Far EasTone Telecommunications Co., Ltd. ($4904)

Welcome, everyone, to Far EasTone's 2026 First Quarter Earnings Conference Call. [Operator Instructions] And for your information, a webcast replay will be available within an hour after the conference is finished. Please visit www.fareastone.com.tw under the Investor Relations section. And now I would like to introduce Mr. Gary Lai, IR Officer. Gary, you may begin.

Good afternoon, everyone, and welcome. We have with us today our President Chee and CFO Sharon. Both will share updates on our performance for this quarter. Before we begin, I would like to remind everyone to pay close attention to the safe harbor statement on the first page of the presentation. Thank you for your attention, and now let's proceed with Chee's presentation. Thank you.

Thank you, Gary. Good afternoon, everyone. Thank you for joining FET's IR call. So we have the first quarter financial performance report. We have a very solid first quarter, I would say. And to sum it up, we continue to set some record highs in this quarter. And then all of the KPIs exceeded our guidance. So if you look at our revenue, it comes at TWD 27.81 billion and then the Y-o-Y is 6.8%. Now since we consolidate ETC in January, so here, there's another column here, if not to confuse you. So for the restated for the TWD 26.73 billion, that is if we had ETC from January last year. So then we have the apple-for-apple kind of comparison. With that in the base, and then our Y-o-Y growth will be at 4%. And I'd like to clarify that most of the 4%, not all of it, was really contributed by the organic FET growth, just to make that clear. And then for the EBITDA, it's at 3.6%. Since last year, we already were using the equity method for the ETC. So you see for the net income and EPS, it really doesn't make any difference. And still, we overachieved our goal -- our Board target and come at 14.4%. I think our initial was like a single-digit growth. So this was very good. Okay. Next page, please. Okay. So for the revenue at the TWD 27.81 billion, that is actually our history high for the first quarter. And then that also marks a 22nd consecutive quarter of the revenue growth. And also, this growth is driven by almost every area, I think all of the areas contributed. So the steady 5G upgrades and then the essential service expansion, they all gave us like a solid growth. And then the handset sales for the device and then also the ICT deliveries. And then when it comes to EBITDA, we have TWD 10.08 billion for this quarter. it is a historical high across all quarters. So it's just for the quarterly result is the highest so far in FET's history. And then this is due to all business segments have improved their margins Y-o-Y. And then so together, they contribute to a 6.3% EBITDA growth Y-o-Y. And for net income, it's TWD 3.71 billion and it's EPS like TWD 1.03. It is also the highest quarterly result for 20 years -- in 20 years. And the net income Y-o-Y growth is 14.4%, and we believe that's leading the industry. Okay. And some financial metrics for your information. First of all, our net debt and net debt-to-EBITDA continued to improve, and our free cash flow remains very strong. and our CapEx is in line with our 2026 guidance so far, which is TWD 9.6 billion. And some breakdown on our business performance. So if you look at on the left-hand side, we have Mobile & Essential Services. And by the way, this we doesn't include ETC. So for the Mobile & Essential Services and that accounted for 52% of our entire revenue last year this quarter, and this year, it has increased 2.3%, but because our pie is also increased. And then so overall, it only accounted for 50% of the total revenue. And while ICT & Fixed Business, it has come from 18% and grew 12.8% to 19%, and this part does include the ETC contribution. And for Merchandise, it has grown very well, 11% to account for 31% of the total revenue in the first quarter this year. And for the Mobile & Essential Services, as I mentioned in the previous slide, the steady 4G to 5G upgrade with handset replacement, that really helped. And then also it resulted in a 42% monthly fees uplift for the 5G renewal for the first quarter. And then we have been managed the churns pretty well. And then so continue to hit record lows for the postpaid. It has now come down to the 0.68%. And then for Consumer Essential Services, we have delivered strong growth and each of the major areas is like looking at a double-digit growth. So for the fraud prevention service, it is 65% Y-o-Y and our digital entertainment is 22%. And then our insurance agency service has grown 11%. And for ICT & Fixed Business, for our home grown products in the smart city and smart health area, they all show like a double digit and also security in cloud, they all showed double-digit growth. Overall, there are like a 20% overall growth. And then we do have some delays in some selective SI projects. And then that actually -- otherwise, our revenue would be even higher, and they were offset by ETC's consolidation. Otherwise, this revenue number will be even higher. Okay. In Merchandise, we had a good spring handset launches, and that helps sustain some of the 5G upgrades and also the Merchandise itself. All right. And then if we zoom into the mobile business alone, so for the first quarter, because of the -- we continue to see the upgrades and we performed very well in the MT market. On the mobile service revenue up 3% Y-o-Y in the first quarter, it is a 20th consecutive quarter of growth for the mobile service. And our ARPU remains to be #1 in the industry, and so is our 5G penetration, which comes at 48.4%. And then in terms of the postpaid churn, I mentioned earlier just now, it is now at 0.68%. Okay. And some consumer service highlights. For the mobile plans, we -- I have challenged my team, how can we kind of go beyond these TWD 4.99, TWD 5.99, TWD 7.99 kind of like a price menu. Can we give some more like a TA-focused, target segment-focused pricing? And it's really taken into account the target segments' need or demand. So last year, we have done this for 50-plus. And this year, the newest campaign is for the youth group and we have a youth campaign. And then that would attract hopefully, more of the younger users and give them more flexible 5G data with chance to earn lifestyle rewards. And this is also our effort to try to kind of educate our users, you don't always have to go with the unlimited plan, right? You really can plan for your usage. And even if you exceed that, you have plenty of ways to easily get the bandwidth that you need, okay? And then we also launched our 5G FWA Home Entertainment Bundle service. So this is using the 5G as a fixed wireless access. And then we combined bundle with entertainment packages. And for the first month, it just -- since its launch, it actually has been received very well. And we have several stores, they are out of stock on the hardware needed for it. So it's looking pretty good. And then we also launched a new service, and it's called Taste Taiwan. It's a new APP. It's a one-stop dining service, integrating the search, booking, dining, reviews and also some like a coupon or certificate that you can buy online and that gets some discounts. And then so -- this is our plan to get more high-frequency kind of service that we can provide and then also enrich our digital platform offering. This just launched a month or so, and we started kind of doing more promotion and marketing. And then so far, we are pleased with the reception so far. Okay. And then for the insurance agency, this area continues to be doing very well, and then the product manager is also very aggressive. So we have -- not only we do -- continue to do well with our device insurance and then we have some other insurance programs that we offered like our travel insurance and that further enhance covering family and statutory infectious diseases. And this actually was found quite helpful. And then the user found that kind of peace of mind. And then so it actually helped lift the ARPU by 79%, okay, and our telemarketing itself has also gone very well. And then combining with our DCB, it's a direct carrier billing and which really helps conversion of these telemarketing costs and then also the renewal rate has increased to 88%, and it's a record high -- and it actually reached a record high mobile insurance revenue. So this area continues to do very well and continues to expand. And for entertainment, for our video delivers a very solid growth. And then for -- in the first quarter, for the paid subscribers has gone up by 27% Y-o-Y. So has the revenue, about 22% Y-o-Y growth. And the life entertainment expanded with successful concerts. We have several concerts actually planned for later year too. And then I'm not really into this, but my team apparently knows what they are doing. So all these events have been very popular and the tickets are sold quickly. Okay. And our FET Guardian Network, it has drove 65% Y-o-Y revenue growth and also a big increase in terms of the paid subscribers that we see for the first quarter, okay? And then changing to the enterprise side, the business highlights. For the Smart ICT area, the Smart City, several of our main homebone products are getting traction and then for the connected traffic intersection, this is like an IoT kind of solution has been deployed more than 1,300 intersections in Taipei already. And then another 1,000 is already planned for the southern city. And then we also have air-quality monitoring solution that's deployed for 3 counties or cities in the first quarter alone. And also for the smartphone solution, that is actually -- government has a smartphone expansion initiative going on, and that's what we are kind of eyeing and then like we are targeting that. So this is a solution we co-created with a subsidiary InSyngerger that we invested and acquired last year -- okay or this year we completed. Okay. All right. And then the Smart Energy Management Solution that we have deployed for 20-plus university campuses, okay? And for Smart Health, this -- we are expanding our Cloud HIS solution with AI-enabled capabilities. So this will be done through some strategic investments, and it will drive validated and scalable long-term growth. So we are very excited about this. and the same kind of solution can also apply to hospitals as well. So this is more than the Cloud HIS area that it can be. In both our FET Telemedicine platform and also the FET Cloud HIS solutions have received ISO 27701 and ISO22301 certifications. And then for the Digital Transformation area, our Microsoft LSP program actually doing very well. For the first quarter, the business revenue has grown 51% Y-o-Y. It is really boosted by, I would say, first of all, the interest in AI, right? It was definitely there. within my team's ability through this professional service to help the interested companies to really help them with the AI adoption and then also endorsing the Microsoft solution that definitely helped. So it helped boost our Microsoft sales and at the same time also helped grow our professional service revenue as well. And then one of our own kind of homegrown solution using the Microsoft AI is the Intelligent Angel which was also exhibited at MWC this year in February. And it has received quite a bit of feedback. And then a lot of telcos visited the boost at Microsoft. And they were impressed because they heard about -- a lot about AI for the telco, but then they only have heard it and now they've actually seen it because we had a very detailed deck and then explain what we have done and how we did it. So they found it very helpful. and with the similar kind of technology or approach. And then we have this Intelligent Angel used in the IT area. So we have also received a lot of interest and then also the pipeline for the first quarter it's already built, it's already full. And then for the telecom-based SI area, we have secured several large-scale contracts during the first quarter, and it's really strengthened what we have for the midterm to long-term kind of revenue momentum, and also, it really reemphasized or reassured our strategic position in the digital transformation value chain. And then this is not only for the enterprise, but also for government, especially government is very into the telecom -- the government resilience for their infrastructure and also a lot of these smart buildings for the ESG and all that. So kind of right on that trend, it's also helping a lot with our telecom-based areas growth. And altogether, our first quarter total awarded ICT contract value grew actually 84% Y-o-Y. And we have received some major honors and recognitions that we'd like to share. And first of all, for the DJSI, now it's called DJBIC, we are ranked #1 again among global telecom peers. And this is actually the year that we have received this honor. And then S&P Global The Sustainability Yearbook 2025, actually, it should be 2025, we also ranked in the top 1% for global telecom companies and it is also #1 worldwide with a CSA score of 96. And then for the CDP Climate Change and then we also earned this leadership A-List recognition, okay? And then domestically, in Taiwan, we have been -- we ranked in the top 5% by Taiwan Stock Exchange among all the listed companies for corporate governance. And it is 12 years in a row among all together, there are 7 companies who were able to achieve this, 12 years, that's a long time. Okay. And then for our product, the ISO certification I mentioned already and then on the side, we also have invested in the movie Bedford Park, which actually received a Sundance Jury Award, and we believe it's the first Taiwanese-backed film to achieve this honor. Okay. And for FET's priorities, my IR used to ask me like every quarter and I'd say you don't change your priority every quarter. So that's why I take out the quarter and it's just our strategic priority for the year. So we don't have to see a change every time I have IR call. So we will continue to maximize our investment and subsidiary synergies. So for the ESG solutions penetration and then especially with the acquisition of InSynerger, okay? And then we do see a lot of synergy there with the product with a big -- very deep product line that they have in the ESG area. And also our Smart Health, we definitely are making investment and making strategic investment here and then in the Cloud HIS area and also how to make the smart hospital. So this is definitely one area we are excited and that we will accelerate the scaling up and then for the ICT and also cloud business, we already are expanding in the overseas area in Southeast Asia. And in particular, just in April -- on April 1, we actually completed the transaction with some consolidating Renova for our subsidiary NextLink. So this is one area of how we kind of use the synergy we have in the Southeast Asia through various subsidiaries and how to maximize the synergy among them and then also export our smart CD, Smart House solutions. So we see a lot of going on there that we can really pursue. Okay. And then we will expand the consumer service ecosystem via FET Mobile Circle. And this Taste Taiwan initiative that we just launched the APP, you will probably see more of it in the weeks to come. And also for the Mobile Circle platform, we continue to do more to monetize the platform, and then just 2 days ago, we launched service, that is a gaming platform, and then we help attract our users and then the users download the game, and then we get a share of our profit and that for the first 3 days, I'm amazed to see how many people actually like to play games. And so I'm pleased with the results, and then it's a platform, it's really kind of realizing what we have always aimed for this platform economy, I think it's really getting there, okay? And then also for AI, right? So we want to not only use AI internally where we see a lot of productivity improvement. And we also want to continue to monetize these AI solutions because not only we have used it internally and we can help our partners with it. And then we will -- because this year, we actually quite a bit of CapEx in the network area, as you have seen in my budget, when I -- when we discussed it in February IR call. So to advance our 5G SA network build-out, it's definitely one major focus for this year, and my network team will be very busy. And at the same time, we are also planning for the LEO satellite services. Okay. And then finally, a reminder for everyone, on May 20 is our FET Annual Shareholders Meeting. Okay. With that, I conclude my presentation, and we welcome your questions.

[Operator Instructions] The first one to ask questions, Charlie Bai from HSBC.

This is Charlie from HSBC. Congratulations to your very good results for the first quarter. I have 2 questions. My first question is about the ICT segment. I saw a very strong growth for your contract value in the first quarter. I know there are a few segments, may I know what was the most important driver here and we might share more color in terms of the profitability level or accounts receivable management, et cetera?

Okay. So this is -- for the ICD contract, it's across public sector as well as the industry. But then I think the public sector also has a higher percentage. I think it is driven a lot by this resilience, right? So there are quite a bit of projects kind of centered around this resilience topic. Even with the enterprises or industry, we see the need for like moving to the cloud or the build resilience to their current IT infra. So many of them are in the telecom-based SI and also the Smart City area. I think that probably covers it at least 80%. That's about it. And then you were asking in terms of the margin. So I think it is nothing special or different than what we typically have. So we are still talking about 20% or around 20%, yes. And then, of course, those estimates are based on when you have the case. And then later on, after the actual execution, it fluctuates, and also, we always have this like a risk kind of -- we set aside some money for the risk management. And then those, of course, if you manage it well, and those will come back and then help even improve the margin more. So those, I don't have one number for you. And did that answer all your questions? Or is there anything I missed?

Maybe I appreciate the second question. My second question about the EBITDA margin because I knew that the global energy price has been rising. I wonder if it has any impact on your first quarter EBITDA margin? And how do you project the trend in the second quarter?

Not really in terms of energy itself. But then we do see the hardware, the servers, the price increase because of the AI, the memories and all that. So it did have some impact on some of the projects that for the POs, you need to play and then now it takes longer, and we have to renegotiate some of the prices. I think it will have more impact on the project that we -- before we commit because in some of the cases, like we may have clients, including the government, they have started engaging about some project, but then never really signed off on it and then when you are not signed off on it, and the cost have gone up. So they kind of have to go around and then again and then talk about what the estimate should be. So we have a little bit like that. But in terms of the first quarter, there was no impact as far as I know.

Next one to ask questions, Rajan Sharma from JPMorgan.

Two questions from my side. On the 5G stand-alone network build-out, what is the incremental revenue opportunity that you see? And what's the value that you're bringing to your customers? Second is, again, on the LEO satellites, what's the use case that you see with LEO, what's the service that might look like for consumers?

Okay. For the 5G SA build out, part of it is the network evolution. And then before we from 5G to 6G or next generation. So this SA -- from NSA to SA is one of the steps you have to go through. But then on the other hand, right, so the SA actually provides additional kind of a differentiated network, differentiated access. So there are more versatile features that we can offer to the users. But of course, they are not going to be free. So that's also an opportunity for telcos to actually monetize our network a little bit more. And then until it is fully deployed, I don't see the return right away, but then we may have some services that could be offered to pockets of the network or some special venues. And then in terms of LEO services, that's also from a communications company per se, and then having these different technology, especially when they are kind of all converged eventually. So just like from the 6G to LEO, so there's definitely something that we don't want to miss out and then also satellite service would provide another option for resilience, right? So another like a backup on data service per se. And then also it contributes to the infra resilience. Actually, last year, when we had typhoon one after another, our Southern Taiwan is really very badly damaged. When we lost the power and then -- and we lost quite a bit of our radio stations, and satellite definitely played a very critical role in restoring these communication capability. which now people know you don't take them for granted. When in these disasters kind of condition, it is very important and critical to stay connected. So satellite service definitely provide big help there. And we will also use it to cover anywhere that is that we wouldn't be able to cover 100% of the area. So this is definitely something that will improve or further increase our coverage and also resilience for the Taiwan consumers and enterprises.

Ladies and gentlemen, we are now in Q&A session. [Operator Instructions].

And also, if you have any questions that you think of later on, you can always call Gary and Amy, they'll be able to help you. .

[Operator Instructions] There are currently no questions. I'll pass it over to Gary Lai. Gary, please proceed.

Okay. Thank you, everyone, to attend our first quarter 2026 investor conference and see you next quarter. Thank you.

Thank you all. Goodbye.

Ladies and gentlemen, we thank you for your participation in Far EasTone's conference. There will be a webcast replay within an hour. Please visit www.fareastone.com.tw under the Investor Relations section. You may now disconnect. Thank you, and goodbye.