Chunghwa Telecom Co., Ltd. (CHT) Q3 2021 Earnings Report, Transcript and Summary

00:01 Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the Company's Third Quarter twenty twenty one Operating Results. During the presentation, all lines will be on listen-only mode. [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. 00:44 Now, I'd like to turn it over to Ms. Angela Tsai, the Director of Investor Relations. Ms. Tsai, please go ahead.

00:53 Thank you. This is Angela Tsai, Director of Investor Relations for Chunghwa Telecom. Welcome to our third quarter twenty twenty one results conference call. Joining me on the call today are Harrison Kuo, our President; and Vincent Chen, our Chief Financial Officer. 01:10 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 two, please note our Safe Harbor statement. 01:28 Now, I will turn the call over to President Kuo. President, Kuo, please go ahead.

01:34 Thank you, Angela, and hello, everyone. Welcome to our third quarter twenty twenty one earnings call. In the third quarter of twenty twenty one we are pleased to report robust performance. In the mobile business, 5G subscriber numbers continued to grow during the quarter, and the launch of iPhone 13 series later in the third quarter further drove up both 5G sign-ups and high price plan adoption. About ninety percent of iPhone 13 series users chose plans of nine ninety nine dollars or above, and approximately three-fourths of the overall 5G users adopted plans of nine ninety nine dollars or above. 02:32 In addition, customers who renewed contracts to adopt 5G services contributed an average of twenty nine percent uplift in monthly fees to sustain the upwardly trending APRU. Going forward, we will continue to orderly steer 5G migration by offering diversified price plans to accommodate different demands and accelerate 5G deployment to provide quality 5G network. And at this time, we have more than ten thousand 5G base stations, and we remain confident in our ability to achieve our guidance of building twelve thousand 5G base stations by the end of this year. 03:31 In the third quarter, both broadband and MOD businesses demonstrated a promising performance. HiNet subscriber net-adds continued to increase on a year-over-year basis due to work-from-home benefits. Broadband revenue increase and ARPU uplift continued as subscriber migration to our broadband services of three hundred megabits per second or higher increased by forty eight percent year-over-year. 04:10 The Olympic Games broadcasted on MOD platform and the Hami Video during the third quarter, successfully reaching a record-high viewing rate and bringing in a surge of advertisement revenue despite the relatively small revenue base. Going forward, we will continue our strategy to acquire popular content to retain customers and respond to market competition. As we strive to maintain our leading status on the largest video platform in Taiwan. For ICT business, we are delighted to see the average ICT project margin grew year-over-year. As we continue our efforts to enhance ICT margin, we expect the overall business performance will continue to develop on track. 05:14 Now, allow me to walk you through each of our business lines. Turning to slide five, you may find updates on our mobile business. In the third quarter, we continued to maintain our leading position in the mobile market, as revenue market share remained at thirty eight point eight percent and the subscriber market share increased to thirty six point one percent excluding IoT SIMs. 05:47 During the quarter, our mobile customer net-adds and the post-paid net-adds both ranked highest among the big three majors. As post-paid subscriber number increased year-over-year and the 5G migration enhanced high price plan adoption, our mobile service revenue continued to increase year-over-year, which also led to the year-over-year increase of our post-paid ARPU. 06:23 Please turn to slide six for an update on our broadband business in the third quarter. Our HiNet subscriber net-adds continued to increase year-over-year in the third quarter, reflecting the growing fixed broadband demand in the market. We were also pleased to see that our broadband ARPU increased by three percent year-over-year, which reflects our success in migrating subscribers to adopt higher-speed services. The number of subscribers that signed up for connection speeds of three hundred megabits per second or higher increased by forty eight percent year-over-year, while VPN circuit revenue contributions from enterprise customers increased as well. 07:22 In addition, benefits stemming from expanded stay-at-home opportunities in the new normal continued to grow in the third quarter. Our responding packages that bundled broadband with Netflix, gaming and online learning continued to be well-received and brought in revenues. Going forward, we will continue our efforts to maintain the upward trend of broadband revenue and ARPU. 08:00 Slide seven illustrates our MOD business performance. In the third quarter of twenty twenty one, MOD revenue increased by five percent year-over-year due to our proper pricing strategy and the success of broadcasting the Tokyo Olympic Games. The SVOD all-pass package that rolled out in the first quarter rapidly accumulated its subscription number and successfully strengthened VOD revenue growth for two quarters in a row. 08:43 Channel revenues continued to increased year-over-year as ninety percent of subscribers chose the highest price package among the tiered pricing schemes. In addition, advertisement revenue increased as MOD and Hami Video successfully leverage the highest-ever viewing traffic for the Olympic Games into advertisement orders. 09:16 As a result, the MOD ARPU achieved five percent increase year-over-year in the third quarter. Moving forward, we will continue to enhance the content offerings by acquiring popular sports events and carrying well-known OTTs, and we aim to maintain our leading position as the largest video platform in Taiwan. 09:48 Please turn to slide eight for an update on our ICT business. As mentioned earlier, on a year-over-year basis ICT project margin in the third quarter continued to increase as the ICT gross profit increased as well, which is positive to our overall bottom line. In addition, ICT revenue increased eleven percent year-over-year, mainly due to revenue recognition from the projects in financial industry. Cloud revenues remained flat year-over-year, while cyber security revenue decreased by sixteen percent year-over-year due to project revenue delays. However, we are delighted to see recurring revenue of cyber security increase year-over-year, reflecting the subscription-based cyber security service continued to be well-received. 11:00 Going forward, we will continue to enhance our overall ICT technology capabilities to cater to more emerging digital opportunities and be more selective as we aim to further increase project profit margin. 11:22 Now, I would like to turn the call over to our CFO, Vincent Chen, who will review our financial results. Mr. Chen, please go ahead.

11:35 Thank you President Kuo. Good afternoon, everyone. I will now discuss our third quarter financial results. 11:42 Please turn to slide ten, which provides highlights from our income statement. For the third quarter of twenty twenty one, on a year-over-year basis, total revenues decreased by two point five percent, and operating costs and expenses decreased by five point five percent. Income from operations increased by six point seven percent, and our net income increased by twelve point eight percent. In addition, our EBITDA margin increased to forty one point four percent from thirty eight point five percent in the same period of twenty twenty. 12:19 Slide eleven provides a breakdown of revenue by business segment. In the third quarter of twenty twenty one, total revenue decreased by two point five percent year-over-year, mainly due to the decrease in ICT project revenue and the voice revenue as a result of VoIP substitution, which offset the increase of handset sales revenue, mobile service revenue and broadband revenue. 12:49 Moving on to slide twelve, our operating costs and expenses in the third quarter decreased by NT two point two eight billion dollars, five point five percent year-over-year, mainly due to lower ICT project cost and lower concession fees. 13:08 Slide thirteen shows our cash flows from operating activities for the third quarter of twenty twenty one increased by NT zero point eight five billion dollars, or four point two percent, compared to the prior year period. This was mainly due to an increase in pre-tax income. Free cash flows decreased by fifteen point six percent on a year-over-year basis due to higher capital outlay that will enhance our future revenue streams. 13:39 As of September thirty, twenty twenty one, the balance of cash and cash equivalents was NT twenty three point five nine billion dollars, an increase of NT five point eight nine billion dollars, or thirty three point two percent, compared to September thirty, twenty twenty. The increase was primarily attributable to the issuance of corporate bonds. 14:07 On page fourteen, you may find a table that compares our financial results with forecasts. As you can see, in the third quarter of twenty twenty one, all performance measures beat our guidance. Revenue met guidance attributed to higher mobile services, broadband access, and data communications revenue. 14:31 Please turn to slide fifteen. For twenty twenty one, we budget NT forty three point one billion dollar in CapEx, including spending on business focuses in twenty twenty one, such as accelerating the construction of 5G network, IDC and submarine cables. As of September thirty, twenty twenty one, cash outlays of IDC and submarine cable went below our expectations due to the delay of construction, while our 5G CapEx spending was on track and in line with our schedule of 5G base station deployment. We maintain our forecast that twenty twenty one is our 5G investment peak. 15:18 Now, I would like to turn the call over to President Kuo for our awards and recognitions.

15:25 Thank you, Vincent. Finally, slide sixteen illustrates our awards and recognitions from the third quarter, highlighting our distinction in telecom operation, mobile data service and data center service, as well as the recognition of corporate branding and ESG practices. As a trustworthy leading brand in Taiwan, we especially attach importance to sustainability, and we will make full efforts to carry out sustainable development of the overall business. Thank you for your attention. 16:13 And now, I would like to open the floor for questions.

16:18 Thank you. [Operator Instructions] Our first question is coming from Neale Anderson from HSBC. Go ahead, please.

17:35 Hi, there. Good afternoon. I was wondering if you could give us a little bit more color on competition in the 5G market and how you expect that to play out in the fourth quarter? What are the recent trends in terms of spending, migration and how you think that market is developing? I'd be interested in your views on that to consumer and the enterprise side? Thanks very much.

18:08 Well, I think currently, Neale, the overall 5G competition in Tai market is pretty rationale and you see currently our ARPU, post-paid ARPU in this market though represent -- party represents our third quarter number. No matter the blended ARPU or the post-paid ARPU, but you're right, I think we are proud of the amount our peers -- among the major players, I think we are, we are the best. But momentum like this, I think the overall market in terms of the pricing, the package, you don't see any extreme package. All the package is kind of orderly matched. So I would say that the 5G market is pretty rationale and so the -- in the foreseeable future in the fourth quarter we would like to see this as well.

19:19 Thank you. Any evidence of a new service demand or 5G specific service demand amongst business customers?

19:33 For the enterprise side, I think we -- the vertical industry, I think we will continue to launch to partner with our enterprise customers to see if what they need and we will explain the possibility in those report.

19:56 Got it. Thanks very much.

19:57 Thank you. [Operator Instructions]. The next question is coming from [Ken Fidelity] (ph). Go ahead, please.

21:16 Hello. Can you hear me okay?

21:16 Sure. Yes.

21:17 Hello? Okay. Yes, thanks for this opportunity, management. Just a quick question [indiscernible] if you can comment on that, but I guess if I'm not mistaken, I've seen a new flow that some of the politicians in the Taiwan assembly is now demanding a cheaper 5G type plan just to help people right from an economic perspective, because some of the people who may be suffering from COVID-19. Is there anything you can comment on this, I mean, in terms of potential regulatory tariff pressure on 5G services? Thank you.

22:09 I think we do have some kind of a cheaper plan all the time like in the digital channel and some special a group of people all the time, mainly from the regulatory pressure. I believe this answer your question.

22:33 Okay. Thank you.

22:37 Thank you. [Operator Instructions] If there are no further questions, I will turn it back over to President Kuo. Please proceed. Thank you.

24:08 Okay. Thank you for your participation. Bye-bye.

24:12 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 may now disconnect. Goodbye.