Good afternoon, ladies and gentlemen. Welcome to the conference call. Our chairperson today is Mr. Jamie Lin. Mr. Lin, please begin your call, and I'll be standing by for the Q&A. Thank you.
Thank you, operator. Hi, everyone. Good afternoon. Welcome to Taiwan Mobile's first quarter 2023 earnings conference call. Before I start our presentation, let's first go over our disclaimer as per usual. Disclaimer. The information contained in this presentation, including all forward-looking information, is subject to change without notice, whether as a result of new information, further events or otherwise, and Taiwan Mobile Co., Ltd. or hereafter the Company undertakes no obligation to update or revise the information contained in this presentation. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. Nor is the information intended to be a complete statement of the company, markets or developments referred to in this presentation. All right, now that's out of the way, let's head straight to business overview.
Please turn to page four for highlights of the quarter. In first quarter 2023, our consolidated revenue rose by 8% YOY, underpinned by solid momentum from our three core engines, namely mobile, e-commerce and home broadband. During the quarter, our mobile service revenue YOY growth accelerated to 5.4%, the fastest pace since 5G service launch in third quarter 2020. Our smartphone postpaid subs also exceeded 5.8 million, rising by 2.3% YOY. This was driven by our unique bundles, continued 5G conversion, improving 4G pricing environment and recovery of roaming businesses. Momo continued to outperform its peers and recorded double-digit e-commerce revenue growth in the quarter. Its 7% YOY revenue increase has helped Taiwan Mobile achieve a new milestone.
Our market share in the cable broadband industry has officially crossed the 22% mark. With telecom service revenue growing at 6.2% YOY, the highest level since turning positive in 2Q 2021. Telecom EBITDA and consolidated EBITDA both saw a 3% YOY uptick in 1Q 2023. Let's turn to page five for a closer look at our mobile business. Our smartphone postpaid ARPU growth accelerated to 3.3% YOY in 1Q 2023 from 1.5% a year ago, so more than doubled. In addition to steady monthly fee uplifts from unique bundles and 5G renewals, our roaming revenue recorded another 47% sequential increase and recovered to over 60% of pre-COVID levels as international travel further recovered.
Moreover, our handset bundles sold during the quarter grew 12.7% YOY, outperforming the overall handset market, which is down by 7% during the quarter. This also contributed to our superior ARPU and MSR growth. Our unique bundles, including momobile, Double Play, Disney+ and OP Life, continued to support rate plan mix improvement. Accumulated users across these products, product lines rose further and passed 1 million user milestone, accounting for 19% of our smartphone postpaid user base. momobile's user contribution to momo's e-commerce revenue grew to 9.7% by the end of the end of March, up from merely 3.5% a year ago. Meanwhile, close to 60% of our Double Play users are on 999 or higher rate plans, notably higher than the company average.
As for OP Life bundles, over 50% of sign-ups were for TWD 1,399 or higher rate plans, and the proportion of users on 48 months or longer contracts was significantly higher than that of our regular 5G handset bundles. This wide variety of offerings as well as ongoing investment in longer handset bundles, bundle contracts, helped enhance our customer stickiness and resulted in a postpaid monthly churn rate of only 0.71% in 1Q 2023, setting another record low in company history. Let's turn to page six for updates on our e-commerce business. Despite an already high revenue base, momo managed to maintain double-digit top-line growth without sacrificing its profit margins. Both e-commerce take rates and EBITDA margins were stable on a YOY basis, resulting in a 12% YOY increase in e-commerce EBITDA.
On the logistics side, we had 55 warehouses as of quarter end. Seven more than a year ago, with total warehouse space rose by 31% YOY. The South-southern distribution center should be up and running towards the end of the year or early next year, with the central distribution center to follow in a few years. Expanding the coverage area of our rapid deliveries and raising the bar for the industry. As for momo coin and its ecosystem, we will continue to focus on broadening its usability and introducing customer loyalty programs dedicated to our Mobile Bundle users. In fact, we will be hosting our first ever momobile Members Day on May 20th, or 我愛你 (Wǒ ài nǐ) in Mandarin, which means or I love you.
During the day, a wide variety of deals exclusive to momobile users will be available on momo's platform for 24 hours. We expect events like this to further enhance stickiness and help us gain more last year. I'm also excited to announce that Taiwan Mobile has recently launched its very own buy now, pay later service called OP Pay later, or in Mandarin, which means Big Brother pays first, then you can pay in installment in English. It's launched on momo on April 27th. This innovative payment solution offers a seamless experience for Taiwan Mobile postpaid users. There's no need for registration, ID uploads, or approval waiting times. When checking out on momo, Taiwan Mobile postpaid customers can effortlessly select OP Pay later to complete their purchases in just three simple steps.
This marks Taiwan Mobile's pioneering venture into the telco finance sector. By harnessing our extensive user base data and AI models, we're able to determine the ideal credit limit for each customer. This ensures increased financial flexibility for them, while also reducing the risk of overspending. We anticipate that these services will contribute to a significant growth of an expanded competitive edge for both Taiwan Mobile and momo. Let's take a look at our broadband business on the next page. In Q1 2023, we continued to outperform our MSO peers in broadband service penetration. Steady demand for faster home connectivity and our Doubleplay bundles led to a healthy YOY increase in broadband subs in our pool. Our subscriber who opted for speeds of 300 megabits or higher rose by 72% YOY.
As a result, broadband revenue grew by 7% YOY in 1Q23. While we only rank as the 4th largest MSO with 14% market share for basic TV services, we have grown our cable broadband market share to over 22% during the quarter. Now let me pass the virtual mic to our CFO, George Chang, for financial overview.
Thanks, Jamie. Good afternoon. Let's start with the performance by business. In Q1 2023, consolidated revenue rose by 8% year-over-year. This was fueled by a 10% year-over-year rise in momo's revenue and faster telecom revenue growth. Mobile service revenue grew year-over-year for eight quarters in a row, thanks to ARPU improvement amid continuous 5G conversion and benign 4G pricing. Coupled with healthy expansion of a fixed line service revenue, telecom service revenue reached the highest level since 2Q19. Our cash costs and expenses rose year-over-year in 1Q23 due to a solid demand for our unique bundle plan, which made up 19% of our postpaid smartphone subscriber. This is 3x higher compared to a couple of years ago. As a result, telecom EBITDA saw a 3% uptick in 1Q23.
Although momo's year-over-year EBITDA growth decelerated in Q1 2023 on the back of declines in the legacy TV catalog business, its core e-commerce business profit margins were actually quite stable year-over-year. Broadband growth compensated for the dropping pay-TV subscription and kept the cable TV EBITDA steady year-over-year. Let's go to the results summary. In addition to a strong top line expansion, healthy EBITDA growth, along with muted D&A increase, led to a 5% year-over-year rise in consolidated operating income in Q1 2023. Non-operating expenses went up year-over-year due to higher financing costs from the rising interest rate. Also because we had a higher base in 2022 on higher investment gain. As a result, net income was flat year-over-year in Q1 2023. Let's move on to the balance sheet analysis.
Starting with assets, receivables rose year-over-year, owing to an increase in postpaid subscribers and monthly fee contributions from the mobile bundle plans. Inventories grew in a similar manner, driven by momo's business expansion and sufficient supply in smartphones. Long-term investments were year-over-year due to our strategic investment in cloud services, sharing economy, and food delivery platforms during the last few quarters. Sequentially, the balance is largely flat as we adopt a more prudent approach to investing during the quarter. Gross debt saw a mild uptick to TWD 69.6 billion from a year ago, but decreased from the previous quarter. About 70% of our long-term borrowings due in one year will be refinanced by a new five-year social bond this quarter. As net debt and EBITDA both rose YOY, net debt to EBITDA ratio was stable. Lastly, let's look at the cash flow analysis.
Despite a 1.5% year-over-year rise in cash earnings, our operating cash inflow did not increase in the quarter. This is because momo had a large decrease in payables in 1Q 2023 compared to a year ago. Investing outflow declined year-over-year as we paired back on the acquisitions during the quarter. For the financing activities, our healthy free cash flow generation allowed us to reduce the short-term borrowings. Telecom CapEx edged higher as we built 3,000 more 5G stations on the 700 MHz band over the past year. As you may recall from our previous announcement, on a full year basis, 2023 telecom CapEx will decline year-over-year, we do expect free cash flow to rise this year. Let me turn the presentation back to Jamie for event updates and key message.
All right. Thank you, George. Let's take a look at 2022 earnings distribution on page 14. On May third, Taiwan Mobile board approved the proposal to distribute NTD 12.1 billion in cash dividends, translating to about 4.2% yield to shareholders. Dividend per share is NTD 4.3 on 2.82 billion shares, excluding treasury shares held by 100% owned subsidiaries. Post-earnings distribution, there will be NTD 37.2 billion excess reserves available for future dividend distribution. On the next page, merger with Taiwan Star. On February twenty-fourth, both Taiwan Mobile and Taiwan Star's boards reached an agreement on the new share exchange ratio of one Taiwan Star share for 0.03260 Taiwan Mobile shares versus one for 0.04508 shares previously.
204 million Taiwan Mobile shares are planned to be issued versus 282 million previously, effectively lowering the equity de-dilution by about 30%. The deal is still pending approvals from the Fair Trade Commission and the Taiwan Stock Exchange. On the next page, we have summarized the awards and recognitions we received during the quarter for your reference. Finally, on page 17, to wrap up our presentation, here's the key message we would like for you to take away with. Key message: We're confident that our three primary growth engines, 5G, momo, and Home Broadband, will continue to strengthen our market position and enhance group synergies. Taiwan Mobile is dedicated to maximizing shareholder value through two key initiatives. one, seamlessly integrating with Taiwan Star following approvals from the FTC and TWSE.
Two, executing our Telco+ strategies to provide meaningful applications, including e-sports games and telco finance services, while capitalizing on our expanding customer base data and AI capabilities. All right. With that, we open the floor for questions. You're welcome to send your questions via the chat box on the webcast page. We will begin by addressing the telephone line questions before moving on to queries from the webpage. Operator, please go ahead.
Thank you. Ladies and gentlemen, we will now poll for questions. If you would like to register for a question, please press star one on your telephone. Thank you. Once again, that is star one to register for a question. Thank you. Our first question comes from Neale Anderson with HSBC. Please go ahead, sir.
Thank you. Good afternoon. I have two questions, please. The first one is on the churn rate, and particularly as it relates to the bundled users and the four-year contract. I'd assume that the 19% on the bundle plans, they have a lower churn rate than the overall blended rate. Where If that's correct, where would you expect post-paid churn rates to go to, and what would be the impact in terms of retention costs? The second question, you know, routinely asked, I think, is the delta between the 4G customers upgrading to 5G. Are you still seeing that as maintaining? Do you expect that to continue to remain high, people spending more as they move to 5G? Thank you.
All right. Thank you, Neale. Yes, your thesis is right. The 19% unique bundles do produce a lower churn rate as far as we're what we're observing right now. Our plan is to grow that penetration much higher than 19% going forward, and we do expect that to bring down the churn rate over time. Exactly where the churn rate will sort of how low the churn rate will go, it's hard to predict, but we do expect this trajectory to continue. Your second question. Yes, we're seeing a steady uplift from people converting from 4G to 5G. Right now we're not expecting that trend to sort of go away anytime soon. Got it. Thank you. Thank you.
Thank you. The next question comes from Sarah with UBS. Please go ahead.
Hi. Thank you for the opportunity to ask a question. Basically I calculate the for the telecom business, the service revenue growth year-to-date in first quarter was around 6%. It seems EBITDA growth is slightly lower at 3% for the telecom business. May I ask the key reason because I recall, like, last year, the EBITDA growth was largely in line or slightly higher than the service revenue growth for the telecom business. Thank you.
Sarah, hi. Yes, I think, year-to-date, yes, our EBITDA growth is a little bit lower compared to the top line growth for a couple of reasons. One of them is that our marketing cost is a little bit higher compared to a year ago. Also if you look at some of network costs, like for instance, whether you look at utility or even HR-related costs. These items, we are seeing sort of like an inflation right now. So we do see the cost on these items go higher this year. Yes, that does offset our revenue growth by a little bit.
On top of that, like we presented during the briefing, we're selling handset bundles at a YOY 12.7% increase versus last year. Since there are a lot of our handset bundles, subsidies are front-loaded, sort of a portion of it's front-loaded. When we're accelerating in terms of handset bundle, naturally you would also drag our EBITDA down a little bit.
I see. Thank you.
Thank you, Sarah.
Thank you. Once again, ladies and gentlemen, that is star one to register for a question. The next question comes from Peter Milliken with Deutsche Bank. Thank you.
Yeah, hi, good afternoon. My question is about the merger. Do you have any estimated timeline on when it will be completed now? The other question is, do you have any thoughts on potential synergies from the merger? Thank you.
Thank you. In terms of timeline, right now, it's gonna be bottom half of the year, but it's hard to say when the Fair Trade Commission is going to give us a grand green light. We it's hard for us to give a more precise prediction. We're working really hard to expedite the process with FTC. We're also hoping that in the interest of the 2.8 million customers and 2,000 employees of Taiwan Star, we're also hoping that FTC would speed up its process.
In terms of synergies, we're expecting the same level of synergies as of the sort of the briefing that we gave during the first quarter of 2022 when we first announced the deal.
Okay, great. Thank you.
Thank you.
Once again, that is star one to register for a question. Thank you.
Okay. While we are waiting for more questions online, here is actually a question in our chat box. The question is, since our company has not provided a guidance for 2023, again, that's also because of FTC, can we give some color on the business outlook or some of the latest developments? Jimmy, you wanna take that?
Sure. As we just briefed during the presentation that we're seeing quite a strong top line expansion momentum coming out of our telecom business and also steady growth from mobile and sort of a continued demand for home broadband from our cable TV business. We have no reasons to believe that these momentums will subside anytime soon.
Even though we didn't give a guidance, we can say that it looks like these momentums at least will continue. In terms of mobile's business also, we're also expecting roaming business to continue to recover due to people sort of resume their travels. I think that's what we can say about the outlook. Hope that answered your question. Operator, is there any questions from the phone line?
Once again, ladies and gentlemen, that is star one to register for a question. Thank you.
If not, there is another question from the chat box. The question is, can we elaborate a little bit more on the FTC process? Our competitor is saying that they submitted the latest round of request for information recently. Are we in a similar process?
The short answer is yes. In terms of the FTC process, they will usually go through a few rounds of requests for information until they're satisfied with all the information that you provide, you have provided to them. From there, they'll kick off the official process. Once the official process is kicked off, then they have a limited timeframe to give you a yes or no. Yeah. That's the FTC process.
We're in the same ROI phase with the other deal. Hope that answers your question, Rob. There's another one. Okay, the next one is asking about our medium and long-term outlook for CapEx. For 2023 CapEx, as you may have recalled from our previous announcement, which we passed the board's resolution, I believe that was in Q1, early Q1 2023, I think our guidance was for telecom CapEx down to TWD 5 billion-ish. That's significantly down from a year ago. That's why earlier I mentioned that if you're looking at purely from a free cash flow from a telecom perspective, yes, we do expect free cash flow to increase this year.
Momo's CapEx looks to be higher than last year, but that's only because it actually covers multi-year plans. They are building a new warehouse in central Taiwan, that doesn't mean that they will spend everything this year. The cash CapEx will actually be spread over a range of maybe three to four years. Just don't get confused on that. Telecom CapEx will be down this year. In terms of medium to long-term outlook, we don't give the guidance usually, but if you were to think about 5G build-out, it's probably post its peak. In terms of momo, after the two large distribution centers, sort of, it's hard to expect that investment will accelerate. Yeah.
That's maybe some colors on the medium to long-term outlook that we can give. It looks like there's no more questions from the chat box. Operator, is there any more from the telephone line?
Yes, sir. We do have one more follow-up question from Peter with Deutsche Bank. Peter, please go ahead.
Yes. Thank you. On roaming, you talk about how it's back to 60% of pre-COVID levels. Do you think getting back to 100% at some point is still realistic, or have roaming rates and usage patterns changed in a more fundamental way where people just don't want or need to spend as much as they did before? Thank you.
Thank you. Right now, in terms of inbound sort of traveler traffic, I don't think it's back to pre-COVID peak yet. I think there's still growth momentum there. In terms of outbound, we're also not observing too much of a behavior change. We wouldn't say that it won't go back to pre-COVID level. If anything, we all know that sort of pre-COVID there is organic Y-O-Y increase in sort of both outbound and inbound number of travelers. If anything, we wouldn't think that the ceiling is set. There should be a medium to long-term organic growth sort of possibilities for roaming business.
Okay, great. Thank you.
Thank you, Peter.
Thank you once again, ladies and gentlemen. That is star one to register for a question. Thank you. Once again, that is star one to register for a question. Thank you.
Okay, here's another question from the chat box. Why is our operating profit growth higher than net profit growth? As mentioned previously, we do see a higher financing cost this year. As you guys know, we do have a pretty sizable debt balance. The good thing is, we think that it's manageable. As we just mentioned, a good portion of our long-term borrowing is due in one year, will be financed with a government bond, which we are launching this quarter. I don't think we have disclosed the information yet, but I can assure you that the interest rate is actually lower than what some of the market is expecting. That's the good news.
Yes, I think one of the reasons definitely the higher financing costs, which is everyone is facing right now. The other reason is that Q1 last year, we did have some investment gain, so that create a higher year-over-year comparable base.
Operator, is there any more questions from the line?
Sorry, there's no more further question at this point in time. Thank you.
Yeah, we do have one more question from the chat box.
There's no more further questions on the audio. Thank you.
There is 1 question from the chat box. It's asking for the difference in terms of interest costs between our retiring bonds and the bonds that we are planning to issue. I don't remember all the details on top of my head. Sorry about that. As you can imagine, I mean, our debt balance, I believe it's about TWD 70 billion. Let's say if we do see 30 points increase year-over-year, that's already TWD 200 million per year or close to, you know, TWD 50 million-TWD 60 million a quarter. I believe that our first quarter year-over-year interest cost increase is about somewhere between TWD 50 million-TWD 70 million a quarter. That probably gives you a ballpark figure of what type of a higher interest cost we're talking about.
For this particular bond, again, I think, we are going to issue a press release here once it's listed.
All right. Operator, is there any more questions from the line?
Once again, there is no one to register for a question. Thank you. Once again, there is no one to register for a question. Thank you. Excuse me, sir. There's no further question at this point in time. Thank you.
We do have one more question from the chat box. We'll take that as the last question, and after that, we'll wrap up the call.
Okay. The question is also continued to be on debt. It's asking a small portion of the debt has been repriced or refinanced. Does that mean we expect continuing increasing interest costs? Yes or no. Again, because If you look at our corporate bond structure, we do have quite a few that are not going to expire anytime soon. Perhaps by those expire, which probably another four or five years, some of them, we are going to see interest rate coming down. The answer is not necessarily. Again, the number I gave earlier for Q1 interest cost increase YOY probably gives you a reasonable ballpark figure to look at what we are talking about for this year. No, it does not mean that we're going to see continuous increase next year or the year after. No.
All right. Thank you, George. Operator, should we call it a day?
Okay, sir. There's no further question. Shall we conclude the call now?
Yes, please. Thank you everyone for joining, this edition of the conference. We look forward to seeing you next time.
Okay. Thank you. Thank you for your participation. This concludes the conference. Thank you.