Chunghwa Telecom Co., Ltd. (2412) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the Company's First Quarter 2025 Operating Results. [Operator Instructions] For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within an hour after the conference is finished. Please visit CHT IR website, www.cht.com.tw/ir under the IR Calendar section. And now I would like to turn it over to Ms. Angela Tsai, Assistant Vice President of Investor Relations. Thank you. Ms. Tsai, please go ahead.

Thank you. I'm Angela Tsai. Welcome to our first quarter 2025 results conference call. Joining me on the call today are our President, Rong-Shy Lin; and our Chief Financial Officer, Audrey Hsu. During today's call, management will begin with the recent strategic achievements and provide our business overview of the first quarter, followed by a discussion of our segment performance and the financial results. After, we will move on to the question-and-answer portion of the call. On Slide 2, please read our disclaimers and notes concerning forward-looking statements. Now without further delay, I will turn the call over to our President. President Lin, please go ahead.

Thank you, Angela, and hello, everyone. Welcome to our first quarter 2025 results conference call. We are excited to report net income and EPS delivered 4.3% year-over-year increase in the first quarter, driven by our solid operation and a leading position in mobile, fixed line and ICT business. Despite the first quarter's rapid change in the macroeconomic climate due to the global tariff issue from which we believe there is no material impact. We believe that this may even present new opportunities for our international business. At the same time, our strong financial performance position us to continue investing to seize new opportunities, particularly those from enterprise customer who may be expanding their manufacturing bases globally. Meanwhile, we will continue to execute our sea, land and sky advanced network strategy to prepare for the future and enhance network resilience, leveraging our leading technology strength. In January, we collaborated with partner to successfully integrate ST-2, high-orbit satellite with 5G base station. This achievement enabled world-leading end-to-end 2-way video call based on the 3GPP 5G new radio for nonterrestrial network standard communication protocol, advancing the connection between land and sky, GEO satellite and 5G communication. Furthermore, in April, we concluded a strategic partnership with the U.S. innovator Astranis to bring a dedicated micro GEO satellite to Taiwan, complementing our existing multi-orbit satellite architecture. As for sea, we announced our investment in E2A, the trans-Pacific undersea cable connecting Asia to North America to meet the growing demand from OTT players and the digital transformation, including the foreseeable AI boom. To our great delight, we are proud to receive multiple awards in the first quarter acknowledging our leadership in the business and the ESG performance. For international honors, our outstanding 5G smart port solution was recognized by Asia telecom awards as the technology innovation of the year. We were also ranked top 5 for S&P Global ESG score in the sustainability yearbook 2025 for the third consecutive years, and secured the highest A ranking from CDP for both climate and supply engagement leadership for the second consecutive year. Finally, we would like to highlight that Chunghwa Telecom is the first Taiwanese telco certified under the most stringent international anti-bribery standard showing our determination to deliver outstanding corporate governance. Going forward, Chunghwa Telecom will continue to maintain its leading position across all key benchmarks in the industry. Now let's move on to the business overview of the first quarter of 2025. Please turn to Page 5 to review our leading position in Taiwan's mobile market. According to the statistics from Taiwan's telecom regulator, by March, we had successfully acquired the largest revenue share in Taiwan's mobile market at 40.5% as well as the largest subscriber share at 39.1%, both exhibited the year-over-year and quarter-over-quarter growth, reflecting our strong and healthy growth momentum. In addition, our 5G market share reached 38.7%, maintaining its leading position in the market. Our mobile service revenue in the first quarter increased about 2% year-over-year, mainly due to the subscriber number increase and continued the 5G migration. In addition, we are pleased to report a 42% increase in the average monthly fee uplift from the 5G migration, contributing to the stability of our overall mobile ARPU, which delivered a slight quarter-over-quarter increase in the first quarter. Let's move on to Slide 6 for update of our outperforming fixed broadband business. In the first quarter, our cross-tier upgrade promotion package continue to be well received with near 70% of the package adopters choosing service offering of 300 megabits per second and above, including the highest speed offering of 1 gigabit per second. As a result, on a year-over-year basis, our subscribers with speed of 300 megabits per second and above increased by 16%, while those with speeds of 1 gigabit per second grows significantly. Given the continued speed upgrade from our subscribers, our fixed broadband revenue and ARPU exhibit another quarterly increase by 2.5% and 2.1% year-over-year, respectively. And we are confident that this growth will persist. Now let's take a close look at the performance of our business group. Slide 6 provides a deep overview of highlights from our customer application services. In the first quarter, we continued to see positive growth in each value-added services offering. Our multi-play packaging with service offering of mobile fixed broadband and WiFi continued to deliver outstanding year-over-year growth of 33%, and driven by our strong network quality and effective reward point strategy. Video business maintained its growth trajectory. Subscriptions increased by 12.5% year-over-year driven by the sports content and our exclusive release of popular dramas. Our effective content strategy led to a 45% increase of Hami video subscribers compared with the same quarter last year, which is encouraging. As a result, our overall video revenue in the first quarter rose steadily. In addition, our consumer cybersecurity subscription also surged by 21% year-over-year during this quarter, steadily increasing its revenue contribution as expected. Slide 6 illustrated the key highlights in our enterprise ICT business. We are excited to report strong enterprise ICT business performance in the first quarter. Revenue increased by 13% year-over-year, driven by project revenue recognition -- rationalization, robust performance across our major pillars and the continued growth in recurring revenue. We believe our strategy to increase our recurring revenue is important as it can help stabilize overall ICT performance. For closer look at each emerging application service offering, in the first quarter, we are excited to see year-over-year revenue growth in our cybersecurity, IDC and cloud business of 40%, 29% and 13%, respectively. Cybersecurity revenue achieved the 13th consecutive quarter of year-over-year growth, mainly driven by the project completed for financial institution and franchise chain store client, along with contribution from streaming consumer. Meanwhile, IDC and cloud revenue were boosted by the contribution from -- a contribution from the smart government project, accomplished by the increasing recurring revenue from both IDC and the International public cloud service, the latter experienced particularly strong growth. Notably, as the first telecom in Taiwan to be honored as AWS Premier Tier Service Partner. We hold the most AWS certificates demonstrating our leading cloud technology within the industry. Additionally, our 5G private network also delivered double-digit revenue growth driven by the revenue recognition from the international clients as well as year-over-year revenue growth in our AIoT service business, fueled by project in finance and retail sector. And we were delighted to report the network integration contract worth over TWD 1 billion secured in the first quarter from a leading financial holding company, which we expect to inject revenue and profit in the near future. In addition, leveraging our leading data analysis capability, we were proud to win Taipower AMI expansion project again, recognizing our expertise in energy management. Notably, we were honored with 4 major awards at the CIO Taiwan's 2025 Elite Vendor Award, including the outstanding service provider for the fourth consecutive year, where we were the exclusive winner from telecom industry. Slide 9 illustrated our international subsidiary performance. In the first quarter, revenue from our overseas subsidiary increased by 8.2% year-over-year, mainly due to the growing ICT services provided to the high-tech customers in the United States and Southeast Asia market. In light of the global economic landscape change, we have observed business opportunity from the growth -- growing Taiwanese investment in the United States and sold projects in our pipeline, mainly progressing as a result of the relocation of AI supply chain, including the AIDC construction, the strong telecom global. Our subsidiary in the United States expanded our Arizona office in April and launched a new office in May in Texas office to support business development. In addition, our business in Singapore, Vietnam and Thailand are all experienced double-digit revenue growth in the first quarter, largely driven by the providing ICT services for Taiwanese enterprise to build new factories in the Southeast Asia market. To support the overseas business, we announced our investment in the new submarine cable system, E2A in March. This trans-Pacific fiber optical network will connect the submarine cable system between North America and Asia. Our strategy is to enable diverse connectivity options, strengthen Taiwan's position as a key submarine cable hub in the Asia Pacific region and further enhance overall network resilience to response to the growing demand of the network services. Now let's move on to Page 11 for the financial performance of our 3 business groups. In the first quarter, our CBG delivered a 4.9% year-over-year increase of its income before tax, which is quite healthy as our mobile ARPU will steadily develop and fixed broadband ARPU expected to continue to hold up. In addition, our ICT business continued to expand. We are delighted to see EBG total revenue increased by 2.3% year-over-year, mainly underpinned by the strong ICT business revenue growth of 11.6% year-over-year. This growth was offset by continued decline in EBG fixed voice revenue, which called to a 3.8% year-over-year decrease in the income before tax. IBG's total revenue and income before tax both increased modestly in the first quarter due to its robust international IDC business growth and the continued strong demand for the integrated ICT services in the global market. Now I would like to hand the call over to Audrey for the financial update.

Thank you, President. Good afternoon, everyone. It is my pleasure to present an overview of our financial results for the first quarter of 2025. Please refer to Slide 12, income statement highlights. Let me walk you through the key financial metrics for the quarter. Revenue reached over TWD 55 billion, making the fifth consecutive year of growth. This represents a year-over-year increase of 1.6%, driven primarily by the expansion of our ICT business, along with solid performance in mobile and broadband services. Income from operations and net income rose by 5% and 4.3%, respectively compared to the same period last year. These improvements were fueled by the strong performance of our IDC Internet data center business and sustained growth in mobile and video service subscriptions. Earnings per share increased by TWD 1.21 to TWD 1.26, reflecting consistently profitability and our disciplined cost management. EBITDA and EBITDA margin both recorded modest gains during the quarter. Notably, both EBITDA and net income reached their highest level in 9 years for a first quarter period, underscoring the resilience and strength of our core operations. Now let's turn to Slide 13, balance sheet highlights. Total assets increased by 0.5% as of March 31, 2025 compared to the year-end 2024. The growth was primarily driven by an increase in other current monetary assets, which further strengthened our liquidity position. Property, plant and equipment declined by 1.1% as depreciation expense exceeded net additions of fixed assets during the quarter. This reflects our continued emphasis on capital discipline and asset efficiency. Total liability decreased by 5.5%, mainly due to a reduction in accounts payable. Our current ratio improved further and remain above 100%, highlighting healthy short-term liquidity and financial flexibility. In addition, the debt ratios declined slightly and net debt over EBITDA remains at zero. Taken together, these metrics highlight our solid financial position and prudent capital structure. Now let's move to Slide 14, cash flow summary. Cash flows from operating activities decreased by 8.6% year-over-year, primarily due to higher settlements of accounts payable during the quarter. Capital expenditures increased by 7.2% year-over-year, primarily due to the front-loaded deployment of 5G, 4G equipment in the first quarter. This reflects our planning mobile network enhancement schedule with a greater portion of the buildup occurring early in the year. Importantly, we remain committed to disciplined capital management and full year mobile-related CapEx is still expected to be lower than in 2024. As a result of these factors, free cash flow declined by 17.4% year-over-year. This was in line with expectations given the investment planning. We continue to maintain a strong cash position and stable operating inflows, which provides a solid foundation to support business growth and shareholder return. So now let's turn to Slide 15, performance relative to Q1 2025 guidance. For the first quarter of 2025, revenue was broadly in line with the guidance we provided earlier this year. Meanwhile, income from operations, net income, EPS and EBITDA all surpassed our Q1 guidance by a modest margin. This outperformance was primarily driven by the steady growth of our core business, improved profitability in our ICT business and lower-than-expected operating costs, reflecting our ongoing efforts to optimize operation and maintain disciplined cost control. This concludes the financial overview for the first quarter of 2025. We are pleased to report a solid start to the year. So we now open the floor for questions, and welcome your insights.

[Operator Instructions] Okay, then if there are no further questions, I'll turn it back over to President Lin. Thank you.

Okay. If there is no question, may I thank you for your participation. Thank you.

Thank you, President Lin. And ladies and gentlemen, we thank you for your participation in Chunghwa Telecom's conference. There will be a webcast replay within an hour. Please visit www.cht.com.tw/ir under the IR Calendar section. You may now disconnect. Thank you again. Goodbye.