Good morning. Good afternoon. Welcome to Digi's conference call. Winnie, please begin your call, and I'll be standing by for the Q&A session. Thank you.
Thank you, Charlotte. A very warm welcome, good afternoon and good morning to everyone joining us on this call today. Welcome to Digi.com's first quarter 2019 earnings call. As usual, we will actually invite Albern to actually start off with the key highlights. After that, I will also invite Loh to actually share a little bit on operational updates before handing over to Inger, our CFO, to run you through the financial updates. Thereafter, Albern will come back again to join us on the 2019 outlook and guidance. If there's any housekeeping questions that we can't address during the call today, do feel free to connect with me after. Without further ado, Mr. Albern.
Winnie, thank you. Hi, everyone. Good afternoon. Charlotte, thank you for the call set up. Just going to go over Q1 numbers. I'm going to do some key highlights, performance review, quick updates. With me, you will have Inger, the CFO, and Loh, the CMO, together with the rest of management team. Thank you once again for taking the call. Very quickly, just going over Q1 2019. Let me first start off with giving you our overall revenue position. Postpaid, we had a revenue growth of 13.5% year-on-year. This continues to be a growth area for us. Internet also growing at about 13.3% year-on-year.
Service revenue, we saw a softer Q1 with a decline of 2.8% service revenue, mainly coming from prepaid and as expected, prepaid, which we indicated in the previous quarters as well, on the non-profitable areas, continues to decline on traditional voice, while data stays positive. On LTE unit, we have 8 million LTE subscribers, and we'll touch on the network in a bit. Opex, delivering well on Opex, with a 0.4% Opex reduction year-over-year, taking EBITDA margins to 48%. On digital transformation, we continue the transactions at 31 million, even in Q1 versus Q4, where Q4 traditionally would see a higher pickup on transaction. We saw the same transaction level in Q1 2019. Active users of the app are 3.2 million. Network virtualization is basically our readiness for future technologies and scalability, but it's also mainly taking our core network to the cloud.
Happy to say that we are progressing extremely well in this space. That then ends with us taking a number one Net Promoter Score position throughout the first quarter of 2019. On this slide, which is just covering a little bit of our growth opportunities. On the core business, we looked at basically re-energizing and modernizing the channels. We've gone out there to the market and disrupted a little bit of what we used to do in the channels on our own base. Forcing more growth coming from internet so that we have a longer-term sustainable offering in the market. On postpaid, in order to continue the momentum, we looked at sharpened our PhoneFreedom 365 offering to our customer base. We also broadened the base of customers that now is applicable to PhoneFreedom 365.
On base management and activities around postpaid, that continues as a core business focus for us. On MyDigi, I touched on the 3.2 million customers, but we also have a new app out, which is basically giving consumers better payments and better self-help ability, but also a more secure sign-in and better rewards and personalization. On personalization side, Box of Surprises continues to be outperforming, and engaging more customers. On B2B, in the last two quarters, I also introduced that B2B is going to be a focus area for us. Happy to report that the channel is more efficient, and also has much better traction on the two acquisitions. We also have taken a MyDigi version of the consumer product out to the B2B as well, and we have now a full range of digital business solutions out in market.
Moving away from core and into digital services a little bit. You would see that besides MyDigi 2.0, we're also moving into areas of new focus, also in line with trends and consumer behavior. In this instance, Republic GG, a one-stop command center for gaming. It's a sort of an all-you-need solution for our kit. Very fresh from the weekend, all of you know, those of you in Malaysia, that we have the 5G showcase together with MCMC as an industry. This was a successful showcase to go in there and look at use cases and what would 5G be used for potentially in this country in the near future.
Just to give you maybe some highlights here, we looked at some test use cases, mainly looking at services, for example, emergency services, better augmented reality experience, and virtual reality in sports gaming, but also education when it comes to augmented reality. MCMC is very much part of it, and the next phase of it is going to a pilot 5G, which we will come to later. This is part of the 5G National Task Force, as mentioned by both MCMC and as before. Loh, would you take over the next slide then?
Just share with you a bit on the key drivers in the internet business. In terms of the network, we continue to expand the 4G LTE network to 89% network coverage, with 67% LTE A supported by the fiber of 8,500 km. As a result, you will see that now our 4G subscribers is all-time high in Q1 to 8 million, with a data traffic growth of 31% year-on-year and 4% quarter-on-quarter. This actually translates to monthly data users of 10.2 gigs in Q1. In terms of the revenue, internet revenue, as what Albern mentioned, year-on-year, 13.3% growth, primarily driven by the postpaid of 25% year-on-year. On the prepaid is 2% year-on-year. If I take you to the next slide number seven, go a bit deeper into the postpaid.
In Q1, we continue to see a strong momentum in the postpaid, primarily driven by a multi-segment acquisition strategy. It's still the entry-level postpaid. We have the borderless roaming position with family, as well as the PhoneFreedom 365. In the quarter, we also continued to strengthen our base management, via personalization offer, and also the PhoneFreedom 365. The postpaid is continued to be our ambition to be one of the fastest-growing operators in the market. If you look at the prepaid, despite a dilution from the pre to post as well as the non-internet, we are able to continue to grow the prepaid internet base by 2% year-on-year. This has actually proven that our focus and strategy to drive the internet is actually working.
To intensify the growth for prepaid internet, in Q1, we effectively implemented some changes in the acquisition strategy, as well as some change in the channel and the distribution model. Mainly, eliminate some of the layers in the channel so that we can reach a wider coverage, as well as able to acquire a more valued internet user. From the learning on the base management for postpaid, we also start to adopt some of the base management methodologies in the prepaid as well. This is to further strengthen the base management as well as data monetization in the prepaid via personalized offer. We believe this will continue to stabilize the prepaid ARPU, as well as a more sustainable growth in the future quarters. If I take you to the next slide, on the slide number eight.
As a result, I think as we continue to transform the business, our internet base has reaching all-time high of above 9 million, again, with the right acquisition strategy that I mentioned just now. ARPU is relatively stable, mainly because of intensified base management as well as the personalized offer that we have put in in the last two quarters. With all the changes in the operation and the distribution model completed in Q1, we believe that the current trajectory will continue, we should be able to deliver a more sustainable growth in the coming quarters. I'm going to pass to Inger to share with you a bit on the revenue at P&L.
Thank you, Loh. Moving to the next slide. On our service revenue, our postpaid revenue grew, I'd say, 13.5% year-over-year, ex contract asset amortization, 2.6% quarter-over-quarter. Our postpaid internet revenue grew as much as 25% year-over-year, 4.8% quarter-over-quarter to MYR 461 million. As expected, prepaid internet revenue mix has now increased up to 52%, we continue to see the expected reduction of our traditional voice and interconnect rates revision. This has re-leveled our prepaid revenues by 13.7% year-over-year. Overall, our internet revenue has grown 13.3% year-over-year. Our service revenue, as Albern mentioned, is trending 2.8% lower year-over-year to MYR 1.44 billion, or if you net out the contract asset amortization result of the IFRS 15 standard, it is MYR 1.39 billion. It's mainly driven by the prepaid reduction, as I mentioned, from traditional voice reduction.
We are cushioning it with the solid growth from postpaid. As you will see from the graph, the contract asset amortization has accelerated the past quarters up to MYR 48 million as a flow-through from prior years' accelerated postpaid contract acquisition. Quarter four was a record high device sale year for us. However, quarter one, the device and other revenue moderated to MYR 116 million. We also see the preceding quarter boosted by new device launches and easy device ownership program from the PhoneFreedom 365. We will expect a stronger take-up of devices, as we already see traction now in March, after the relaunch in the beginning of March. I will move over to the next slide on cost.
Our costs have declined 19.1% year-over-year and 30.1% quarter-over-quarter, as I mentioned, due to the lower device volume as we saw this quarter as part of our relaunch of the PF 365 program. We have a continued focus on the efficiency agenda, we are seeing a reduction year-over-year, as Albern mentioned, of 0.4% in our Opex year-over-year and 2.4% quarter-over-quarter. This is mainly coming from sales and marketing and O&M efficiencies. I would also like to mention that we have a one-time cost reduction of MYR 22 million, coming from an O&M efficiency initiative. This gives us an Opex service revenue at a healthy 35.2%. Further, we have demonstrated a lean and efficient cost structure, as you will see also, across all areas. This is mainly also driven by our digitization efforts and moving our customers into a more digital customer journey.
Moving on to the EBITDA and Profit After Tax. We are showing profitable operations with healthy margins, now with an EBITDA margin at 48%. Our EBITDA stays at MYR 723 million due to the softer top-line development we have seen in Q1, mainly driven by the shift in prepaid mix of the reduction in the expected interconnect revenues and traditional voice revenue. This has moderated our EBITDA by 6.7% year-over-year and 2.3% quarter-over-quarter. We anticipate a stronger EBITDA growth in the remaining quarters. Profit After Tax has eased to 5.8% year-over-year and 6.4% quarter-over-quarter to MYR 485 million. Our Profit After Tax is at MYR 366 million and a healthy 24% margin. Let me move on to CapEx and operational cash flow. This quarter, we have invested MYR 168 million and at a level of 12.1% CapEx sales ratio, which is also according to our guiding.
This is mainly spent in fiber network expansion and also the network function virtualization mentioned already and continued upgrades of our network to serve our customers on LTE and LTE Advanced, where we have now reached an LTE involved 67% of our population. Operational cash flow is moderated to 6.6% decline year-over-year, in line with the EBITDA development that I mentioned earlier. However, if you look at it sequentially, operational cash flow has improved 8.8% to MYR 555 million and a healthy 37% margin. Moving to the shareholders' return, we see a healthy return and stronger assets. The earnings per share is resilient at MYR 0.047 before the MFRS 16 impact. It is MYR 0.044 after MFRS 16 impact. The board has declared a first interim dividend of MYR 0.047 per share, equivalent to MYR 334 million.
This will be payable to shareholders on the 28th of June 2019 and gives out a dividend yield of 4% based share price. I would like to go quickly through the balance sheet implications of the MFRS 16. What you will see here as well is that our assets have strengthened to MYR 8.01 billion, up 33.9% year-over-year and 29% quarter-over-quarter, as we have registered our site leases into the rights of use assets according to the MFRS 16 standard. With this, our net debt to EBITDA ratio is 0.8 pre MFRS 16, and it is actually 1.5 post MFRS 16. We are well within the Sharia threshold of 16% post MFRS 16. I will go a little bit further into the details on the next slide on the MFRS 16 effect.
As most of you already know, this is the standard the whole industry has to apply to. We are moving our site rental leases and also other leases into our assets in our balance sheet. We are amortizing that over the contract period into Depreciation and Amortization and also including it in finance cost. This has, as you will see here, an effect on a reduction of Opex of MYR 81 million. An increase in the D&A of MYR 89 million and finance cost of MYR 26 million accordingly. As you see here, we are improving our EBITDA margin, post MFRS, from 48% to 53.4%, whereas operational cash flow margin is increasing from 36.8% to 42.3%. I also would like to point out that Digi has done a thorough job assessing all our leases, and we are also aligned with including all leases above 12 months.
When it comes to the CFUs, the shared sites we have with the industry, we have also decided to include these. This amounts to around 2,000 sites. On the guiding, Albern?
Yeah. Thank you, Inger. Just to wrap up the presentation, just on 2019 priorities and outlook. We will continue to focus on growth around existing customers. On postpaid, as you've seen, in Q1, we had 13.3% growth, and that will continue, fueled even more by SME and B2B opportunities. We will continue to invest in the network, and ensure that the network is ready for a much better internet experience, and maintain that as usage is also increasing, as Loh shared earlier. Continue to focus on structural OE initiatives. You've seen that coming in into Q1, and that focus will continue to go into Q2 and the rest of 2019 while maintaining our customer obsession and innovation 360 across the channel, and the way we work. The guidance that we gave for 2019 for service revenue was around 2018 levels. The EBITDA, we have focused on low single-digit growth.
On CapEx, we guided between 11%-12% service revenue ratio. What we've done on the right is to provide a pre-MFRS 9 and 15 and a post-MFRS 9 and 15, similar to what we had done in end of 2018, where we gave you a view of the guidance for 2019. With that, I want to thank you for allowing us to share the presentation. We hand over to Charlotte to manage the Q&A. Thank you.
Thank you, Albern. Ladies and gentlemen, we are now calling for questions. If you wish to ask a question, please press star one on your telephone touchpad. Thank you. Our first question comes from Wei Xu of BNP Paribas. Please go ahead.
Thank you. My first question is with regard to the lease liabilities. Could you please explain why part of the lease liabilities are classified as borrowing? Secondly, I want to get management's thoughts on how it proposes to meet the 2019 EBITDA growth guidance, given that the year-to-date number is down 7% year-over-year on a pre-MFRS basis. Thirdly, related to this, Digi seems to be doing all the right things in terms of strategy, but revenue gains continue to be capped by competition and regulations. Can management share some thoughts on the factors that give you comfort that things will improve? Yeah. Those are my three questions. Thank you.
Yeah. Hi, I'm Sanjeev. I've been taking care of the financial reporting here. Why these liabilities are considered as a borrowing, because these lease liabilities are interest-bearing. It's been the requirement of the standard classifiers to classify this as interest-bearing liabilities, and we find the borrowings is the best place to cover it.
Yeah. Wei Xu, question number 2. Inger, would you like to comment on EBITDA?
Why we keep on the guidance on EBITDA. As mentioned earlier, we expected a softer Q1, and we have put in measures to focus on the top line for the coming quarters. We see a compounding effect of the more sustainable growth that we are moving more customers into postpaid and also the device program. As management, we would like to see the effects of this before we change our guidance accordingly.
Yeah. Wei Xu, just to go on your question number 3. We're doing all the right things, revenue looks like it continues to be challenged by overly competitive offers in the market and regulation. I think regulations are there, and I assume you're referring to the interconnect rates that started in January 2019. For sure, that definitely did have an impact on interconnection, especially on voice. What we see is that we have the right focus on both postpaid, both from a consumer's perspective and also on B2B, and both being driven from both a digital and an internet need. We see that Digi has the opportunity to grow into that. If you remember, postpaid has been new for us. Yes, we started this two, three years ago, the growth in postpaid is definitely a plus for us.
Because of our prepaid base migrating to postpaid, that has also been a key focus for us. B2B, I mentioned that there is an upside for us on B2B for SME, and larger than SME B2B customers. On prepaid, it's about getting the prepaid users that are internet users and not so much that are still on traditional voice. Yes, short term, as mentioned in previous quarters as well, short term, we would have to be able to sustain that decline. Of course, changes in regulations will further take that decline down. We need to stay focused on our internet, and we believe that we can, and we believe that the changes and the painful decisions and strategic decisions that were taken on the channels and on focus on acquiring these prepaid customers is the right thing to do.
Thanks. Could you please share some more color on your B2B strategy, for instance?
On our B2B enterprise business, what we focused on is, if you look at the base of SME and B2B in Malaysia, they were not the fastest adopting in digital or internet. Us now having a healthy network, which is close to 90% pop coverage, and the ability to now go out there and provide solutions and digital solutions, we definitely see that as an opportunity. If you look at the latest plans in the market from us, it does focus on internet and it focuses on modular. We also assume that SMEs and B2B customers will need more of this as they expand their business beyond Malaysian shores as well. Hence, we see that as an opportunity.
Thank you.
Thank you. Our next question comes from Arthur of Citig roup. Please go ahead, Arthur.
Hi. Thanks for the opportunity. Several questions, please. Can you clarify why we're seeing a reduction in the internet subs in 1Q19 versus 4Q18? Slide 29 seems to indicate that you've dropped around 160K Q1Q. Secondly, on the same slide, just to reconcile the MYR 366 million pre-MFRS 16 number you have there. The math doesn't seem to add up on the pre-tax less tax number. It doesn't come out to MYR 366 million. Which number there needs to be corrected? Third question I had is with regard to this B2B and enterprise segment in terms of the opportunity base. At the moment, when we look at your revenues, what % of these would actually be on the enterprise side? What market share do you have in the enterprise segment as well? Thank you.
Hi, Arthur. Back to your first question. Actually, the drop in internet sub, as we share, is mainly due to the change of the acquisition strategy that we have implemented in Q1. That is also together with, we have actually revamped the channel as well as the distribution model, by focusing more on the bigger ticket internet items with a longer validity. We believe that, and hope that will give us more value and we are able to monetize the subscriber much better than going into a broad-based acquisition with a smaller value than we have been doing in the previous quarters.
Sorry. Just to clarify that, it doesn't seem to be materializing in the ARPU trends. Is it just a lag period?
It's also a bit of timing. You will see a short-term impact in terms of subs, we will believe that this will give us a more sustainable and also a better base for us to monetize in the future quarters.
Understood.
Okay. Hi, Arthur. This is Penny here. With regards to the pre-MFRS 16 PAT number, the tax actually should be MYR 119, that it reconciles back to the profit after tax of MYR 366 million. This has been rectified in the website there.
Understood.
Thank you.
Yeah, Arthur, this is Albern. Just a comment on your question on B2B. I can understand the interest, but we haven't really given a breakdown on the percentage of revenue or subs, but we definitely, as you can see, have full attention on it, and we're both building the channel and the opportunity to serve this base. We see this as a clear upside.
Understood. Thank you very much.
Thank you. Our next question come from Prem of Macquarie. Please go ahead, Prem.
Hi. Good afternoon, and thank you for the opportunity. A couple of questions from me. First of all, with regards to the network, in recent weeks, there's been some reports of network outages, and I'm sure you're not alone in that, but what has caused these network outages, and has that had an impact on your more recent acquisitions and strategies? Is there a need for us to consider bumping up that CapEx number? That's one. Secondly, sorry to belabor this, but it looks like the market has had some pretty stable headline pricing for more than two years now, but we still seem to be having this issue with revenues. Where exactly is this coming from? I can appreciate going away from the migrant worker market, which probably was higher ARPU and more voice. Should we not have got through all of that already?
Finally, just to clarify, you mentioned a MYR 22 million one-off cost gain or cost reduction from your O&M efficiencies, does that mean that the underlying EBITDA would actually have been MYR 22 million worse had that not come through?
Yeah. Sorry, Prem, just hang on one second. We couldn't hear the third question. Can you repeat the third question again?
The third one was, essentially, in your slides, you point to a MYR 22 million one-time cost reduction for O&M efficiencies. If that MYR 22 million had not come through, would that have implied that the EBITDA number, instead of coming in at MYR 723, would essentially have come in at MYR 700, just over MYR 700?
Okay. Hi, friend. I'll take the last question first. This is Winnie here.
Yeah. Hi.
With regards to a one-time so-called upside that we see for OpEx, which actually helps improve the EBITDA. In a way, it's really much due to our cost focused initiatives. We also see that same happening last year, same quarter as well. In a way, it's also part and parcel of our cycle to actually focus into unlocking new opportunities around OpEx. Of course, this is just a one-off effect that we are kind of enjoying. It's not structural in nature to a large extent that it's still recurring, yeah. It's a real, I'll say, savings, so to say.
Yeah. You will have to work harder to keep that 22 million into 2Q and 3Q and 4Q. Is that right?
In a way, yes. In a way, that's right. I think we have also pipelines that's happening, that will help us with managing our cost structure going forward as well.
Sure.
Yeah. We'll take question 2, then I'll come back on the network question.
Yeah.
Get back to the revenue dilution. If you look at the non-internet, of course, a year ago, we were at about 27% mix. As of now, Q1, we still have almost 20% of non-internet. It is still quite sizable. That has also incorporated the interconnect, where I know any regulatory change will also impact that component of the revenue. When it comes to the internet pricing, yes, the pricing might be stable, but let's not forget also about the free data and the free quota that usually is riding on some of the data packages. If you look at the usage, it is definitely very healthy. Look at our base, we have been growing from 7.2 GB, and as of Q1 now, we are 10.2 GB.
It is not necessarily just the data pricing, but it is all these free allowance that will temper the data monetization. We don't have the info on the internet ARPU, but I think if you look at the internet ARPU, we do manage to grow the internet ARPU year-on-year for both postpaid and prepaid.
Yeah.
Do you see a point where you will actually outrun these declines on the non-internet revenue, or is this something we have to continue for the next couple of years even?
Actually, it's non-internet. As and when more people adopt internet, and then you were losing from circuit traffic to the VoIP.
Yeah.
IDD will be pretty much dependent on the migrant market in the country. There's a difference. Of course, I think a year ago, we are sitting slightly on a different environment on the non-internet. A year later, while we have managed to continue to remain focused and grow the internet, we are having different challenges in the non-internet sector.
This is quite normal when you actually switch and see switching patterns. The prepaid to post migration is a super important part of that, to get more customers onto the postpaid. Most of the internet data users would move into that.
Our focus is in itself, try to address the non-internet. We are another focus a lot more on how can we continue to drive internet adoption, acquire internet subs. More important is, how can we monetize the internet via the personalization aside the base management.
Yeah. For the first question on network, I think just to maybe take your time because you're trying to link network to sort of a lack of CapEx spend. The outages was not related to the amount of CapEx that we spend or on RAN. We had one incident where we had taken it out and informed both our customers and the media, that was when we had a HLR software upgrade that was done during the maintenance window. When it was turned on after the upgrade, we had about one and a half hour poor experience for some of the customers on our page. That was quickly fixed, but in spite of being fixed, we took a customer view and notified customers and also the relevant parties of that outage.
Outages continue, of course, from other things, as you will always have pipe outages and everything else. We take a proactive stand in informing our customers.
CapEx will remain the same as the guidance, and as and when we feel that we need to review that for customer experience or to cater for the need of the growing CapEx usage, we will do so accordingly.
Okay. Thank you very much.
Thank you.
Thank you. The next question comes from Choong Chen of CIMB. Please go ahead.
Hi. Thanks for the call. Two questions from me. Firstly, can you give us an update on the competition front, both on the postpaid and on the prepaid segment? Particularly on prepaid as well, seeing a fair bit of offers coming out from the MVNOs. Do these MVNO offers have any sort of major impact on the competitive landscape for Digi? I also wanted to understand whether the competition itself was a major factor for the prepaid subscriber decline quarter-over-quarter in the first quarter, or is that more due to the change in the acquisition strategy that you were referring to earlier? Second question, on the change in the acquisition strategy, do you expect to see further negative effects on the subscriber numbers or the internet users going into the second quarter? Those are my two questions. Thank you.
Hi. I think in terms of the competition, it is always there. Again, I think for us, we continue our focus on our strategy that we have just shared with you. In terms of the postpaid, really, I think the entry level, the borderless roaming, as well as now the device financing. We believe that these are the right things that will continue to help us to protect our base. At the same time, we will have pockets of opportunity to acquire more postpaid. Back to the prepaid, the change of the acquisition strategy and the channel. Again, it's really a bit about focus on do we sell a lot of SIM with a lower value versus to acquire previous subscribers with a slightly higher entry level, with a longer validity as well. It's kind of like a bit emulate what the behavior of postpaid.
We believe that the impact will be short-term and if this is right, hopefully, this will translate into a more sustainable prepaid growth in the coming quarters.
Basically, competition was not a major issue in the quarter because the prepaid revenue dropped off quite sharply Q on Q. That's got nothing to do with competition intensifying, right? Just to double-check.
The competition, as I said, is always there.
Yeah.
A lot of free data that will impact the data monetization. I think we have covered those. For us, other than the non-internet revenue dilution, is something that we need to address separately. Other than that, a lot of the things that we are working on is according to our game plan and our strategy, and we are happy with the progress so far.
Okay, sure. Okay. Thank you so much.
Thank you. The next question comes from Srini of Deutsche. Please go ahead.
Hi. Thank you very much. Srini here. I have couple of questions. First on the interconnect rate. Just want to check that at least based on the numbers, you have lost about MYR 50 million on the revenue side and about MYR 30 million was the savings on the cost side. Just again, broad numbers. Is it fair to say that the impact was approximately RM20 million? Sorry, not dollars. That's my first question. If these numbers are correct, could you just let us know what the margin impact was on account of the cut in the MTR? Related to that, just want to check that you were, it seems that then a net beneficiary in terms of mobile interconnect rate. Is that conclusion correct? Second question is on your subscribers.
Your active subscribers over a period of time, and I understand the prepaid to postpaid conversion, but the overall sub base is coming down over a period of time. What is the primary reason for that? A, I'm assuming unique users on your network are not decreasing. What is the reason for this dynamic? Is that the multi-SIM-ing coming down as people take more 4G plans and bundled plans? If you can just help us as to what exactly is happening in the overall subscribers. Third, if you can help us understand the device bundling. This is something which is generally what other telcos in other markets are kind of moving away from. What is the reason for the device bundling? Is it something that since you are a challenger in the postpaid market, this is one pillar of that strategy? Thanks.
I'll come back for more questions.
Wei Shi of BNP Paribas OGS as well. From an EBITDA perspective, it's kind of neutral to a large extent. It's not so much of a significant earnings kind of dilution, but it's more rebaselining this top line and also the CapEx cost within the COGS. Yeah.
Thanks.
Okay. I think back to the question from the subscriber base, right? I think if you look at just now the slide that I have covered, if you look at post-paid, definitely we are on the growing trend. Even the pre-paid, the subs is really, if you look at the non-internet stuff, I think that is really the big chunk of the top drop. There's many reasons there. I think one of them is I think the multi-SIM, one-time SIM ramped in the pre-paid. Then we started it a year ago. The non-internet for pre-paid is really at 31%. Then over time, it has actually dropped to 23%. For the internet subs, I think we have been also on the positive trend except quarter-on-quarter in Q1. That is mainly due to the change of the acquisition strategy that we have covered just now.
All in all, sub base for internet, I think we are happy with the progress. Then non-internet, again, there's factor on the migrant segment and then there's a one-time SIM, and I think there's a lot of multi-SIM. It also depends on how the whole industry are driving the acquisition. This is where I think in Q1 we have actually taken drastic steps to correct some of these fundamentals. Okay, on the item number 3, in the device. I think the device financing is a bit different from the device bundle, where the bundle are giving subsidies upfront, whereas the financing are more on the ease of entry.
We believe that this is a very important component to continue to lock in our existing base and also part of the monetization program to drive the upgrades of plans as well as also I think device is getting very important as part of the customer ecosystem that we would like to play a more active role.
Thanks. Can I ask one or two more questions? If, Winnie, you can help me then understand later on maybe offline, what is the margin impact? Because if it's MYR 50 million both on revenues and cost, then the EBITDA margins will mathematically just go up. Is that the way to look at it? That's number one. On the device financing, just want to check as to do you continue to bear the credit risk and basically, how do you think you're better placed than a bank or someone else to actually manage the credit risk of essentially what it will be a retail portfolio?
If you can help understand how you're doing that or is there a potential or a chance that there could be write-offs maybe one and a half years later, which will be higher than your usual postpaid revenue write-offs, which you see on bad debts?
Okay. Srini, I'll take those questions offline with you. Just to also emphasize that it's MYR 15 million on the interconnect. 15, not 50. With regards to the device financing, I think we are also monitoring our PDD or portion for that very closely. I can actually also discuss with you offline later as well on the mechanics. Thank you.
Thanks a lot. Thank you.
Thank you. Another question comes from Alex of AmBank. Please go ahead.
Yeah. Thanks for the opportunity. I've got a few questions. The first is regarding your MFRS 16. Your slide shows that there's a MYR 24 million impact. I just want to know, is this an ongoing impact every quarter, or are there any one-off items within that that we need to offset? The other thing is also regarding the MFRS 15. I think in one of the briefings earlier this year, you indicated there could be some lingering impact from MFRS 15. I'm just wondering, was there any reversals there that has also impacted this quarter's earnings? Now, my second question is on-
Alex. Sorry, Alex. It's a little bit distorted. We can't hear you very clearly. Can you just repeat both question one and question two?
Yeah.
Because the numbers that you mentioned, we heard you say 24. Can you just repeat both those questions, please?
For MFRS 16, your slide indicated that there's a MYR 24 million impact to the net profit, which we can see on slide 14. I'm just wondering, is that something that is going to happen on a recurring basis, or is that just a one-off for this quarter? Also for MFRS 15, in the previous briefing that we had, you indicated there could be some lingering impact from MFRS 15. I'm just wondering whether that actually took place this quarter as well. That's my first question.
Thank you for those two questions, and repeating them. Please go ahead.
That's my first question. My second question is on your sales and marketing. I noticed it is down 9% year-on-year. Is that a seasonal impact, or is there a structural impact because of your reductions in your efforts to reduce your cost? What sort of base should we be looking at going forward for your sales and marketing, as well as the O&M, because those are the two segments that seem to be quite impacted, in this quarter. My third question is regarding your device sales, which is down this quarter. I'm just wondering also, was that also a seasonal impact or was that because your 365 promotion was tapering off and the launch impact was becoming less effective going forward?
How would that impact if, let's say, your device sales were to go up, how would that, given the fact that MFRS 15, your recognition or your profit for device revenue, how would that impact your profit bottom line going forward?
Okay. Hi, Alex. Winnie here.
Yes.
Just to MFRS 16, MYR 24 million impact to the PAT. There's definitely recurring for the next two quarters, what I need to point out is that including this inside this MYR 24 million, is also the one time, so-called, O&M reversal that we actually spoke to you about also. That net of tax, MYR 22 million, is about MYR 16 million there. You can actually remove MYR 16 million from the recurring kind of run rate. That should be the kind of projection for MFRS 16 for you. Yeah. With regards to MFRS 15 kind of lingering impact, yes, we do see that coming in because what MFRS 15 does is that it actually captures the contract asset capitalization and it amortizes over 24 months.
Whatever things that we have done, especially last year, especially in accelerating on our posted contracts, that will actually have an effect into this year and into next year as well, across that 24 months. That's where you'll see that it's not just immediately activities that's impacting the current financial statement. Yeah.
How much was the impact from MFRS 15 in this quarter? Could you give some impact on the net profit level?
It actually is in slide nine, which is MYR 4.8 million contract asset amortization.
Was that the effect of the. How about on a profit level?
It will flow directly to the bottom line as well. It is a dilutive to the top line and then all the way to the bottom.
Okay, great.
All right, the next question was on S&M, Inger?
Yes. On the S&M question, yes, this is a structural change. Going forward, we'll not go into the details on the effects, but definitely, we have a strong ambition of continuous reduction in this area.
On O&M. O&M has always been part of the efficiency programs that we've had.
Yeah.
No changes there, Alex. Your last question was on device sales, whether it's seasonal or not, low cases potentially, Jeffrey?
I think definitely Q4 is, there's a seasonal impact. We actually launched the 365 in the middle of Q4. As and when there's some learning, we actually work on to enhance the operating model of the 365. Therefore it kind of impact a bit on the run rate in the Q1, as was shared by Inger just now. Again, we have since relaunched the 365 in the month of March. We do see it's a good traction. How does this impact the MFRS 15? Again, it goes back to the subsidy level. Of course, if the higher the subsidy level, then you will have a bigger MFRS 15 impact in the future.
Could I just please one final question? It's regarding your CapEx. I mean, you're exploring 5G, and also you were looking at Jasin, Melaka for your fiber plans. Just wondering, how much potentially, and do you have any sort of preliminary estimate on how much CapEx would be needed if you were to roll out the 5G and later your fiber plans?
Alex, thank you for that question. Actually, it's too early to say, as 5G was just a showcase, and it's a pilot, and no one really knows the full requirements in terms of CapEx to do that. Same thing on fiber. It's very early days, as you pointed out. We are on a pilot, and we will have to come back. Apologize for not being able to give you much more than that.
Thank you so much.
Thank you. Ladies and gentlemen, if you have other follow-up questions, please press star one on your telephone touchpad.
Sean, I just want to say thank you to everyone for dialing in and for all the good questions. We appreciate you taking the time this afternoon to speak with us. Please enjoy the rest of the day, and speak to you soon.
Okay. Thank you for your participation and management to join the conference today. Have a good day. Bye-bye.