Chunghwa Telecom Co., Ltd.

Good afternoon, ladies and gentlemen. Welcome to Johar Telecom conference call for the company's first quarter 2025 operating results. During the presentation, all lines will be on listen-only mode. And 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 broadcast in 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, Assistant Vice President of Investor Relations. Thank you. Ms. Tsai, please go ahead.

Thank you. I'm Angela Tsai. Welcome to our first quarter 2025 result conference call. Joining me on the call today are our President, Rongxi Lin, and our Chief Financial Officer, Audrey Xu. During today's call, management will begin with the recent strategic achievements and provide our business overview of the first 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 disclaimers and notes concerning forward-looking statements. Now, without further delay, I will turn the call over to our presidents. President Lin, please go ahead.

Thank you, Angela, and hello, everyone. Welcome to our first quarter 2025 results conference call. We are excited to report net income and EPS delivered 4.3% year-over-year increase in the first quarter driven by our solid operation and leading position in mobile, fixed-line, and ICT business. Despite the first quarter's rapid change in the macroeconomic climate due to the global tariff issue, from which we believe there is no material impact, we believe that this may even present new opportunities for our international business. At the same time, our strong financial performance position us to continue investing to seize new opportunities, particularly those from enterprise customers who may be expanding their manufacturing bases globally. Meanwhile, we will continue to execute our sea, land, and sky advanced network strategy to prepare for the future and enhance network resilience, leveraging our leading technology strengths In January, we collaborated with partners to successfully integrate ST2 high-orbit satellite with 5G base station. This achievement enabled world-leading end-to-end two-way video code based on the 3GPP 5G new radio for non-terrestrial network standard communication protocol, advancing the connection between land and sky via satellite and 5G communication. Furthermore, in April, we concluded a strategic partnership with the U.S. innovator Astronis to bring a dedicated microgear satellite to Taiwan, complementing our existing multi-orbit satellite architecture. As for sea, we announced our investment in E2A, the Trans-Pacific Undersea Cable, connecting Asia to North America. to meet the growing demand from OTT players and the digital transformation, including the foreseeable AI boom. To our great delight, we are proud to receive multiple awards in the first quarter, acknowledging our leadership in the business and ESG performance. For international honors, our outstanding 5G smart port solution was recognized by Asia Telecom Awards as the technology innovation of the year. We were also ranked top five for S&P Global ESG Score in the Sustainability Yearbook 2025 for the third consecutive years, and secured the highest A ranking from CDP for both Climate and Supply Engagement Leadership for the second consecutive year. Finally, we would like to highlight that China Telecom is the first Taiwanese telco certified under the most stringent international anti-bribery standard, showing our determination to deliver outstanding corporate governance. Going forward, China Telecom will continue to maintain its leading position across all key benchmarks in the industry. Now let's move on to the business overview of the first quarter of 2025. Please turn to page 5 to review our leading position in Taiwan's mobile market. According to the statistics from Taiwan's telecom regulator, by March, we had successfully acquired the largest revenue share in Taiwan's mobile market at 40.5%. as well as the largest subscriber share at 39.1%. Both exceeded the year-over-year and quarter-over-quarter growth, reflecting our strong and healthy growth momentum. In addition, our 5G market share reached 38.7%, maintaining its leading position in the market. Our mobile service revenue in the first quarter increased about 2% year-over-year, mainly due to the subscriber number increase and continued 5G migration. In addition, we are pleased to report a 42% increase in the average monthly fee uplift from the 5G migration, contributing to the stability of our overall mobile ARPU, which delivered a slight quarter-over-quarter increase in the first quarter. Let's move on to slide 6 for update of our outperforming fixed broadband business. In the first quarter, our cross-tier upgrade promotion package continued to be well received with near 70% of the package adopters choosing service offering of 300 Mbps and above. including the highest speed offering of 1 Gbps as a result on year-over-year basis. Our subscribers with speed of 300 Mbps and above increased by 16%, while those with speeds of 1 Gbps growth significantly. Given the continued speed upgrade from our subscribers, our fixed broadband revenue and our pool is keeping another quarterly increase by 2.5% and 2.1% year-over-year, respectively. And we are confident that this growth will persist. Now let's take a close look at the performance of our business group. Slide 6 provides a deep overview of highlights from our customer application services. In the first quarter, we continue to see positive growth in each value-added services offering. Our multi-play package with service offering of mobile fixed broadband and Wi-Fi continue to deliver outstanding year-over-year growth of 33% and driven by our strong network quality and effective reward point strategy. Video business maintains its growth trajectory subscriptions increased by 12.5% year-over-year, driven by the sports content and our exclusive release of popular dramas. Our effective content strategy led to a 45% increase of Hami video subscribers compared with the same quarter last year, which is encouraging. As a result, our overall video revenue in the first quarter rose In addition, our consumer cybersecurity subscription also surged by 21% year-over-year during this quarter, steadily increasing his revenue contribution as expected. Slide six illustrated the key highlights in our enterprise ICT business. We are excited to report strong enterprise ICT business performance in the first quarter, Revenue increased by 13% year-over-year, driven by project revenue recognition, robust performance across our major pillars, and continued growth in recurring revenue. We believe our strategy to increase our recurring revenue is important as it can help stabilize overall ICT performance. For a closer look at each emerging application service offering, in the first quarter, we are excited to see year-over-year revenue growth in our cybersecurity, IDC, and cloud business of 40%, 29%, and 13%, respectively. Cybersecurity revenue achieved the 13th consecutive quarter of year-over-year growth. mainly driven by the project completed for financial institution and franchise chain store client, along with contribution from streaming consumer. Meanwhile, IDC and cloud revenue were boosted by the contribution from the smart government project, accomplished by the increasing recurring revenues from both IDC and the international public cloud service, the latter experienced particularly strong growth. Notably, as the first telecom in Taiwan to be honored as AWS' premier tier service partner, we hold the most AWS certificates, demonstrating our leading cloud technology within the industry. Additionally, our 5G private network also delivered double-digit revenue growth driven by the revenue recognition from the international client, as well as year-over-year revenue growth in our AIoT service business, fueled by projects in finance and the retail sector. And we were delighted to report the network integration contract worth over NT1 billion secured in the first quarter from a leading financial holding company, which we expect to inject revenue and profit in the near future. In addition, leveraging our leading data analysis capability, we were proud to win high-power AMI expansion project again, recognizing our expertise in energy management. We were honored with four major awards at the CIO Taiwan's 2025 United Vendor Award, including the outstanding service provider for the fourth consecutive year, where we were the exclusive winner from telecom industry. Last night illustrated our international subsidiary performance. In the first quarter, revenue from our overseas subsidiary increased by 8.2% year-over-year, mainly due to the growing ICT services. provided to the high-tech customers in the United States and the Southeast Asia market. In light of the global economic landscape change, we have observed business opportunities from the growing Taiwanese investment in the United States, and so projects in our pipeline, mainly progressing as a result of the relocation of AI supply chain, including the ARDC construction, The Strong Telecom Global, our subsidiary in the United States, expanded our Arizona office in April and launched a new office in May in Texas office to support business development. In addition, our business in Singapore, Vietnam, and Thailand are all experienced double-digit revenue growth in the first quarter, largely driven by the providing ICD services for Taiwanese enterprises. to build new factories in the Southeast Asia market. To support overseas business, we announced our investment in the new submarine cable system, E2A, in March. This trans-Pacific fiber-optical network will connect the submarine cable system between North America and Asia. Our strategy is to enable diverse connectivity options, strengthen Taiwan's position as a key submarine cable hub in the Asia-Pacific region and further enhance overall network resilience to respond to the growing demand of the network services. Now let's move on to page 11 for the financial performance of our three business groups. In the first quarter, our CBG delivered a 4.9% year-over-year increase of his income before tax, which is quite healthy as our mobile ARPU will steadily develop and fix broadband ARPU expected to continue to hold up. In addition, our HD business continues to expand. We are delighted to see EDG total revenue increase by 2.3% year over year, mainly underpinned by the strong ICT business revenue growth of 11.6% year-over-year. This growth was offset by continued decline in EVG fixed-voice revenue, which held to a 3.8% year-over-year decrease in the income before tax. EVG's total revenue and income before tax both increased modestly in the first quarter due to its robust international IDC business growth and the continued strong demand for the integrated ICT services in the global market. Now I would like to hand the call over to Audrey Fee for the financial update.

Thank you, President. Good afternoon, everyone. It is my pleasure to present an overview of our financial results for the first quarter of 2025. Please refer to slide 12, income statement highlights. Let me walk you through the key financial metrics for the quarter. Revenue reached over $55 billion, making the fifth consecutive year of growth. This represents a year-over-year increase of 1.6%, driven primarily by the expansion of our ICT business, along with solid performance in mobile and broadband services. Income from operations and net income rose by 5% and 4.3%, respectively, compared to the same period last year. These improvements were fueled by the strong performance of our IDC Internet Data Center business and sustained growth in mobile and video service subscriptions. Earnings per share increased by NT1.21 to NT1.26, reflecting consistently profitability and our discipline cost management. EBITDA and EBITDA margin both recorded modest gains during the quarter. Notably, both EBITDA and net income reached their highest level in nine years for a first quarter period, underscoring the resilience and strength of our core operations. Now let's turn to slide 13, Balance sheet highlights. Total assets increased by 0.5% on March 31, 2025, compared to the year end 2024. The growth was primarily driven by an increase in other current monetary assets, which further strengthened our liquidity position. Property plan and equipment declined by 1.1%. As depreciation expense exceeded net additions of fixed assets during the quarter, this reflects our continued emphasis on capital discipline and asset efficiency. Total liability decreased by 5.5%, mainly due to a reduction in accounts payable. Our current ratio improved further and remained above 100%, highlighting healthy short-term liquidity and financial flexibility. In addition, the debt ratio declined slightly, and net debt over EBITDA remains at zero. Taken together, these metrics highlight our solid financial position and prudent capital structure. Now let's move to slide 14, cash flow summary. Cash flows from operating activities decreased by 8.6% year-over-year, primarily due to higher settlements of accounts payable during the quarter. Capital expenditures increased by 7.2% year-over-year, primarily due to the front-loaded deployment of 5G, 4G equipment in the first quarter. This reflects our planning mobile network enhancement schedule, with a greater portion of the build-up occurring early in the year. Importantly, we remain committed to disciplined capital management, and four-year mobile related cap is still expected to be lower than in 2024. As a result of these factors, free cash flow declined by 17.4% year over year. This was in line with expectations. Given the investment timing, we continue to maintain a strong cash position and stable operating inflows. which provides a solid foundation to support business growth and shareholder return. So now let's turn to slide 15, performance relative to Q1 2025 guidance. For the first quarter of 2025, revenue was broadly in line with the guidance we provided earlier this year. Meanwhile, income from operations, net income, EPS, and EBITDA all surpassed. our Q1 guidance by a modest margin. This outperformance was primarily driven by the steady growth of our core business, improved profitability in our ICT business, and lower than expected operating costs, reflecting our ongoing efforts to optimize operation and maintain disciplined cost control. This concludes the financial overview for the first quarter of 2025. we are pleased to report a solid start to the year. So we now open the floor for questions and welcome your insights.

Yes, thank you. 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 key and number one 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 key number two to cancel the question. And you are also welcome to send questions via chat box on the webcast page. We will begin with the questions from telephone line and then move to the queries from the web page. Thank you. Now please press star key and number one on your keypad if you would like to ask a question. Thank you. We are now in question and answer session. If you would like to ask a question, please press star key and number one on your keypad. Thank you. Ladies and gentlemen, we are now in question and answer session. If you would like to ask your question, please press star key number one on your keypad. Thank you. If you would like to ask a question, please press star key and number one on your keypad. Or you may also submit your questions through the chat box on the webcast page. Thank you. If you are now on the call, you may press star key number one on your telephone keypad if you would like to ask a question. If you are on the webcast page, you may also submit your question through the chat box on the page. Thank you. Ladies and gentlemen, we are now in question and answer session. You may press star key and number one on your keypad if you would like to ask your question. Thank you. Okay, then if there are no further questions, I'll turn it back over to President Lin. Thank you.

Okay, if there is no question, then thank you for your participation. Thank you.

Thank you, President Lin. And ladies and gentlemen, we thank you for your participation in Chongha Telecom's 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 now disconnect. Thank you again. Goodbye.