Chunghwa Telecom Co., Ltd. (CHT) Q2 2023 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the company's Second Quarter 2023 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 Web site, www.cht.com.tw/ir under the IR Calendar section. And now I would like to turn it over to Ms. Angela Tsai, the Director of Investor Relations. Thank you. Ms. Tsai. Please go ahead.

Thank you. I'm Angela Tsai, Assistant Vice President of Chunghwa Telecom's Financial Department. Welcome to our second quarter 2023 results conference call. Joining me on the call today are Harrison Kuo, our Chairman and CEO; Chau-Young Lin, our recently appointed President; and Vincent Chen, our Chief Financial Officer. Before I turn the call over to Chairman Kuo, I would like to briefly introduce our new President, Dr. Ivan Lin. President Lin holds a PhD degree in electronic engineering from National Taiwan University of Finance and Technology. He has served in various leadership positions in the areas of information technology, enterprise business and telecom laboratory at Chunghwa. President Lin also has a specialized interest and experience in IT advancements and AI-related development. On Slide 2, please read our disclaimers and most concerning our forward-looking statements. Now without further delay, I will turn the call over to Chairman. Chairman Kuo, please go ahead.

Thank you, Angela, and hello, everyone. Welcome to our second quarter results conference call. To begin, I would like to extend a warm welcome to our new President, Chau-Young Lin. We are happy to have his participation on today's call. Before Ivan walks us through our business overview and the segment performance, I would first like to share our views and the exploration for Chunghwa Telecom on Slide 4. As I took the office, I declare our mission publicly, that is leverage our 4 assets, which include customers, partners, tech platforms, infrastructures and the talents to forge digital-enabler ecosystems, empowering individuals, families, governments, enterprise customers, global clients and strategic partners to innovate and create value for customers, strategic partners, shareholders and employees. I reiterate our shared value as it is critical to drive business excellence and fulfill our missions. The shared value that underpin our corporate culture include integrity, customers' trust, innovation and value creation as well as commitment and accountability. I believe those are the fundamentals that make the whole company to move forward together. I also envisioned the company to become an international benchmark enterprise recognized for sustainable development as well as a leading brand for digital ecosystems enablers based on the four assets aforementioned. To guide our success, I reviewed our financial benchmark, which is to become a top technology conglomerate far exceeding the market value of TWD 1 trillion. As our new management recently onboard has AI-related experience in particular, I am confident in our ability to shift ourselves into a leading brand among digital ecosystem enablers. Our goal is to push forward the development of an ecosystem base industry environment of a leading telecom operator. Furthermore, we expect to continue outperforming our peers over such [Indiscernible] and even extend our lead in giving our exclusive technology and solid capabilities. We believe the digital transformation trend will continue to prepare the industry for further growth and remain available into the success. We rely more on ecosystem building the sale of typical industry competition. We aim to create accretive value for customers and then enhance the overall value for the industry, of course, including ourselves. In July, we were invited to the New York Stock Exchange to celebrate the company's anniversary for our [OISE] lead team. We greatly appreciate the achievement and look forward to our investors maintained and continued support. Now I will hand the call over to Ivan for the business overview.

Thank you, Chairman Kuo, and hello, everyone. I'm Ivan. I'm honored to be here today and happy to share the details of our second quarter business result. On Slide 5, please find our mobile business overview. In the second quarter, by marketing in Taiwan further consolidated toward sales restructured, and we are exciting to see our revenue share in Taiwan Mobile marketing had [Indiscernible] increased on a year-over-year basis, 39.2% to 39.9%, as well as the quarter-over-quarter gross revenue of 39.7%. Our subscriber share also turned to 37% from 36.3% compared with the second quarter of the last year. As a result, our incremental existing revenue of the share above our subscriber share increased to 2.9%, reflecting our healthy subscriber structure and better revenue generation compared to our peers. In addition, our postpaid ARPU report 4% Y-o-Y increase and continuing growth for 9 consequently quarterly. Our mobile service revenue also took a lead in industry with 6.5% increase, outperforming our peers and maintaining the growth for 22 consequent monthly on a year-over-year basis. And on to the upselling result from the 5G migration and the increase of the postpaid subscriber numbers for those who migrate from our 5G to -- our 4G to the 5G. We averaged a 44% uplift in the mobile monthly fee, maintain an upward trajectory the quarter-over-quarter. In addition, our international moment recovered and the prepared revenue increase continuing to win up in the second quarter. And really, overall revenue -- over the normal revenue this year is expect to recover to this, the pre-pandemic level. In terms of the mobile, more quality, we are going to be recognized by open signal to Taiwan based on overall and 5G coverage and fast and overall 5G experience in June, showcasing our outperformance in network coverage and quality. Moving on to Slide 6, you can find an update to our fixed broadband business. We are delighted to see higher service adoption continuing to increase the quarter-over-quarter, the driving by our fixed broadband pickup and upgrade the promotional package and modifiable and promotion plans. And only our sign-up and the service of the 300 megabit per second or higher maintenance is higher growth rate of 55% year-over-year, which contribute to 3% and 1% Y-o-Y increase. The overall fixed broadband revenue output expected because fixed broadband up with the increase of 15 quarter consequently. And going forward, we are continuing our strategy of the incentivized subscription speed upgrade to enhance over ARPU. Now let's move on to performance of our consumer business group, and Slide 8 presents the performance of our CBG groups. In the second quarter, incoming before tax of the CBG increased by 10.4% year-over-year, thanks to the persistence growth of the Telecom service as well as the decrease of the manpower expenses and depreciation and expenses. Total revenue of the CBG increased by 3.9% year-over-year and where mobile service revenue raised by 6.4% on year compared by the stable 5G migration and the increase of the postpaid subscriber numbers. And particularly, international roaming continue to recover and the broadband contribution on to bring close border activities. The fixed line service revenue was safe while fixed broadband revenue maintained is upward trend by increasing 2.9% year-over-year only to the success for the upselling along with the speed upgrades. And the sales revenue increased by 4.8% year-over-year, mainly due to a stabilized [icon] supply and increased terminal sales during the quarter. Slide 9 further illustrate our consumer business group highlights. In the second quarter, our multiple-play package account continued to be well received subscribers number of the mobile and the fixed broadband and WiFi service all gated and demonstrate 10.2% quarter-over-quarter growth. Home WiFi subscription numbers increased by 12.5% year-over-year along with the fixed broadband and MOD promotion packages. In addition, our video subscription continue to uptrend, increasing 6.7% on yield, mainly driven by our popular OTT brand, Hami video for its rich content, including its extensive drama correction and professional baseball games. Despite broadcasting of the major sporting and program during this quarter, our IPTV brand/MOD still extend the slight increase in both subscribers -- subscription and revenue in the second quarter due to the successful upsell on SVOD, and channel service brings the word. We are continuing our content strategy to maintain our leading position as the largest video platform in Taiwan. Please turn to Slide 10 for overview of our Enterprise Business Group performance. In the second quarter, EBG report 11.9% year-over-year decrease of the income before tax, mainly due to the decline in the tax business and which have the relative higher margin and a higher basis of the onetime recognition of the large and small energy projects and internal [Indiscernible] speed. And most sectors also resulted in a 1.2% year-over-year decrease of the total revenue of the EBG. In spite of the ICT revenue that decreased in the second quarter, the mobile service revenues increased attributable to the 5G upselling and recover of the international roaming revenue. And the sales revenue increased from our subsidiary as well. Fixed line revenue slightly decreased year-over-year, mainly due to the voice decline, also data communication revenue in broadband access revenue continued to grow as expected. Slide 11. Last year illustrated our enterprise business highlight in the second quarter, and most of our major application demonstrated robust growth on a year-over-year basis. 5G private network, in particular [Indiscernible] is revenue by -- for so -- on to the increasing project numbers and returns revenue injection. Revenue from big data analysis, cybersecurity, IDC and cloud also achieved year-over-year growth of the 67% and 17% and 14% and 16 -- and 6%, respectively. However, total enterprise emerging application revenue decreased by 2.2% on a year-over-year basis, mainly due to onetime IoT revenue recognized last year relating to smart energy projects. Excluding onetime factor, we continue to see our IoT revenue develop on trade. In emerging enterprise, application revenue was up by 16.7% year-over-year as we continue to invest in developing 5G private networks on either digital and AR platform with acquired smart port application in Southern Taiwan in the second quarter. [Indiscernible] technology to enhance under the inspection and to further extend the AR technology to tourism and in [Harbor Park], resetting our leading ICT capabilities and foreseeable revenue contribution. Slide 12 illustrate our international business performance. In the second quarter, income before tax of IBG decreased by 6.6% year-over-year into non-operating expenses, such as the foreign currency valuations and lost and internal [Indiscernible]. Excluding the impact, IBG continuing to experience strong growth in the profit generation at double-digit Y-o-Y growth. Total revenue of IBG increased by 23.2% on yield, mainly driven by the increasing demand for our international private leasing circuit and gain emerging business in 2 IDC and cloud services from global clients. For international business expansion, we are glad to share like our signed MoU with provision electricity and also authority of the Thailand, ensuring that the PEA and amend for the corporation of the smart city solutions such as the smart port and the smart meters. Now I would like to turn the call to Vincent for our financial highlights.

Thank you, President Lin. Good afternoon, everyone. I will now walk you through our second quarter financial results. Let's begin with Slide 13, income statement highlights. From the second quarter of 2023, we were glad to see our performance continue to exhibit growth momentum. Total revenues increased by 2% compared to same quarter last year, as a result of growing mobile and broadband service revenues. Income from operations and net income grew by 2% and 2.9% on year, respectively, and such growth were mainly attributable to our strong core business performance. EBITDA maintained quarterly and yearly growth. Overall, in the first half of the year, we delivered impressive operating performance as total revenues increased by 3.8% year-over-year, fueled by strong growth of our mobile, ICT and broadband services. Income from operations and net income grew by 3.2% and 4.6% on year, respectively, mainly due to our robust core businesses and growing ICT business. Notably, EPS increased by 4.6% on year to TWD 2.52, which hit a six year high. EBITDA continued to grow and EBITDA margin continued to stay at above 40%. Now move on to Page 15 for balance sheet highlights. Total assets on June 30 of 2023 compared to the end of 2022 grew by 1.3%, mainly due to the increase in our current monetary assets, such as negotiable certificate of deposits. Total liabilities rose by 21%, primarily attributable to the increase in dividend payable, leading debt ratio to increase from 25% to 29%. Furthermore, net debt over EBITDA remains zero. Altogether, these debt-related figures demonstrate the robustness of our balance sheet. Page 16 provides the summary of our cash flows. Cash flows from operating activities increased by 3.9% on year, mainly due to the decrease in payments to suppliers and maintenance contractors, which offset the impact of rising interest and tax payments. Regarding our capital spending, the amount of cash outflows was about the same compared to the same period last year. If we break CapEx into mobile and non-mobile components, mobile-related CapEx was lowered by 39.5% whereas non-mobile related CapEx increased by 28.9%. The latter was primarily attributable to IDC investments. On top of that, free cash flows grew by 6.9% on year. Taken together, we maintained a robust balance sheet, along with strong operating cash flows, which provide a solid foundation for us to be future-ready and allow us to remain committed to driving growth and creating long-term value for our shareholders. On Slide 17, the table presents financial results against our financial guidance. In the second quarter of 2023, revenue and our profitability performance measures beat our financial forecast, with income from operations and net income exceeding financial projections by modest margin. The better-than-expected performance was mainly driven by the performance of mobile and broadband services and ICT business. In the first half of 2023, our performance measures topped our financial forecasts. Notably, all profit-related performance measures beat our guidance by more than 10% as a result of outperforming core and emerging businesses. That concludes the overview of our Q2 financial results. Let me turn the call over to Chairman Kuo.

Thank you, Vincent. On Slide 18 is our awards and ESG recognitions received in the second quarter. To identify our overall commitment to sustainability, we officially joined the Renewable Energy 100 in May and committed to achieving 100% renewable energy usage by 2040. We have also passed the greenhouse gas reduction near-term targets reviewed by SBTi. Our goal is to achieve the reduction of Scope 1 and Scope 2 greenhouse gas emissions by 50% compared to the base year of 2020. Furthermore, we are among the foundries in Taiwan to commit to achieving Net Positive Impact on biodiversity and No Net Deforestation by 2030. In addition, our ESG practice and other achievements has been widely recognized globally. We received an upgraded AA rating for MSCI's ESG rating, most in the top quartile among telecommunications industry peers. These achievements solidify our position as one of the global 88 companies in the sustainable development. Thank you for your attention. At this time, I would like to open up our conference call for questions.

Thank you for your participation. Goodbye.

Thank you, Chairman Kuo, and 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, and goodbye.