Chunghwa Telecom Co., Ltd.

Good afternoon, ladies and gentlemen. Welcome to Chungha Telecom conference call for the company's second quarter 2023 operating results. During the presentation, all lines will be on listen-only mode. When the briefing is finished, directions for submitting your questions will be given in the question and answer session. 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, slash 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 Shanghai Telecom's Financial Departments. Welcome to our second quarter 2023 results conference call. Joining me on the call today are Harrison Guo, our chairman and CEO, Alvin Lin, our recently appointed president, and Vincent Chen, our chief financial officer. Before I turn the call over to Chairman Guo, I would like to briefly introduce our new president, Dr. Alvin Lin. President Lin has a PhD degree in electronic engineering from National Taiwan University of Science and Technology. He has served in various leadership positions in the areas of information technology, enterprise business, and telecom laboratory at Zhonghua. President Lin also has a specialized interest and experience in IT advancements and AI-related developments. I'd like to please read our disclaimers and notes concerning our forward-looking statements. Now, without further delay, I will turn the call over to Chairman. Chairman Guo, 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, Ivan Lin. We are happy to have his participation on today's call. Before Ivan walks us through our business overview and the second-man performance, I would first like to share our views and aspirations for Songhua Telecom on slide four. As I took the office, I declare our vision publicly. That is leverage our four assets, which include customers, partners, tech platforms, infrastructures, and talents to forge digital enabling 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 unite the whole company to move forward together. I also envision the company becoming an international benchmark enterprise recognized for sustainable development as well as a leading brand for digital ecosystem enablers, based on the four assets aforementioned. To guide our success, I revealed a financial benchmark, which is to become a top technology conglomerate far exceeding the market value of $1 trillion. As our new management recently on board 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-based industry environment as a leading telecom operator. Furthermore, we expect to continue outperforming our peers under such landscape and even extend our leading, given our exclusive technology and solid service capabilities. We believe the digital transformation trend will continue to prepare the industry for further growth and remain sustainable and the success will rely more on ecosystem building instead of typical industry competition. We aim to create a creative 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 20th anniversary for our NYSE listing. We greatly appreciate the achievement and look forward to our investors' long-term and continued support. Now I will hand the call over to Ivan for the business overview. Thank you, Chairman Guo, 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 five, please find our mobile business overview. In the second quarter, mobile marketing in Taiwan further consolidated towards a healthy structure, and we are excited to see our revenue share in Taiwan. Mobile marketing had a significant increase on a year-over-year basis, from 49.2% to 39.9%, as well as quarter-over-quarter, closely from 39.7%. Our subscriber share also came to 37% from 36.3%, compared with the second quarter of the last year. As a result, Our incremental existing revenue 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 post-pair APU report 4% YYY increased and continued growth for nine consequentially quarterlies. Our mobile service revenue also took a lead in the industry with 6.5%. Increase of performing our peers and maintaining its growth for 22 consequentially monthly on a year-over-year basis And only to the outstanding result from the 5G migration and the increase of the prospective subscriber numbers for those who migrate from our 4G to the 5G, we averaged 44% uplift in their mobile monthly feed, maintaining an upward and And trajectory, the quarter is over-quartered. In addition, our international nominal recovered and the prepared revenue increase continues to ring up in the second quarter. Ideally, over the nominal revenue this year, we expect to recover to this pandemic level in terms of the mobile Network quality, we are grateful to be recognized by OpenSignal to Taiwan-based overall and 5G coverage and first overall and 5G experience in June, showcasing our outperformance in network coverage and quality. Moving on to slide six, you can find an update to our fixed broadband business. We are delighted to see high-level service adoption continue to increase quarter over quarter, driving by our fixed broadband speed upgrade promotion package and MOD bundle promotion plans. Not only our sign-up and service of the 300 megabits per second or higher maintenance and its higher growth rate of the 55% year-over-year, which contributes to 3% and 1% YOY increase, overall the fixed broadband revenues are upward. And the respective fixed burden output increased 15 quarters consequently. And going forward, we are continuing our strategy of the incentive and subscription speed upgrade to enhance all the output. Now, let's move on to the performance of our customer centric business group. And slide 8 presents the performance of our CBG groups. In the second quarter, income before tax of the CBG increased by 10.4% year-over-year. Thanks to the persistent growth of the telecom service, as well as the decrease of the manpower expenses and the depreciation and expenses. Total revenue of the CBG increased by 3.9% year-over-year, where mobile service revenue was by 6.4% on year prepared by the stable 5G migration and the increase of the prospective Subscribers numbered. In particular, international norming revenue continued to recover and brought in contributions only to brand and closed-border activities. The fixed-life service revenue was 6%. While fixed broadband revenue maintained its upward trend by increasing 2.9% year-over-year, only to the successful offsetting along with the speed upgrade. Sales revenue increased by 4.8% year-over-year, mainly due to the and stabilized iPhone supply and increased terminal sales during the quarter. Slide 9 further illustrates our consumer business growth highlights. In the second quarter, our multiple product packages continued to be well received The subscribers' number of the mobile and fixed broadband and Wi-Fi services all gathered and demonstrated 10.2% quarter-over-quarter growth. Home Wi-Fi subscription numbers increased by 12.5% year-over-year, along with the fixed broadband and MOD promotion packages. In addition, our video subscription continued its uptrend, increasing 6.7% on yield, mainly driving by our popular OTT brand, Hami Video, for its rich content, including its extensive drama collections. and professional baseball games. Despite the broadcasting of the major sporting programs during this quarter, our IPTV brand, MOD, still experienced a slight increase in both subscriptions and revenues in the second quarter. due to its successful upsell on SVOD and channel service. Going forward, 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 growth 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 of business, which have the relative higher margin and higher basis of the one-time recognition of the large small energy projects and the internal carbon feed. And most of the factor also resulted in a 1.2% year-over-year decrease of the total revenue of the EVG in spite of the ICT revenue that decreased in the second quarter. The mobile service revenue increased attributable to the 5G ops selling and the recovery of the international loan revenue. And the sales revenue increased from our subsidiary as well. Fixed line revenue slightly decreased year over year. meaning due to the voice declined, also data communication revenue and broadband assets, the revenue continued to close as expected. Slide 11 illustrates our enterprise business highlight. In the second quarter, most of our major applications demonstrated robust growth on a year-over-year basis. 5G private network, in particular, ran out its revenue by fourth order on to the increased project numbers and mental recurrence revenue injection. Revenue from big data analysis, cybersecurity, IDC, and Co. also achieved year-over-year growth of 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. Many due to one-time IoT revenue recognized last year, relating to smart energy projects, is proving one-time effect. 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 network, American vehicle and AR platform, we acquired smart port application in southern Taiwan in the second quarter. Leveraging technology to enhance on undersea inspection and to further extend AR technology to tourism and in harbor parks reflecting our leading ICT capabilities and foreseeable revenue contributions. Slide 12 illustrates our international business performance. In the second quarter, income before tax of the IBG decreased by 6.6% year-over-year into non-operating expenses, such as the foreign currency valuations, and lost an internal carbon sphere, including the impacts IBG continues to experience strong growth in the profit generation at a double-digit YOY growth. Total revenue of IBG increased by 23.2%. On yield, many driving by the increasing demand for our international private and growth in emerging businesses including IDC and car services from global times. For international business expansion, we are glad to share our sign-on MOU with the production electricity authority of Thailand. Initially, it is the PEA in the mind for the cooperation of the smart city solution, such as the smart port and the smart meters. Now, I would like to turn the call to the 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 14, income statement highlights. For the second quarter of 2023, we were glad to see our performance continue to exhibit a 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 2.52%, which hit a six-year high. EBITDA continued to grow, and EBITDA margin continued to stay at about 40%. Now move on to page 15 for balance sheet highlights. Total assets on June 30th of 2023 compared to the end of 2022 grew by 1.3%, mainly due to the increase in other 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 all profitability performance majors beat our financial forecast, with income from operations and net income exceeding financial projections by modest margin. The better-than-expected performance was managed by the performance of mobile and broadband services and ICT business. In the first half of 2023, all 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 exemplify our ongoing 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 real-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 baseline year of 2020. Furthermore, We are among the frontrunners in Taiwan to commit to achieving net positive impact on biodiversity and low-net deforestation by 2030. In addition, our ESG practices and achievements have been widely recognized globally. we received an upgraded AA rating for MSCI's ESG rating, ranked in the top quartile among telecommunications industry peers. These achievements solidify our position as one of the global leading companies in sustainable development. Thank you for your attention at this time. I would like to open up our conference call for questions.

Thank you, Chairman Guo. Ladies and gentlemen, we will now begin our question and answer session. If you have a question for any of today's speakers, please press star 1 on your telephone keypad and you will enter the queue. After you are announced, please ask your question. When you are speaking, please be louder or closer to the microphone. If you find that your question has been answered before it is your turn to speak, please press star 2 to cancel the question. Thank you. Now please press star 1 to ask the question. Thank you. If you would like to ask a question, please press the star key and number 1 on your keypad. Thank you. As a reminder, press star 1 on your keypad if you would like to ask a question. Thank you. Ladies and gentlemen, we are now in question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Thank you. If you would like to ask a question, please press star key and number 1 on your keypad. Thank you. Ladies and gentlemen, if there are no further questions, I'll turn it back over to Chairman Guo. Go ahead, please.

Thank you for your participation. Goodbye.

Thank you, Chairman Guo, and thank you for your participation in Zhonghua 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.