PCCW Limited (8) Earnings Call Transcript

Ladies and gentlemen, welcome to the PCCW 2026 Interim Results Announcement. Presenting today are Ms. Susanna Hui, Group Managing Director and Group CFO; and Mr. Marco Wong, Head of Investor Relations. Over to Susanna, please.

Hello, everyone. Thank you for attending the results briefing of PCCW for the Interim 2026. So for the first 6 months, we have delivered very solid execution as an AI-enabled telecom-anchored TMT platform, underpinned by the stable cash flow generated from HKT, advancing AI transformation across multiple business lines, subscriber growth on our regional OTT platform, sustained resilience on our domestic Free TV view business and expanding traction in the artist management and event business, building a stronger momentum into the second half. Translating into numbers, you can see here that our consolidated revenue reported a 7% growth to USD 2.59 billion and an EBITDA increasing by 3% to USD 793 million. This is primarily contributed by a solid 8% year-on-year revenue growth from HKT side with a corresponding 3% growth in EBITDA, plus also an 8% growth in our Free TV business as well as a relatively stable OTT turnover. On the back of this performance, the Board has declared an interim dividend of HKD 0.0977 per share. While PCCW continued to benefit from HKT's steady growth and distribution upstream, we will adopt a disciplined dividend policy, prioritizing financial strength for sustainable growth while also striving to provide stable returns for shareholders. Let us now take a deeper dive into the respective businesses. Firstly, our regional OTT view. It continued to maintain its leading position in the Greater Southeast Asia market as the #1 Asian platform, second only to Netflix. Paid subscribers during the period across the platform grew to 15.3 million, which is an increase of 11% from a year ago, which gave the SVOD revenue a boost of 5% for the period reported. Central to such growth are, of course, our refined content strategy focusing on high-performing titles such as the Viu Originals. The highlights for the first 6 months is The Season and the Reborn Rookie and an expanding ecosystem via deeper local telco carrier relationship, which helped boost penetration across the core Southeast Asian markets such as with True and AIS in Thailand and with CelcomDigi in Malaysia. We are also expanding our distribution partnership to complement and strengthen our offerings such as the one with HBO Max last year and also a new one with iQIYI in the second half of this year, which can enrich our Chinese content library. Looking at this slide, we continue to strengthen our premium multi-genre and multilingual content to address audience preferences. You can see that Chinese dramas, which consistently occupy top rankings across markets are being scaled with focus on premium titles from Korean content, which is also important as a core driver for engagement across the region. And during the first 6 months, a number of tentpole Viu Originals topped the chart and also continue to scale subscriber growth. Highlight of the H1 included just now what we mentioned, the global English-language drama, The Season, which topped charts across markets and gained strong viewership in the U.S. via its distribution on Hulu platform. The Korean language Reborn Rookie ranked also #1 in terms of viewership across the region together with numerous local language hits, strengthening our position in the strategic markets, including Thailand and Indonesia, where we see very strong sub growth. Furthermore, we diversified content formats by launching the first 2 Viu Originals variety shows co-funded by the Korean Creative Content Agency. On top of this, another very important development in the industry is, of course, the rising popularity of the micro drama, The Shorts. We have, therefore, introduced Viu Shorts at the beginning of this year, leveraging a hybrid of live action and AI-generated content, and this is expected to become a new engine for user engagement and growth. With more than 300 titles already released, we have established an early mover advantage in the area. Such traction was already evident with user penetration of our base reached 18% in just 6 months of launch. Meanwhile, we are driving AI adoption at scale to improve cost efficiency, such as AI subtitling and dubbing, with which we can halve the cost while accelerating cross-market rollout. AI-powered CRM tools and content recommendation capabilities, enhanced precision targeting, which in turn increased screen time and video views generated 2.5x user engagement, thereby expanding our advertising inventory. Other monetization includes a pipeline of AI-assisted ad-funded project, which now enables speed to market for advertisers and brands at a much more economic cost. When it comes to content production, AI is redefining the way we operate with AIGC projects deliver special visual effects at a fraction of the cost and with higher speed time lines. Looking ahead, we do think that AI will continue to unlock new opportunities such as new content genres and repurposing of long-form IPs into micro dramas and new formats, which will support our top line growth and further our margin expansion. So in terms of numbers, if you look at this slide here, despite the 5% growth that we mentioned just now in terms of the SVOD revenue contributed by the increase in terms of sub base and also fueled by strong content and deepened distribution partnerships, advertising and sponsorship revenue was disrupted by the war in the Middle East as well as there are fewer events held in the first half. Revenue, therefore, was lower from USD 153 million to USD 142 million. Accordingly, EBITDA dropped, but by a lesser magnitude by only USD 3 million to USD 41 million. We basically are able to hold our margin very steady at 29%. And with the AI initiatives discussed, the scaling of the micro drama offerings, we are set to drive renewed revenue momentum and margin improvement in H2 of the year. Turning to our ViuTV, which is celebrating its 10th anniversary this year, we continue to deepen connection with our local audience with relatable and authentic storytelling and evident popularity from the digital membership rising by 4% to 3.4 million, supporting ongoing expansion of our digital advertising inventory beyond the traditional linear TV. Average daily viewing time also consistently exceeded 60 minutes every day, demonstrating the appeal and the quality of our program, attracting more and more demand from advertisers across different sectors such as financial services, restaurants, food delivery and business service. Our first half slate featured a number of heavyweight productions such as the successful return of our local drama content In Geek We Trust 2.0, which generated streaming views double the average of dramas. Several ViuTV content are also gaining popularity across the region, and we are able to monetize these by way of securing distribution on leading third-party platforms such as Netflix and Tencent Video. Our exclusive free-to-air coverage of the World Cup in partnership with ViuTV was undoubtedly the highlight of the H1, substantially boosting the daily unique viewership by 25%, attracting strong advertising demand while energizing Hong Kong sporting culture. Looking ahead to the second half, we have an exciting slate of premium content lined up, headlined by local adaptation of the iconic Asian dramas, including the Japanese classic Long Vacation as well as new format variety shows, which have already been on air since a few months ago. And this will continue to enhance advertiser appeal and lead to high-impact advertising and sponsorship opportunities. Turning to MakerVille. Our integrated ecosystem continue to drive sustained growth across talent development, live performances and content creation while supporting Hong Kong's role as a creative hub. We continue to build a steady pipeline of proprietary talent with new music releases from established groups and debut tracks from next-generation talent from our own in-house program and increasing participation by our artists in high-profile films and productions. And demand for live performances remain very strong in Hong Kong, as demonstrated by the success of our 5 concert series and overseas tours by our top-tier talents and the new theater plays and musicals that we invested during the first half of 2026, all of which we have built strong momentum towards the events and major group concerts slated and scheduled for late December. Therefore, our advertising revenue for this segment reported a very strong growth in the first half of 2026 despite the relatively subdued sentiment in Hong Kong, driven by the compelling original drama content, the new format variety shows and of course, the World Cup matches alongside our artist management and live events. Our overall revenue grew by 8% to USD 47 million. In terms of EBITDA, the EBITDA slipped from USD 6 million to USD 3 million and this reflected some of the investment made for the content production. And also, there are some onetime promotional costs in particularly around the ViuTV's 10th anniversary and also the World Cup and development of the new talent. This is more of a timing issue as a lot of the advertising in relation to the final matches of the World Cup would only be booked in July in the H2. So hence, this explains the lower EBITDA for the first half. Our strong content slate and the popular major group concert scheduled for late this year are set to drive higher revenue and profitability in the second half. And with that, I will pass to Marco to walk us through the group's financials.

Thank you, Susanna. Before I go through the group financials, let me just recap HKT's results, which we announced yesterday. Total revenue and service revenue grew by 8% and 3%, respectively, to USD 2.4 billion and USD 2.16 billion, with the key growth drivers being an 8% growth in enterprise revenue from accelerated demand from enterprises, both public and private for our end-to-end solutions enhanced by 5G, IoT, cloud, data analytics as well as AI technologies. There was also a 3% growth in broadband revenue, driven by sustained demand for our high-speed, high bandwidth and ultra-low latency fiber services. There was also a 5% growth in mobile services revenue, which was underpinned by sustained growth in roaming, expansion of the 5G postpaid customer base and increasing demand for mobile solutions from enterprises. Notably, we are also harnessing existing assets and capabilities to unleash the power of AI and provide additional levers of growth in an asset-light manner as an AI aggregator and AI transformation enabler. As you see on the right-hand side, mobile registered a 5% EBITDA growth, while TSS also reported 2% growth, driven by further operating efficiencies across the group, boosted by AI-led initiatives. This resulted in an overall 3% EBITDA growth amounting to USD 844 million. Overall, service EBITDA margin was stable at 39% and overall EBITDA margin was 35%. On the AFF side, this registered 3% growth, reaching HKD 338 million with an interim distribution per SSU of HKD 0.3480 with PCCW share being approximately USD 177 million. Looking at OpEx. Total OpEx decreased by 3% through -- to $366 million, driven by cost optimization across the group with the OpEx to revenue ratio further improving from 15.5% to 14.2%. HKT achieved 4% OpEx savings driven by AI adoption to reshape its workflows and network management, coupled together with the group's continued efforts in IT platform modernization. Although we note the economic benefits of AI have yet to be fully realized as there are dual costs associated with the new platform as well as the parallel operation of the legacy system were incurred. These benefits are expected to materialize progressively as the transition is completed and AI-enabled revenue growth gains momentum. On the CapEx side, this dropped by 3% to USD 138 million with the CapEx to revenue ratio further improving from 5.8% to 5.3%. Mobile CapEx lowered by 2%, reflecting efficiency gains from capacity upgrades and network maintenance. TSS CapEx declined by 3% with investments primarily to support demand for FMI solutions for enterprises as well as AI network infrastructure. Although AI-driven fiber and subsea cable CapEx will be demand-driven and prefunded by anchor customers. On the media side, CapEx spending was stable at USD 3 million after completion of the new studio facilities towards the end of 2025. On the capital structure side, the top chart exhibits HKT debt profile. As we noted yesterday during the results, pro forma net debt was stable at USD 5.55 billion after taking into account the proceeds from selling the additional interest in our passive network business for roughly USD 209 million. We also took the initiative of prefinancing and repaying the bond that was maturing in July with a new USD 650 million 10-year bond that we issued in June. As a result, we have strong liquidity of around $2.9 billion, comprising about $400 million cash as well as $2.45 billion in bank lines. You'll see in the bottom chart, this is the PCCW debt profile. There is no imminent or significant debt due in 2026. Across the group, we maintain a balanced mix of short term as well as longer maturity borrowings and bonds. The current ratio of the group's fixed to floating rate debt was kept at approximately 45% to 55% post repayment of HKT's bond in July. Effective interest rate was approximately 3.75% and the average bond maturity is around 3.3 years. Overall, the group's liquidity is strong, and we are well supported by banks with $3.8 billion as at the end of June, pro forma for the proceeds from the additional sale of our passive network business and repayment of the bond in July. We have undrawn facilities of $2.45 billion at H., and $800 million for PCCW. Overall cash of over $500 million on a group basis with $400 million at HKT and $100 million at PCCW. Overall pro forma net debt to EBITDA was 4.35x. On the ESG front, we continue to leverage our technology and media platform to drive impact for people, businesses and communities from 5G AI Academy, workforce reskilling to digital fraud prevention alongside discipline, environmental stewardship through energy efficiency, waste diversion, EV initiatives and sustainable financing. We also deepened our community engagement by the Strive and Rise program for the local youth, supporting regional talent exchange through scholarship to students from Kazakhstan to study in Hong Kong as well as promoting positive sports culture via the World Cup broadcast and featuring local fishing and aquaculture to promote sustainability awareness. And that's all for the presentation today. Thank you.

This takes us to the end of the analyst briefing. Thank you for joining us today.