then with regards to the profitability, the question on profitability, What we have today is our current in market offers that qualify for the pre happen offer. The government is providing a subsidy of between RM180 sorry, providing a subsidy of RM180 For the customers that choose to take a SIM plan and in return, the telcos, Including Digi have a standard offer across the industry which is we provide an additional 2 gigs per day valid for an hour every day. And that's a standard of offer across the industry that is provided across all the pre HAPT implants. Yes, that's to answer the first question. I hand it back to Yes. Okay. So the second question was around the collection now that we have EEMCO and MCO. And if we see some signs, especially on the postpaid subs. So of course, We are monitoring this very closely. I think what we managed to do After the 1st year of the launch of our Phone Freedom 365 in 2018 was really making sure that we acquire quality subscription subscribers using credit scoring facilities and making sure that we have a very solid customer base. Of course, we see that a British citizen in Malaysia is impacted right now, but we Don't see any critical signs on collection as of now on the math side. On the business side, I think we need to be a little bit more careful and make sure that we Monitor very closely their ability to sustain in business. So that's maybe an area of yes, our focus that we really focus on right now. But as I mentioned, on bad debt, we are definitely best in the industry. On the second or third question, which was a question around why our staff cost was down quarter on quarter, we haven't done any changes In the staff cost as such, it's primarily driven by some timing linked to some bonus finalization and some USP claims that came in. So there are not really any changes to the underlying staff cost. Understood. Thank you so much, everyone. And I just want to take this opportunity to wish and get all the best For the future. Thank you, Phuong. Take care. Yes. Take care. And welcome to Octo. Thank you, Phong. Before I pass the mic to Alex, I want to address one question from Phong Leung. His question is why the merger is not entirely based on share swap, but involve partly cash. So Ina, can you please address this, please? Yes, I can. Okay. So the key reason is that the 2 shareholders, AKTIAR and SALONOR, have agreed on an equal share ownership of 33.1 percent each. When we are issuing new shares to acquire Cellcom. There is an issuance that would result in 30 6% ownership of Axiata in the merged call. And to do the share equalization to reach the 33.1 percent. There is a cash payment in addition from Digi to Axiata and furthermore, a small cash Equalization between Telenor and Axiata as well of SEK300 1,000,000. So SEK1.7 billion from Digi to Axiata, SEK0.3 So if we hadn't done that, it wouldn't we wouldn't have reached that similar shareholding. I hope that answers your question. Yes, I think that's good. Thanks, Inger. Alex, you are up. Alex from Mbank. Thank you. Okay. Thanks, Christine. I've got 3 questions. One is regarding your prepaid segment, which has dropped For your subscribers, you have dropped by about more than 300,000 this quarter. I'm just wondering when do you expect some sort of stabilization to these numbers? I understand the impact from the migrant workers, but you're looking at some of your the other operators, some of them have actually shown some growth over the past 2 to 3 quarters. I'm just wondering, what is the dynamics that's affecting you? And when is that going to change? When is the expectation that at least these numbers will level off? Right is my first question. My second question is regarding your CapEx, which is 11% when your guidance is higher for this year. Is that being impacted by the MCO and the COVID-nineteen? And Is there a potential that by this year also you may actually miss that target? And also if you're able to spend in the second half of this year, Where will you be targeting this expenditure? Is it more on urban areas as compared to the Gendela's target to The remote areas and suburban areas, yes. And my third question is because The 5 gs rollout is expected by December this year. Will your CapEx be also be focused somewhere around that area that You know, where the 5 gs rollout is going to come up on stream. So I'm just wondering which area in the client value will you be targeting for Thank you for your question, Alex. I think, Pravin, you want to Take the first one. Yes. Thanks for your question. I think it's with regards to the prepaid segment and our subscriber numbers. As I mentioned earlier, seeing positive traction on our Malaysian Growth on the data subscribers, that's our key focus, 2.2% growth quarter over quarter and 5.2% year on year. I think that's crucial. We've also mentioned in several of our calls, the point on the migrant segment, that's very clear. We cannot gross from new customers entering the country. There is no such thing at the moment, but we have competitive 5th office at the moment. Then there's the other part here on the emphasis on rotational Sims where we have clearly not focused in that part of the business. The main focus is Malaysian customers, Malaysian Internet users at the moment. So we believe that is the main focus for now. If there's anything else to add on, Inger? No, I think this is fine. I think maybe I am I think you can see also in the ARPU impact of Some of our peers that our strategy is actually very sustaining. We are Focusing on where we see that there is retention and also quality in our subscribers. Okay. So a second question, I will start and then maybe Keesevan can chip in. We always set So far, we are delivering according to our plan. So there's no delays as such. This was part of our plan to deliver according to Gendela and also the 3 gs shutdown, which is part of the Gendela project. As long as I have seen the rollout in Katz Evans' team, they always manage to deliver according to their plan. So full confidence in that, and I don't see a big impact from the lockdown. But Keesevan, maybe you want to comment? Yes. Thank you, Inge. As mentioned in my presentation, we are on track in delivery, our year target. So we have done well in our first half and we will continue to do that in the second half. Your question on where the CapEx will be spent. Well, our CapEx, BAU CapEx will be spent on Jindela in the urban and suburban area, whereas the Jindela spend on the rural areas and remote areas will be funded by the Gendela program under USP funds, right. So it's through separate CapEx. So that's how we will focus. And as Inger mentioned, we are always on track in our delivery. Thank you. And then I believe the next question was on the 5 gs rollout. And Kehaseven, do you want to address that as well? Yes. So on 5 gs, DNB wise, the CapEx will be spent by them. We will have some Little CapEx to be spent to upgrade some of our systems. With reference to where we will be in KB, As you know, DFE is rolling out in Putajaria, Cypressaria and in Kuala Lumpur, Glen Baveri area. So we are working this through with The marketing team to see how we get into that game at this point in time. Anything from you, Alban, on this? Yes. No, thanks, Gisela and Inge. Alex, I think it's a good question. And again, it's very early days, as Inge pointed out earlier in her response. And we need to just understand that 5 gs, it's also very early days for 5 gs. And while 5 gs is important for future growth, FWA, B2B and so on, Majority of consumers, at least for this period and going into next year, will still be on 4 gs and majority of the consumers will still have connectivity on 4 gs. So we take it step by step. And since it's very early days, we will come back and update you as we go along in the next quarters. But I think, yes, when in Inge's answers for this call. Thank you. Thank you, Akhil. Thanks, Alban. And also thanks very much, Thank you, Alex. Maybe before I pass the Q and A queue to Ranjan and also Jim, can we quickly have a follow-up question from the earlier merger question? Why can't Assiata and Telenor have higher shareholdings to exhibit stronger commitment to the merged entity? Why fix it at 33.1 percentage? Thank you. So I think maybe this question I cannot answer because it's our shareholders and another shareholders' decision, which we have not been part of. So please, I think Telenor has their quarterly reporting next week. You can Try there. Thank you. We can send that question up for you to Telenor. Yes. We can send it to Telenor as well and get back to you. Thank you. Now over to Yiran Zheng from JPMorgan. You are on mute, actually, but we can't hear you. I think he is having some connection issue. Maybe just post your question on the chat then. Yes, you can write your questions on the chat. Okay. While waiting for the 2 gentlemen to be back, we have another question on service revenue growth. That we are keeping to a low single digit decline of service revenue. Is it because the standard and stricter lockdown is posing risk for a return to service revenue growth in the second half. Sharing some colors, please, Elva and Inge? In the year, yes. Where is the question typed, Christine? I cannot see it. Okay. Let me repeat the question again. Yes. Yes. He is actually addressing why is that DG is keeping a low single digit decline for service revenue. Is it because there is a stricter lockdown posing a risk to our return in service revenue in the second half of the year? Yes. Okay. So yes, I think if you compare to last year as well, there was a slightly recovery in Q3. Last year, the Slightly opened up slightly. And we see that there is a risk to the rest of the half a year due to the continuous high numbers of cases and impact on the economy. However, we do see very positive impact on the government led initiatives as well. So we keep leveraging that absolutely. So the guiding still stands due to especially the impact on the postpaid side, but the prepaid is having good traction. Okay. Thank you. Let me try to bring Jim back. Jim, are you there? He's got a question posted. He put a question up. Great. Yes. Okay. On the B2B front, when do you foresee 5 gs use cases to start meaningfully contributing to your revenue. The first question can be addressed by Eugene or Kiseven. Now second question, are we looking at this at some time between FY 'twenty three and FY 'twenty four when 5 gs is up and running hopefully. And once we have figured that out, what are the type of use cases for each industry, for example? Perhaps you can have some insight from Eugene and Kaeseban. Eugene, you want to take the first part? Yes. We have started some of the 5 gs trial cases, Right. For example, just now I mentioned the ones that we had at the container ports, right? Based on the understanding, I think when we start rolling out 5 gs, whether it is from the end of this year or the beginning of next year, I think we will Focus a lot of the rollout use cases on enterprise customers. So you will see the revenue and also like the opportunity start to build From 2022 onwards. In terms of when it will contribute meaningfully to the revenue, I don't think I have an answer at this point of time, right? Have we figured out the use cases for each industry? I think based on what we see now, like in the in ports and I think some of the use cases are related to know like where AI comes together with digital imaging. So what you are doing is you are allowing digital images and you're Using AI to recognize these images so that you can act like based on that. Hence, Removing the need for people to actually do that and to be there and looking at the thing specifically. So we've seen some of these use cases. We have also started to see other use cases that is a bit related to remote control. So for example, if there are an environment where It could be not as safe for people to be there. I think what they can do is they can remove the people from the actual environment and have put them to control the equipment or the machineries in a safer operation center. Yes, sir, I don't know if you want to add to some of that. No, I think, Eugene, you covered that well. But just coming back a little bit on the question, are we looking at sometime 'twenty three, 'twenty four? I think we need to look at 5 gs very differently. 1 is the mass rollout that DNB will be doing, whereas we So we're looking, as Eugene mentioned, based on specific use cases, which may be related to a specific area and more towards a private network kind of a setup. So at this point in time, we are working through the use cases and then we will engage DNB, whether it's in 2022, 2023 or 2024, that's dependent on the use cases that we want to go with and the opportunities that we will decide to embark on. Thank you. Thank you both. There is a follow-up from Jim, which I can address. Jim, he asked, Is there a reason why B2B revenue not disclosed at this moment? Yes. Unfortunately, we are not disclosing B2B or also enterprise contribution. We will do that in a much later time. Thank you. Now over to Usman. And Usman, we are taking final questions from you to complete our joining sessions. Thank you for the opportunity. And again, best wishes This is to you, Inger, for the time. My question was just on the prepaid versus postpaid dynamic. It's interesting that you seem more optimistic On the prepaid revenue trend development versus postpaid. In postpaid, you're highlighting the risk of optimization, Whereas in prepaid, I would have thought that the risk of optimization is higher because of less than macro conditions. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So if you could maybe just uncouple that for me, how is it that You have a higher kind of confidence on the prepaid side and the postpaid side going forward? Yes, I can start and Peruvian you can Come in as well. What we see in both finance and business is due to the uncertainties right now, People are not so willing to commit on a long term basis. That's 1. And second is also It's more challenging when we have lockdown and some of our stores and dealers are closed. So especially How we drive device sales is very much through our channels, but we are moving rapidly into digital channels. We have very good traction there. And we, especially on the B2B segment, also use digital channels. And Peri, maybe you can share a little bit on that. Just finally, on the prepaid side, it is definitely having a positive impact, the government led initiatives to Peoples Wallet on a month on month basis. That's why we see a very good traction there. Usman, thanks for the question. I think we're Equally optimistic on both prepaid and postpaid. That remains the case. Earlier, we've also mentioned that we've had a Specific focus in the prepaid area to focus on quality subscriber growth, lesser focus on rotational SIM users And that has also aided indirectly in terms of the ARPU levels on prepaid. The key narrative on prepaid is focused on the Internet subscriber growth on high end passes and that's really where we will stay, But it doesn't remove our focus on postpaid. The key I think the key challenge for us on postpaid is, of course, What Inger mentioned on the channels, the shops, it's a little core there's some correlation with the lockdown. And also, we are monitoring collections day by day. That's a key part on the postpaid business. Thank you. And then of course, the border closures still impacts postpaid especially. So as soon as those open again, I think we will see a good upside. Yes. I think, Usman, it's a dynamic approach. I think what Praveen and Inger just described, it's a dynamic approach to prepaid and postpaid. We focus on both and you almost Use the different levers at different periods of time. So I think that flexibility and agility is really what I mentioned at Tim on for prepaid and postpaid. So And then the execute on the ground is much more targeted. So very good question, Usman, and thanks a lot for the response. Thank you, Ozan. All the best. Yes. Christine, that's the last question, and that comes to the end of our session. I just want to thank everybody for taking the time this afternoon to be with us. Thank you for all the support in the first half of the year as well to us. Again, thank you for the Welcome to Inger and please welcome OTO and hope all of you engage OTO through Christine in due course. I also just want to wish our Muslim friends, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] It's Nomura Haya Haji coming up next week. And to everyone else, please continue to stay safe and invest in our plan. Thank you very much, everyone. Take care. Thank you. Take care. All the best.