Chunghwa Telecom Co., Ltd.

Good afternoon, ladies and gentlemen. Welcome to Zhonghua Telecom conference call for the company's fourth quarter 2024 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 Q&A session. And for your information, this conference call is now being broadcast live over the Internet. and webcast replay will be available within an hour after the conference is finished. Please visit GSTIR website, www.gst.com.dw, slash IR, under the IR calendar section. And now I would like to turn the call over to Ms. Angela Tai, Assistant Vice President of Successful Relations. Thank you. Ms. Tai, please go ahead.

Thank you. I'm Angela Kai, Assistant Vice President of the Financial Department for Zhonghua Telecom. Welcome to our fourth quarter, 2024, is our conference call. Joining me on the call today are our President, Rongxu Lin, and our Chief Financial Officer, Audrey Xu. During today's call, management will begin by providing the CEO the recent achievements of our company and our business overview of the fourth quarter. followed by a discussion of our segment performance and the financial results. After, we will move on to the question and answer portion of the call. On slide two, please read our disclaimer and note concerning forward-looking statements. Now, without further delay, I will turn the call over to President. President Lin, please go ahead.

Thank you, Angela. To begin with, I would like to report our exceptional financial performance for year 2024. Thanks to our team's relentless efforts, Georgia Telecom's operating income, income default tax, and ETS for 2024 all exceeded the upper end of our forecast, highlighting our strong execution and effective strategic direction. Revenue-wise, our four-year revenue reached a seven-year high, driven by robust growth across all of our business sectors. Notably, our four-year ETS of $4.8 million also marked a seven-year high, continuing a streak of five consecutive years of annual growth. This achievement underscores our unwavering commitment to innovation, operational excellence, and delivering sustained value for our stakeholders. In collaboration with NTT, we showcased an ultra-low latency immersive video show in the fourth quarter via the world's first international overcoming the network connection powered by IOM technology. we successfully reduced the VR-induced sickness in the exhibition, enabling the new virtual viewing solution. Additionally, our partnership in OpenRain Corporation opens new avenues for global opportunities. China Telecom, the only telecom in Taiwan capable of offering OpenRain testing, has successfully supported Taiwanese vendors in securing funding from the US government for Open RAN development. The collaboration highlights our cutting-edge technological capability and the unique position in accelerating commercialization of the Open RAN using value chain. Furthermore, we look forward to utilizing OneWeb and SES's satellite resources to roll out commercial services by the first half of 2024, further driving the growth in satellite-related revenue. Lastly, I would like to highlight that in the fourth quarter, we once again maintained our position in 2024 Daozhong Sustainability World Index and Emerging Market Index. We also received the highest honor from the EFG. EFG corporate shared award and represents the only Taiwanese telco included in the Newsweek. Newsweek awards most trustworthy companies 2024 list. This recognition reaffirms our commitment to sustainability and leadership in the responsible business growth. Looking ahead, Moving ahead into 2024, China Telecom is confident in maintaining its leading position across all key benchmarks in our industry. Now let's move on to the business overview of the fourth quarter of 2021. Chris Tenchu's page tried to review our leading position in Taiwan's mobile market. Based on the statistics from Taiwan's Telecom Regulator of November, our overall subscriber shares of Taiwan's mobile market reached 37.9%, achieving its 11th consecutive quarter-over-quarter increase. We are happy to see ongoing subscriber growth. Even more excitingly, our 5G subscriber share surpassed our mobile subscriber share, reaching 38.8% and maintaining our position as an industry leader. We are glad to see our year-over-year growth of the post-paid subscribers increase 0.2 million with a significant growth of 0.7 million in 5G postage subscribers. Additionally, our revenue share maintained the highest in the industry at 40.3%, consistently outperforming our subscriber share and reflecting our strong and healthy growth. According to the financial disclosure of domestic industry players, we also learned that From January 2024, our quarterly subscriber net aid outperformed peers for every quarter throughout this year. Along with our steady 5G penetration, our mobile service revenue recorded a 1.7% year-over-year increase in the fourth quarter and a 3% year-over-year growth over the four years of 2020. In the fourth quarter, we are pleased to see the average monthly fee uplifted from 5G migration showing a 45% increase, maintaining its healthy momentum. Let's move on to the slide 6 for an update of our outperforming fixed broadband business. In the first quarter, our cross-tier upgrade promotion package continued to be well received as more than 70% of the package adopters choose service offering of 300 Mbps and above, including the highest speed offering of 1 Mbps. As a result, on the year-over-year basis, the number of subscribers with speed of 300 Mbps and above increased by 17%, maintaining its double-digit growth, and our subscriber net age of 1 Mbps service doubled, which is encouraging. Given the success, our total number of fixed broadband subscribers also saw an increase in the fourth quarter, Thanks to our successful speed upgrade strategy, our fixed broadband revenue and output continues to increase by 2.9% and 1.7% a year, respectively, and we are confident that this growth will persist. Now let's get a close look at the performance of our business group. Page A presents our CBG performance. In the fourth quarter, the total CBG revenue increased by 2.2% year-over-year, driven by the increase of mobile service revenue, resulting from 5G migration, and the subscriber growth. Along with the increased fixed broadband revenue, owing to the successful speed upgrade strategy, in addition, sales revenue rose year-over-year, mainly due to the stronger smartphone sales. Our CVG's income before tax grew 0.77 billion year over year, primarily due to the strong performance of our core business and a one-time impairment loss recognized in the fourth quarter of 2023. Slide 9 further illustrates our consumer business growth highlights. In the fourth quarter, our multiple play packages with service offering of mobile, fixed broadband and Wi-Fi altogether continued to deliver outstanding year-over-year growth of 57%. This success is attributable to the strength of our quality networks and the effectiveness of our reward point strategy. In the fourth quarter, we were extremely proud to see that Taiwan won the World Basketball Softball Confederation Premium 12 for the first time. This remarkable event, following the popular Olympic Games, in the third quarter further boosted our video service subscription which reached a regular high with a 13.2% year-over-year increase with particular growth from our OTT brand HamiVideo Revenue from both subscription and advertisement on the platform continued to grow as well and we are committed to maintain the productive momentum by consistently investing in the popular content going forward. In addition, our consumer cybersecurity subscription also surged by 22 years over years in the fourth quarter, steadily increasing its revenue contribution as expected. Thanks to our ongoing efforts in the business mentioned, we have reached a milestone of 3 million subscribers as of December 2024, including around 2 million Wi-Fi device subscriptions, more than 1 million subscriptions of home videos and consumer cybersecurity services. We are optimistic with the continued growth in the coming year. Please turn to slide 10 for an overview of our enterprise business group performance. In the fourth quarter, EDG's total revenue increased by 10.2% year-over-year, primarily driven by a robust 10G 4.1 year-over-year growth in ICT business revenue. Major growth drivers, such as IBC, cloud, and cybersecurity services, all delivered strong performance and demonstrated around 50% year-over-year growth, fueled by both project and recurring revenues. Despite the ongoing 5G migration and the fixed broadband field upgrades, which continued to positively contribute to related service revenue, the decline in mobile voice revenue and fixed voice revenue resulted in relatively flat year-over-year performance in our EDG core business. This, in turn, contributed to a decline in EDG's income before tax on a year-over-year basis. Slide 11 illustrated our enterprise business highlights. We are excited to report the strong performance of our IC emerging business in the fourth quarter, with its revenue increased by 23% year-over-year The growth was driven by strong performance across our major pillars and the recurring revenue growth from all service offerings. For our ITC cloud and cybersecurity business, we saw a year-over-year revenue increase of 62%, 46%, and 56%, respectively. For IDC business, we were happy to see revenue contributions from several large projects completed for the high-tech companies in Taiwan, as well as the successful construction of the first overseas AIDC in Mexico for our enterprise customers. Additionally, higher margin rates and the new IDC in operation also contributed to recurring revenue, ensuring the group maintains a stable consolidated IDC market share in Taiwan at more than 50%. Also, in the fourth quarter, our cybersecurity business achieved its 12th consecutive quarter of year-over-year growth, including subsidiary contributions. For the fourth quarter, we are proud to report that the successful development of Taiwan First 5G unmanned vehicle solution for smart harbor inspection. This solution are capable of operating across land, sea, and sky. In every robot to handle port transportation, unmanned vehicles to clean marine pollution and drones to rescue in water, We expect to further extend this application into other sectors, including firefighting, coastal patrolling, forest ecosystem protection, etc. Lastly, we remain optimistic about AI-driven opportunities this year. We have leveraged generative AI technology to deliver projects in smart government and healthcare sectors enhancing efficiency and reducing manpower costs. Through checkbox for troubleshooting and information retrieval. Additionally, we are utilizing AI medical assistance to generate medical summaries and receive paperwork. We believe that more generated AI applications will emerge to create opportunities in the future. Slide 12 illustrates our international business group performance. In the first quarter, IBC's total revenue dipped slightly by 2.3%, mainly due to the decline in international voice revenue. However, As our robust IBC business grew and its demand continued to increase, IBG's income before tax increased year over year. As we continue to expand our IBC business to capture the increasing demand, in the fourth quarter, we are glad to close the contract with a well-known global hyperscale. This agreement secures capacity in our under-construction IDC for the higher scale and ensures the long-term stable revenue generation of China Telecom. Additionally, our overseas subsidiaries have achieved a remarkable business success worldwide in 2024 by providing our ICD solution to high-tech companies in Japan and the United States as well as providing accidental solutions to the PCB industry in Southeast Asia, and providing our exceptional capabilities. More excitingly, our state-of-the-art orientation in undersea cables has also yielded positive results. Although the S-State II and APRICOT international submarine cables are still awaiting Currently, 80% of the capacity we invested in was sold in the fourth quarter of 2024. This is expected to bring revenue in the second half of this year, reflecting strong demand for the international boundaries and the success of our investment strategy. Now, I would like to turn the call to Audrey for our financial highlights.

Okay, thank you, President Lin. Good afternoon, everyone. It's my pleasure to present an overview of our financial performance for the fourth quarter of 2024 and share our financial guidance for 2025. Let's turn to page 14, which highlights our income statement. For the fourth quarter of 2024, revenue exceeded $65 billion. This will present a 5.6 increase compared to the same quarter last year. This growth was primarily driven by significant expansion in our ICT business. Income from operations and net income increased by 11.5% and 9% respectively. Additionally, earnings per share for the quarter reached 1.16, marking the highest fourth quarter EPS in nine years. Let's now move to the columns for the full year of 2024 as we shift our focus from quarterly to annual performance. For the entire year, revenue increased by 3.1% compared to 2023, driven by sustained firm performance across ICT, mobile, and broadband services. Income from operation and main income increased by 1.1% and 0.8% respectively. highlighting the steady growth of our core and ITT business. Earnings per share for the whole year reached 4.8, while the EBITDA margin remained stable at 37.6%. This solid performance reflects the resilience and strength of our operations. Now let's move on to page 15 to review the big balance sheet highlights. But at the end of 2024, total assets increased by 2% compared to 2023. The increase was largely attributable to the growth of our cash, other current monetary assets, and long-term investments. Also, property planning equipment decreased, primarily because the addition of new assets were less than the depreciation recognized. Total liabilities increased by 5.7% relative to the year end of 2023, primarily due to the increase in account sales and contract liabilities. Additionally, separation remains stable and net debt over EBITDA remains at zero. A low debt level not only underscores our company's commitment to fiscal responsibility, but also enhances our resilience against economic emergencies. So, taken together, these measures demonstrate the robustness and stability of our balance sheet. Now, let's turn to page 15, which provides the summary of our cash flow. Cash flows from operating activities increased by 6.2% year-over-year, primarily due to the increase in accountable and controllability between 2024 and 2023. Capital Capital expenditure for the year 2024 was $28.82 billion, reflecting a 6.2% year-over-year decline and achieving 15% savings compared to the budgeted amount announced in our 2024 forecast. The reduction is part of our approach to optimize capital allocation. As a result, free cash flow increased by 14.9% on-year, highlighting the strength of our operating efficiency and disciplined financial management. The robust free cash flow enhances our financial flexibility, which enables us to pursue strategic growth opportunities while reinforcing our long-term sustainability. Okay, earlier I was comparing our results relative to last year. Now I'm switching focus to compare our 2024 performance relative to our forecast. On page 17, you will see the table summarize our operating performance relative to our forecast. During the fourth quarter of 2024, revenue exceeded our target. Key performance measures, including income from operations, net income, and EPS, were all in line with our forecast. The performance was supported by ongoing efforts to streamline operations and control costs. Slow network construction activity also results in depreciating expense coming in below expectations. Moving to the column for the four-year, revenue in 2024 aligned with our forecast. In addition, income from operations, net income, and EPS all surpassed our guidance. This better-than-expected result was primarily driven by the steady growth of our core business and enhanced profitability of our ICT sector. This concludes our review of the financial results for the fourth quarter and the fourth year of 2024. Finally, I would like to provide our forecast for 2025. Moving on to slide 18, please refer to our guidance for 2025. Looking ahead, we anticipate total revenue for 2025 to grow by 1.2% to 1.6% compared to 2024. The growth is expected to be driven by strong growth momentum in our core business, supported by the success of our 5G service and broadband speed upgrade promotions, which are boosting our subscriber numbers and output. Additionally, ICT business is also expected to contribute to revenue growth as we continue to see digital transformation opportunities in the market. For operating costs and expenses, we are expected to rise by 2.4%, revoking our continued investment in talent, including enhancement to employee benefits. and ongoing infrastructure that supports future business development in core and emerging business, and also higher electricity costs stemming from rate adjustment, which would also thread up operation and maintenance aspects. Given these projections, we expect our EPS to be in the range between 4.62 and 4.82. In terms of PAPX, We have budgeted $32.36 billion for 2025. Our mobile-related capital is expected to decline by 13.3% on-year. This continues a four-year consecutive growth trend since 2021. In contrast, non-mobile-related capital expenditures are expected to increase by 25.2% year-over-year, favored by investments to support business expansion into AI, Internet data center, the construction of submarine cables, and other strategic initiatives. Our capital expenditure strategy focuses on maintaining a competitive edge, enhancing network resilience and security, and advancing ESG commitments by eliminating energy-intensive equipment. Thank you for your attention. At this time, we would like to open the door for questions.

Yes, thank you. Ladies and gentlemen, we are now in Q&A session. If you have a question for any of today's speakers, please press start G and 1 on your telephone keypad to enter with you. After you are announced, please ask a question. When you are speaking, please speak louder or closer to the microphone. If you find that your questions have been answered before it is your turn to speak, please press Start key and 2 to cancel your question. You are also welcome to send questions via chat box on the webcast page. We will begin taking questions from telephone line and then move to queries from the web page. Now please press Start key and 1 if you would like to ask questions. Thank you.

Okay.

We received a question from our platform. Could you please elaborate a bit on how much we are investing in AI and the some key initiatives or revenue opportunities this year? As I just mentioned, I guess, for the focus of the TAPES, for the non-mobile parts, There is an increase of the capex in the AIDC center. We don't disclose the background for our mobile capex, but we can give you some overview of our company's mission related to AI. We are fully committed to leverage AI to enhance our operations and drive digital transformation for our business. So through strategic partnership and innovation, we basically will cover the internal AI application. We will also cover the external, something like the AI infrastructure and platforms. Here is some example that the AI data center will launch a sovereign AI service, optimize cloud resources, and integrate AI solutions across clouds. and on training environments with a focus on sustainability and intelligence. Also, we also have AI factory. We provide cloud-based solutions, including standardized public cloud bundles and resource management. And we also build some soft capabilities, including domain-specific AI models, digital twins, and AI regions. So other than that, we may also strengthen our AI capabilities through collaboration with leading academic institutions, research centers, cloud providers, and media to accelerate development and deployment. So this is just to give you some overview of our strategy for the AI in the coming years.

Okay, thank you, Audrey.

We have another question. It's about the outlook of the ICT business in 2025. Okay, for the ICT business, in 2024, we are glad to see that our ICT revenue has successfully exceeded our four-year guidance. And for 2025, we are also focused on the major pillars of the ICT services, like the IDC cloud, server security, 5G project network, the sectors that we have a great performance in 2024. But what we have to do is that we will focus more on improving our ICT project margin to enhance the overall ICT performance. In addition, as the recurring revenue percentage continues to increase in the percentage of the total ICT revenue. We think that the increase of recurring revenue will further stabilize our ICT revenue and further increase the overall ICT margin in 2025.

Ladies and gentlemen, we are now in Q&A session. Please press start key M1 on your telephone keypad if you would like to ask questions. Thank you. As a reminder, please press start M1 on your telephone to ask questions.

Thank you.

Okay, we have one more question from the platform. It's about... Do you have any plans to improve shareholder return, like raising the paywall? As mentioned before, the maximum shareholder return is always one of the key objectives of our corporation. As the dividend policy, we are a company that focuses very much on sustainability. keeping a sustained dividend policy is always our goal. And dividend policy is subject to the Board of Directors' approval. But I expect that the policy will be consistent with the previous policy. So as the EPA increases continuously, we may expect that the shareholders will received a continuous increase in dividends following based on our consistent dividend policy. So this is the basic guidance. Thank you, Audrey. And we have another question is, given the non-mobile CapEx is going up by shop 25% in 2025, can you provide more details about where this CapEx is going, including how much it's going for AI data centers? Thank you for the question. As I mentioned, we don't disclose the breakdowns of our mobile capacity. But as we mentioned, many of our segments for the corporation, ICT, you can imagine that we will deploy our capital resources based on mainly like AIDC center, the submarine and satellite, et cetera. So just give you, as you can see, that we see the digital transformation opportunities in the market, mainly from the AI and also cloud computing and also the cybersecurity. And this is all the growth engine for the companies. So although at this moment the 25% increase is the patient, but we believe that the, I just want to remind you that our CEO will always want us to try to simplify to apply the 80-20 rule to prioritize resources on the most impactful projects, ensuring optimal application and maximum return. We think that the extra spending of this year will probably decrease if the 80-20% rule to do the right things right, principles continue to be applied, we will streamline our operations, so we probably will save more capital expenditures in the future.

As a reminder, please press Route 2 and 1 on your keypad if you would like to ask questions. Thank you.

Okay, thank you. We hope we got another question. In terms of the revenue guidance of 1.2 to 1.6 in 2025, could you elaborate more on the growth drivers and breakdown of different revenues? Building on the foundation of our success in 2024, we believe this position is for a strong future. So I just try to remind you in 2024, we maintain our leadership in Taiwan's mobile market. We achieved 40% of revenue and growth in 5G post-tax subscriptions. and we also have 38.8% of 5G subscriber market in Taiwan. And also fixed broadband, if you remember our post-tier upgrade promotion, also provided highly effective W1G subscriber net with over 70% of adopters choosing 300 Mbps and above. So this strong performance, we believe that we can set the stage for the long-term opportunity and for the 2025. So the growth opportunity, we would like to continue this momentum in the mobile industry. And other than that, I just share a lot about the ICT opportunity. We still believe that the high growth were coming a lot from through the ICT business segments.

As a reminder, press star key and one on your telephone to ask questions. Thank you.

Okay, we have one more question from the platform that is about our CapEx breakdown. I think for the CapEx for in terms of the CapEx budget for 2025, the mobile CapEx continues to decline. And the non-mobile, for non-mobile parts, we have some, you know, increase. That's because that the increase mainly from the fixed line, because the fixed line is the backbone to support the mobile and the fixed line services. And then the IDC and the undersea cable, because we see great demand from the markets to require more capacity from the international bandwidth. And then we see As we discussed from the presentation, you can see that we secure a lot of contracts with the hypercaler to co-locate in our IDC. So as we see the great opportunities, so we continue to invest in these areas. Thank you.

We are still in session. If you would like to ask questions, please press start key and 1.

Thank you.

Thank you, ladies and gentlemen. If there are no further questions, I will turn it back over to President Lin. President Lin, please begin.

Thank you for your participation, and Happy New Year.

Thank you, President Lin. And ladies and gentlemen, we thank you for your participation in Chunghwa Telecom's TED conference. There will be a webcast replay within an hour. Please visit www.cht.com.tw slash IR under the IR calendar section. You may disconnect now. Thank you again, and goodbye.