Chunghwa Telecom - Earnings Call - Q3 2025

Transcript

Operator (participant)

Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the company's third quarter 2025 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. For your information, this conference call is now being broadcast live over the internet. A webcam replay will be available within an hour after the conference is finished. Please visit CHT IR website at www.cht.com.tw/ir under the IR calendar section. Now I would like to turn it over to Ms. Angela Tsai, Vice President of Finance. Thank you. Ms. Tsai, please begin.

Angela Tsai (VP of Finance)

Thank you. I'm Angela Tsai, Vice President of Finance at Chunghwa Telecom. Welcome to our third quarter 2025 results conference call. Joining me on the call today are Chunghwa's President, Rong-Shy Lin, and our Chief Financial Officer, Audrey Hsu. During today's call, management will begin with sharing our recent strategic achievements and providing an overview of our third quarter business results. This will be followed by a discussion of our segment performance and financial highlights. We will then open the floor for questions and answers. Please turn to slide two to review our disclaimers and forward-looking statement disclosures. Now, without further delay, I will turn the call over to President. President Lin, please go ahead.

Rong-Shy Lin (President)

Thank you, Angela. Hello, everyone. Welcome to our third quarter 2025 results conference call. Extending the outperforming result of this first half, we continue to beat the financial guidance in the third quarter. Our revenue, operating income, net income, and EPS all exceeded the upper end of our forecasts. Third quarter revenue hit its highest level since 2017, reflecting the robust growth in our core business and extending ICT services. ICT revenue alone set a new third quarter record, the highest since 2021. As Taiwan's telecom market continues to develop healthily, we are confident in our full-year financial result and supported by our leadership across all business segments. For our mid-term to long-term development, we believe that group expansion and AI-related initiatives are critical, and we have taken proactive steps in this area. We are pleased to see our cybersecurity.

Subsidiary, Chunghwa Telecom Security, successfully completed its public listing in September, with International Integrated Systems soon to follow in its upcoming IPO. Moreover, in October, we launched Event AI, a new subsidiary spun off from our research division dedicated to monetizing AI innovation. Our AI capabilities have received significant recognition and honors. On the global stage, our first self-developed vision language technology in the transportation category at the Global AI City Challenge, a prestigious international competition co-organized by NVIDIA and the leading university worldwide. This recognition was earned through our technology, superior accuracy, and predictive capabilities in analyzing highly complex traffic scenarios. In Taiwan, we hold the largest portfolio of AI-related patents in the industry, far ahead of our peers, serving as the solid base for future development. We are proud of these achievements and remain committed to maintaining our competitive advantages.

Our technology expertise and resilient networks have also created social value to benefit the public. In August, as Taiwan was suffering from a catastrophic typhoon, we overcame challenges to deliver portable one-way equipment and restore communication in isolated areas affected by the breakdown, demonstrating our commitment to social responsibility. Additionally, as we continue to invest in facilitating ESG practice, we completed the issuance of an TWD 3.5 billion sustainability bond in the third quarter to promote biodiversity, EV initiatives, and other environmental projects. This issuance reflects our action to integrate ecological conservation, decarbonization, and green finance to progress towards net zero. Now, let's move on to the business overview of the third quarter of 2025. Please turn to page five to review our success in Taiwan's mobile market. In the third quarter, we further strengthened our leadership position in Taiwan's mobile market.

According to the data from our telecom regulator, our mobile revenue market share climbed to a new high of 40.8%, while our subscriber share among peers rose to 39.4%, representing an encouraging 1.6% point year-over-year increase, mainly driven by continued growth in the post-pay subscribers. We are pleased with this solid growth momentum. Our 5G performance was equally impressive. Based on regulators' data, our 5G subscriber market share rose to 38.8%, maintaining our industry-leading position. The 5G penetration rate among our smartphone users further increased to 44.7% by the end of the third quarter, while the average monthly fee uplift from 5G migration remained robust at approximately 40%. With the combined strength of our expanding subscriber base and growing 5G adoption, our mobile service revenue growth outpaced the industry, achieving a solid 3.3% year-over-year increase. Post-pay also grew 1.8% year-over-year.

We expect this positive trajectory to continue, supported by Taiwan's favorable mobile market landscape. Let's move on to slide six for our outperforming fixed broadband business update. In the third quarter, our fixed broadband revenue grew by 3.2% year-over-year, driven by continued high-speed migration and the success of our High-Net 30th Anniversary Promotion Packet alongside our existing bundle plan that combines MOD, Wi-Fi, and streaming services. We are pleased to report that the number of subscribers choosing speed of 300 Mbps and above increased by about 14% year-over-year, while those opting for 500 Mbps and above recorded a double-digit growth, and gigabits per second and above achieved multiple folder extensions. This higher speed migration contributed to strong approved performance. In the third quarter, our fixed broadband approved rose 3% year-over-year, representing an increase of TWD 23 per month. An encouraging sign of ongoing value expansion.

Slide seven provided a deeper overview of highlights from our consumer application services. In the third quarter, our multi-play package, integrating our mobile, fixed broadband, and Wi-Fi services, achieved an impressive year-over-year growth of 22%, marking 15 consecutive quarters of expansion. In terms of our video services, subscription fluctuated in line with major sports broadcasts, declining year-over-year during the quarter, mainly due to the relatively high base from last year's Olympic Games broadcast. Excluding this event-driven variation, our video subscription and approved sustained its expected upward trend. Notably, we are proud to highlight the success of drama investments in the third quarter. For example, the Outlaw Doctor won Best Asia Content in Global OTT Award in Busan and Shang An at the 30th Golden Bell Awards in Taiwan, with multiple nominations and awards. With those wins, we will continue our content investment strategy to strengthen value for our subscribers.

Meanwhile, our consumer cybersecurity services recorded 17% year-over-year growth, with the daily number of blocked malicious links per user more than doubling compared to the same period. Slide eight illustrated the key highlights in our enterprise ICT business. We are pleased with a 14% year-over-year increase of our group ICT revenue in the third quarter, fueled by the emerging service expansion. Recurring ICT revenue also grew by 19%, supported by our continued commitment to public cloud inter-entity supply contracts in the government sector, which effectively contributed to the steady growth in the cloud service recurring revenue. Regarding core service pillars, IBC Cloud and cybersecurity remained key ICT revenue growth drivers, posting year-over-year growth of 34%, 24%, and 19%, respectively, driven by the strong demand from the financial and government-related sector. In addition, big data services surged by 130% year-over-year, largely attributable to the National Taxation System project.

Among the newly secured projects during this quarter, we are glad to report the acquisition of our largest-ever network infrastructure project, both by scale and the contract value from a leading life insurance company in Taiwan. This project is expected to generate both one-time and recurring revenue. We also won a landmark project from Taiwan Power Company to assist in building its large-scale AMI Big Data Analytics Platform for smart grid management. Lastly, leveraging our deep expertise in smart transportation, we secured a project to assist Taiwan Railway to develop a smart real-time fleet management solution powered by the digital twin and 5G technologies, simulating train control capping dashboards, enabling railway operation centers to proactively identify failing equipment and monitor dispatching vehicles, further enhancing operation efficiency and reducing maintenance costs. Slide nine illustrated the performance of our international subsidiary.

In the third quarter, our U.S. subsidiary delivered outstanding results by achieving 70% year-over-year revenue growth, primarily fueled by AIDC construction project of a Taiwan-based high-tech company in Texas. Together with the efforts of our Japan subsidiary, we anticipate securing additional related projects to strengthen our role in the global AI supply chain. Meanwhile, our Southeast Asia markets continue to thrive. With our Singapore and the Vietnam subsidiaries actively delivering planned construction services that are expected to contribute to future revenue. Excitingly, this quarter, we successfully introduced our proprietary solution to global markets. First, through close group collaboration, we introduced cybersecurity services from our newly listed subsidiary, Chunghwa Telecom Security, to overseas clients in Southeast Asia and Japan. Furthermore, we launched our smart pole solution in Thailand, fully powered by our proprietary operation platform and integrated AI and IoT solution. The solution delivers services including.

Adaptive lighting control, energy in Thailand, and traffic flow analytics. We place particular emphasis on our AI capabilities, which enable seamless replication of our success to other markets in different languages. In addition, by supporting our allied nations in developing smart cities, we have leveraged our 5G private network and ICT capabilities to generate overseas smart city revenue from Paraguay and Eswatini. Not least, we are pleased to see the submarine cable SH-2 has commenced operation and is contributing revenue, while another cable, EPRICO, is expected to follow in the fourth quarter. Now, let's move on to page 11 for the financial performance of our three business groups. In the third quarter, thanks to steady growth in mobile and fixed broadband service, plus the higher sales driven by the iPhone demand, our CBG delivered a solid year-over-year increase of 2.2% in revenue.

Additionally, last year's elevated expense related to the content broadcasting rights contributed to the relative increase of 11.4% year-over-year in CBG's income before tax, broadly supporting the group outperformance. Our EBG also performed well with strong ICT performance as revenue increased 7.4% year-over-year, while income before tax decreased owing to the reduced fixed gross revenue during this quarter, as well as a modern decrease in sales margin related to long-term enterprise customer engagement. As for IBG, revenue declined by 1.9%, and income before tax dropped by 19.7%, primarily due to softened demand for voice services. However, we saw robust growth in IBG, ICT, and mobile services, which rose 14% and 19% year-over-year, respectively, supported by clients' global expansion and the increased roaming revenue. Now, I would like to hand the call over to Audrey for financial updates.

Audrey Hsu (CFO)

Thank you, President. Good afternoon.

Please turn with me to slide 12, Income Statement Highlights, where I will cover our performance for the third quarter and first nine months of 2025. The third quarter demonstrates strong execution and profitability. First, let's look at the top line. Revenue reached NTD 57.92 billion. This achieves a significant milestone as the highest third-quarter revenue level in nine years. This represents a solid 4.2% increase compared to the same period last year. This growth was primarily fueled by the successful expansion of our ICT business and also robust sales growth, while our core telecom service maintained positive momentum. Our strong operating performance is clearly reflected in our bottom line. Income from operations rose by 6.4%, and net income increased 4.8% year-over-year. This performance was supported by steady growth across our mobile service and fixed broadband business.

Alongside the expansion of a high-value service, including Internet Data Center, IDC, and cloud service. As a result of this performance, earnings per share increased from NTD 1.16 to NTD 1.22. This reflects consistent profitability and marks the highest third-quarter EPS in eight years. This operational efficiency also resulted in a strong quarter for EBITDA, which recorded a 4% gain, reaching NTD 22.11 billion for the quarter. The EBITDA margin of 38.17% was virtually in line with the 38.23% recorded in quarter three last year. This demonstrates sustained cash generation. Moving now to our year-to-date performance through the first nine months, please focus on column five through seven for the results. Revenue grew by 3.5% year-over-year, supported by strong momentum in our ICT portfolio and the sales contribution from our subsidiary, Chunghwa Precision Test Tech.

Reflecting this top-line strength, income from operations and net income rose 5.5% and 4.2%, respectively. Primarily fueled by the continued expansion of ICT and cloud service, supported by sustained positive momentum from our core telecom business. Year-to-date EPS stands at NTD 3.79 compared to NTD 3.64 last year. Furthermore, EBITDA increased 3.6% to a strong NTD 67.22 billion. The EBITDA margin stood at 39.43%, totally consistent with prior year periods. In summary, the results highlighted the dual strength of our stable core telecom foundation and our successful pivot into high-growth ICT service. Now, let's turn to slide 13 for balance sheet highlights. We will review our financial position as of September 30, 2025, relative to year-end 2024. Our balance sheet continues to reflect our strong commitment to capital discipline and financial flexibility.

Total asset decreased by 4%, a reduction primarily stemming from the utilization of cash and other current monetary assets to meet a debt maturity obligation during the period. In addition, property, plant and equipment declined by 2.1% as depreciation exceeded net additions, reflecting our continued focus on asset efficiency. Moving to the liability side, total obligation decreased significantly by 10%. This net reduction resulted from the repayment of a maturing debt obligation and the subsequent partial refinancing through the issuance of our first-ever sustainability bond that incorporates biodiversity features. This reflects our commitment to ESG-based financing. As a result of this deleveraging, our reported debt ratio stood at a healthy 23.91%, showing a slight decrease compared to year-end 2024. Regarding liquidity, our current ratio remains stable and above 100%, highlighting healthy short-term financial flexibility. Meanwhile, our net debt-to-EBITDA ratio stood at an exceptionally low 4.5%.

This reflects our highly deleveraged position and capacity to sustain our ongoing investment strategy within a balanced capital structure. Let's move to slide 14, Cash Flow Summary. We will review our year-to-year performance through the first nine months of 2025. Cash flow from operating activities decreased by 8.6% year-over-year. This was driven primarily by the timing of the settlements, specifically increased payment for accounts payable and highly accounts receivable as of September 30. Capital expenditures rose 8% year-over-year, partly reflecting the timing of 5G/4G deployment. This year's projects were front-loaded in the early months, whereas last year's occurred later in the period. Some of this year's payments also relate to projects booked last year, so the increase mainly reflects timing rather than highly investment activity.

On an accrual base, CapEx has actually trended lower, and four-year mobile investment is expected to remain below 2024 level, consistent with our disciplined approach to capital management. As a result of these factors, free cash flow declined by 16.5% to NTD 28.19 billion year-over-year. This result is in line with expectations, given the short-term increase in working capital and the timing of our CapEx investment. We continue to maintain a strong cash position and stable operating inflows to support both business growth and shareholder return. Moving to slide 15, Performance Highlights and Guidance. I will summarize our key achievements for the period. In quarter three 2025, the strength of our execution drove significant acceleration. We achieved record-setting Q3 revenue and EPS, while our key profitability metrics from income from operations, net income, and EBITDA all performed strongly and met or exceeded our internal margin targets.

For the full nine-month period, the cumulative results validated our strategy. All major metrics, including revenue, income from operations, net income, EPS, and EBITDA, performed above or on target for our full-year guidance. The success was powered by the sustained profitability of our ICT services and the reliability of our core telecom business. Crucially, revenue growth outpaced operating expense, reflecting excellent operating leverage and efficiency. This concludes our review of the financial performance for the third quarter and the first nine months of 2025. We are now happy to open the door for your questions.

Operator (participant)

Yes, thank you. Ladies and gentlemen, we are now in Q&A session. If you have questions for any of the speakers, please press Star key and One on your telephone keypad to enter the queue. Enter your RNNs. Please ask your questions.

If you would like to cancel your questions, please press Star key and Two. You're also welcome to send questions via chat box on the webcast page. We will begin with the questions from telephone line first and then move to queries from webcast page. Thank you. Now, if you would like to ask questions, please press Star key and One. Thank you. We are in Q&A session now. If you would like to ask questions, please press Star key and One.

Audrey Hsu (CFO)

Okay, we got one question from the dashboard. The question is that, what is the driver of our international project business? Okay, for international business. Just as I mentioned, that in the international markets, we found that Chunghwa can play a role in the global AI supply chain. So actually, we see great potential of opportunities in the markets of the United States.

Our subsidiary in the United States is doing the project in Texas. In those states that allowed Taiwan high-tech company relocate there to do some plant construction. Most of them play a very important role for the AI supply chain globally. In the Japan market, we also see similar opportunities in Japan, right? In addition to that, we also try to introduce our self-development solutions to the global market. For this quarter, our subsidiary, the CHT Security, their cybersecurity services, we successfully introduced the services to Southeast Asia markets and in Japan, with the collaboration of our subsidiaries in Singapore and in Japan. For the Southeast Asia company, we also see the opportunities from the high-tech companies. That's the main driver of the business growth in Southeast Asia company. We also try to introduce the smart city-related projects there.

In the third quarter, we see that we successfully introduced our smart pole project there. What we want to note is that the smart pole is mainly developed and we introduced our in-house solutions. We also collaborate with the partners to make it successful in Thailand. Okay.

Operator (participant)

As a reminder, if you would like to ask questions, please press Star key and One. Thank you. Ladies and gentlemen, we are in Q&A session. If you would like to ask questions, please press Star key and 1 on your telephone keypad. Thank you. There seems to be no further questions at this moment. I will turn it over to President Lin. Please go ahead.

Rong-Shy Lin (President)

Okay, everyone, thank you very much for your participation. See you. Bye-bye.

Operator (participant)

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