Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the Company’s First Quarter 2021 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. Now I’d like to turn it over to Ms. Angela Tsai, the Director of Investor Relations. Ms. Tsai, please go ahead.

Thank you. This is Angela Tsai, Director of Investor Relations for Chunghwa Telecom. Welcome to our first quarter 2021 results conference call. Joining me on the call today are: Harrison Kuo, our President: and Vincent Chen, our Chief Financial Officer. During today’s call, management will begin by providing an overview of our business from this quarter, followed by a discussion of operational and financial highlights. After we will move on to the question-and-answer session. On Slide 2, please note our safe harbor statement. Now, I will turn the call over to President Kuo. President Kuo, Please, go ahead.

Thank you, Angela Tsai. Hello, everyone, welcome to our first quarter 2021 results conference call. Let’s begin on Slide 4. In the first quarter of 2021, mobile business continued to be the main focus in the market. We’ve set a target of accumulating 2 million 5G subscribers at the end of this year. And we are glad to report the number of our 5G sign ups are unchecked and potentially exceed our internal targets. As 3/4 of 5G subscribers and roughly 90% of iPhone 12 subscribers have adopted plans of TWD 999 or above. We remain positive about achieving year-over-year growth of our mobile postpaid ARPU in the second quarter and expect the trend to continue its way on. In addition, we – with more than 6,300 5G base stations completed during this quarter, compared with the annual target of accumulating 10,000 5G base stations by the end of this year. Our 5G network construction is well ahead of schedule. In the International Institute Opensignal’s 5G experience report in April, Taiwan was ranked the top position in terms of 5G upload speeds and the second position of 5G download speed in the world. As Taiwan’s leading telecom service provider, we remain committed to still taking 5G deployment to enhance 5G user experience in Taiwan. Regarding our broadband business, we are pleased that we see ARPU uplift continue as a result of ongoing increase in higher price plan adoption. Subscriber migrate to our broadband of 300 megabit per second or higher continued to increase by approximately 58% year-over-year. Contributing to year-over-year broadband revenue growth for the first 14-months in a row. The number of home Wi-Fi devices also saw increased 352% year-over-year, to supporting the popularity of our home-centric applications. MOD business continue to rollout popular packages to enhance overall performance,…

Thank you, president Kuo. Good afternoon, everyone. I will now discuss our first quarter financial results. Please turn to Slide 10, which provides highlights on our income statement. For the first quarter of 2021, on a year-over-year basis, total revenues increased by 4.1%, and operating costs and expenses increased by 3.7%. Income from operations increased by 5.5%, and our net income increased by 6.4%. In addition, our EBITDA margin increased to 41.09% from 40.18%, in the same period of 2020. Slide 11, provides a breakdown of revenue by business segment. In the first quarter of 2021, total revenue increased by 4.1% year-over-year, mainly due to the increase in ICT project revenue and handset sales revenue, which offset the decrease in the revenue from voice and mobile services, as a result of COVID-19 impact and Voice-over-IP substitution. Moving on to Slide 12, our operating costs and expenses in the first quarter increased by $1.37 billion or 3.7% year-over-year, mainly due to higher ICT project costs and cost of goods sold. Slide 13, shows that cash flows from operating activities for the first quarter of 2021 decreased by $3.44 billion or $25.8 billion – 25.8%, compared to the prior year period. This was mainly due to a decrease of accounts payable and an increase of accounts receivable. As of March 31, 2021, the balance of cash and cash equivalents was $30.06 billion, an increase of $13.49 billion or 81.4% relative to 2020. The increase was primarily attributable to the issuance of corporate bonds. On page 14, you may find a table that compares our financial results with forecasts. As you can see, for Q1 2021, though our revenue was lower than our first quarter guidance, our performance measures including income from operations, net income, EPS, EBITDA and EBITDA margin, all exceeded our forecasts. Lastly, please turn to Slide 15. For 2021, we are budgeting $43.1 billion in CapEx, including spending on business focuses in 2021, such as accelerating the construction of 5G network, IDC and submarine cable. That’s the end of my presentation. Over to you, Harrison.

Now we open to the questions.

Thank you. We’ll now begin our question-and-answer session. [Operator Instructions] Our first question is coming from Sara Wang from Morgan Stanley. Go ahead please.

Thank you for the opportunity to ask a question. So I have three questions. So first, on the mobile side, just want to ask what’s the apple-to-apple ARPU lift for the 5G adopters? Meaning, for example, before they migrate to 5G, when they were on 4G, the amount they paid and then how is the increase on the dollar amount they paid after they migrate to 5G? And then my second question is, so far, how is the fiber-to-the-home penetration for our, say broadband customers? So is that like possible to assume all the customers will start – be over like 100 bps or would be on fiber-to-the-home? And then the third question is on the ICT project. So it seems the growth of the ICT revenue has been quite solid for the past few quarters. So would management please share with us, how is the customer base look like? Are they mostly, say, government agency for enterprises or what kind of industries they’re from? And then do we have any target on, say ICT revenue growth or revenue contribution for 2021? Thank you.

Thank you for your question. To answer your question number one, the mobile ARPU, about the mobile ARPU trend, our postpaid mobile subscribers net adds continued to maintain positive in the first quarter. And we see up-sell among 4G users, while 5G are continuing to strengthen our adoption of higher price plans. We remain to expect our mobile subs revenue to be bottom up in the second quarter of 2021, and that trend will likely to continue. The second quarter, about the fiber-to-the-home penetration rate, it’s approximately about 85%. And the ICT project...

So regarding the ICT question. So for quarter one, our ICT, the growth rate is about 20%. And in terms of the customer base for the major customers we had in quarter one are basically from government agencies, like the Taipei City Government and some research institutions, yes. We expect the IDC revenue, we will say will – the revenue, compared with last year we will be probably about the same. Because for this year, we will be more selective in picking our ICT projects. So we expect the ICT margin will be higher than last year. And that’s my response.

Got it. Thank you.

Thank you. [Operator Instructions] The next question is coming from Neale Anderson from HSBC. Go ahead, please.

Good afternoon. I had a question related to 5G data usage and the network piece. Can you tell us what’s the average data usage relative to 4G? And is that driving any changes in your network rollout? I presume you’re still focused on coverage. But can you tell us how you’re thinking about adding capacity later on in the rollout? Thank you.

Neale, could you repeat your question? This is Tsai, I’m not quite clear about that.

Yes, so the first one relates to data usage, average data usage on your 5G subscribers so far. Is that very different from 4G or not so much? And then related to that in terms of network, hotspots or your areas where you’ve got a lot of traffic, how are you going to address those? Do you think about adding millimeter wave or additional sites to that? Thank you.

The average 5G user data usage is actually larger than that of the average mobile data usage – data user, for sure. For example, like for the first quarter this year, the average 5G data user, like 33 gigabytes versus the average mobile data user like 24 gigabytes. I think that’s the difference.

Got it. Thank you.

Thank you. [Operator Instructions] The next question is coming from Neale Anderson from HSBC. Go ahead, please.

Thanks for letting me ask a follow-up. I have a question relating to the ICT business and whether you can give us any insight on what sort of return level you’re targeting on your investment in the ICT business? I ask this because, we don’t have any visibility on profits at the moment. It’s quite hard also to distinguish the level in investment. So it would be helpful to get your view, what you’re targeting in the next year or two in terms of return on investment in that segment? Thank you.

I think we’ve been working on the ICT project for many years. And, of course, as you’ve seen that, we’ve been trying to increase the profit margin every year. In between, we also like to bundle our own product into – factor into this project in order to increase the margin as well. So you can see that year-over-year, it’s actually improving a lot. So I think that’s how we are doing. And in between, also, I think we would like to model this in different part of project, try to figure out how to increase individual to enhance the whole process. I think we’ve been doing okay. And hopefully, this will facilitate in later years, for sure.

Let me add one point that, in the enterprise side, we actively developed 5G commercial private network solution for industries. For small manufacturing application, the smart factory for the leading semiconductor company, the ASE Technology Holding joined with Qualcomm and Chunghwa, had been launched last year. And we will continue to develop projects in the semiconductors and other industries. And, as you know, we will team up with our partners for various verticals to develop 5G service via B2B2X business model. Our focus includes small manufacturing, as I mentioned earlier, and smart transportation, smart agriculture, smart healthcare, autonomous driving, etc., that are applied in different verticals. Thank you.

Thank you.

Thank you. The next question is coming from Sara Wang from Morgan Stanley. Go ahead, please.

Thank you. So I have another two questions. So first on the first quarter results, so like first congratulations on solid result. It all exceeded our expectations. So, can management share what’s the biggest beat in terms of results versus our expectation? Like, which area are we seeing actually higher growth than our previous expectation? And then second question is still on the ICT. So, for our 2021 guidance, either revenue or net profit, are we factoring in any upsides from potential 5G enterprise applications? Or in other words, do we see some monetizational business models for the early 5G enterprise applications?

Okay. So for the first quarter results, right, so as you can see on Page 8, for – Page 8, so – yes, so what type of beating our expectation is the revenues from our emerging business, such like IDC, cloud and cyber securities. So, as you can see, the growth is pretty much over 10% to 30%. So that’s really positive news to us. And for your second question with regard to enterprise application and the enterprise we are working on, on their private enterprise network. So, at this point, we respect the level of privacy of our customers. So we are unable to disclose their names.

Got it. Just in terms of, say, revenue or profit contribution factor in the 2021 guidance, so do we factor in any, like incremental revenue from those 5G enterprise applications?

So, because they are still on the very early stage for the private network, yes. So the proportion actually is quite small, yes.

Got it. Thank you.

Thank you. The next question is coming from Peter Milliken, Deutsche Bank. Go ahead, please.

Yes, good afternoon and thanks for the call and for the good results. My question is really about the CapEx for 2021. In particular, the Internet CapEx of $8.8 billion, which was about five times as much as the previous two years. Can you just remind us, what’s the reason behind the increase in that part of the CapEx in 2021? And would you expect revenues to come from that in 2021? Or would it be a longer-dated CapEx? Thank you.

Okay. So for the CapEx, right, so the question is why in 2021 the CapEx has gone up, right, relative to prior periods. So the reason is that, for the 5G network, we will – we want to enhance and accelerate our deployment of 5G network. So that’s one of the reasons. And also, we see a lot of demand from customers with regards to our IDC, cloud services. So that’s why we kind of spent some money on the – yes, so we spent quite a lot of money on these capital expenditures and constructions. And also, we also see the need from the submarine cables. So that’s why we work with our international partners to build more submarine cables. So in terms of your second question, right, do we expect revenue to come in 2021? Yes, we will say yes and no. For some of the capital expenditures, we can see profits in near-term. For some capital investments, we will see it in the longer-term. Yes.

So when I look at the Internet part of the CapEx, the $8.8 billion, that would be mainly data center build. Is that correct? Or is there a lot of other things you’re also expanding very sharply in 2021?

Yes, you are right. Yes, so normally data center, IDC.

Right. Okay. Thank you very much.

Thank you. The next question is coming from Jack Hsu, SinoPac Securities. Go ahead, please.

Hello. Do you hear me? Sorry.

Yes. Go ahead, please.

Okay. Thank you. And thanks for giving me the chance to ask question. I have two questions – three questions. My first question is about, I mean, just our EBITDA margin has grown. But also is the increase of the mobile devices sales also increased. So could you give us about the – more color about the reason why the EBITDA margin can grow, given the mobile device revenue growth? This is my first question. And my second question is about – we have informed – we just informed, we have collaborated with some customers on the commercial private network. And I just read from the news and some news has informed the sales team may have the private – commercial private network revenue in 2021, maybe above or maybe TWD 1 billion or TWD 2 billion. Is that correct? Or how many billions the – how many billion the revenue were related to the private network in 2021? And this is my second question. My third question is about – could you give us about some information about the 5G base station number until now or maybe until May or even until June? Because the governments, they will give the subsidy that were related to the number of the base station deploy our market. And, I mean, just how many 5G base station we have deployed until now? Thank you. These are my questions. Thank you.

Okay. So for the first question, right, so why EBITDA margin is high, because of the – we just mentioned, right, because for the first quarter, there’s an increase in our ICT revenue. And also, we – there’s a lot of contribution from our application via value-added services. And also broadband revenue also increases. So that’s why our EBITDA margin increased. And so, for the second question, with regards to the private enterprise network, right? For the revenue, we cannot disclose at this point. And also because the – one reason is that, because our customers don’t want us to disclose their identity. So, it’s not nice for us to disclose. And also, for the revenue, because it’s at a very early stage. So many of them are still at the POC stage, yes, so we are unavailable to – unable to comment at this point. So for the third question, regarding the number of base stations, so actually, the construction of the 5G network progresses as planned. So, at the – by the end of this year, we will hit more than 10,000 base stations, and now it’s over 6,300 base stations already, yes, at the end of the first quarter. And in terms of the government subsidies, so basically, we’ll say because – the government $15.5 billion and we’ll get the portion, we pay roughly, one-third, yes, in line with the spectrum cost.

Got it. Thank you. And it’s helpful. And just to follow-up – two follow-up questions. So first follow-up question is about, so if we get the subsidy from the government, we’ll let – subsidy will – how does the subsidy will affect to the income statement? Will this affect the cost or will affect the EBITDA margin? Thank you.

Okay. So for the government subsidy, right, so how should we account for it? So basically, once the budget is approved, then we will record it as a deferred revenue, then we will amortize it over the useful life of the 5G base station.

So does that mean that will be included to the revenue segment? Is that true?

Yes, it will be included as revenue. Yes.

So the net revenue will be accounted for in the second quarter or will be accounted for in the second half of the year? Thank you.

Yes, we’ll include it once NCC approves.

Okay. So does the NCC has approved now or until to the – in the second half year?

Okay. So it’s not up to our decision, yes. So we will wait for the NCC to decide, the timing, yes.

Okay. Got it. Thank you. And my second follow-on question is part of – we just kind of inform the commercial private network wins now, and we cannot disclose our customers' information. But we – just interest because, we got the news from the media. They had informed about the commercial private network revenue maybe were up to the more than TWD 1 billion. So, could you give us some more details or even color about how many the commercial private network revenue in 2021 will be above the TWD 1 billion or TWD 2 billion in 2021? Thank you.

We have no idea about the number you just mentioned, yes. So, we are not able to comment at this point.

Okay. Got it. Thank you. It’s very helpful. Thank you.

Thank you. [Operator Instructions] The next question is coming from Jack Hsu, SinoPac Securities. Go ahead, please.

Also thanks for – many thanks for another chance to ask a question. And I’m also interested with the ICT revenue, the revenue segment. We have just – some question is about the ICT revenue. But I just want to clarify, is the ICT revenue is almost the same with enterprise revenue or that’s something different? Thank you.

Yes. So for ICT revenue, right, so they are mostly enterprise revenue, yes.

Got it. So, how many – I mean, how many revenue – how many percentage of the revenue is related to – with the ICT?

I think we mentioned that in the last year, the ICT-related revenue already – I think in the past several years, it’s already more than 10%, right – roughly like 10%. Last year it’s larger, because last year we had a lot of large government-related project incurred. So it’s like 13% – more than 13%. And this year, we mentioned in the first quarter, in January when we mentioned about the guidance for this year for ICT, which is – the major volume or the percentage will be a little bit less because this year the big projects will be a bit less. So we – I think this year, we anticipate like 12% kind of portion.

So ICT will be the 13% last year, and that will be the 12% in the 2021, is that correct?

Yes, it’s correct.

Okay. Got it. Thank you. And so, just one follow-up question. And we just mentioned we will sum – the budget will about the data center deployment. So because I just missed the information. Can you give us the information how many our CapEx will relate to the IDC data center deployment in the 2021 story? Thank you.

So for Internet, our total capital expenditure is $8.8 billion. And in that section, mostly for IDC, yes.

Got it. Thank you. It’s very helpful.

Thank you. [Operator Instructions]

Okay. Thank you for your participation. Goodbye, everyone.

Thank you, President Kuo. 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 many now disconnect. Goodbye.