Chunghwa Telecom Co Ltd (CHT) 2022 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the company's Third Quarter 2022 operating results. (Operator Instructions).

During the presentation, all lines will be on listen-only mode. When the briefing is finished, the refiners meeting your questions will be given in the question-and-answer session. For information, this conference call is now being broadcasted live already Internet. Webcast replay will be available within an hour after the conference is finished. Please visit CHT IR website, www.cst.com.tw/ir under the IR Calendar section.

Now I'd like to turn it over to Ms. Angela Tsai, the Director of Investor Relations. Ms. Tsai, please go ahead.

Thank you. This is Angela Tsai, Director of Investor Relations for Chunghwa Telecom. Welcome to our Third Quarter 2022 results conference call. Joining me on our call today are Shui-Yi Kuo, our President and Yu-Shen Chen, our Chief Financial Officer.

During today's call, management will begin by providing an overview of our business in the Third Quarter, followed by a discussion of our settlement performance and re financial highlights. After we will move on to the question-and-answer session.

On Slide 2, please note our safe harbor statement. Now I will turn the call over to President Kuo. President Kuo, please go ahead.

Thank you, Angela, and hello everyone. Welcome to our Third Quarter Results Conference Call. I will now provide an update on our robust performance in the Third Quarter. Let's begin on Slide 4 for an overview of our mobile business.

In the third quarter, we see the positive development of Taiwan's mobile market of operators to 5G migration in a steady moment. Focusing on creating value for customers, which we produce is good for healthy market competition. Looking into Quarter 4, the mobile market in Thailand is expected to remain steady in it's potential economic uncertainty.

In terms of market position, we are produced not only to maintain our leadership in Taiwan's mobile market, but also successfully to achieve year-over-year growth in terms of both revenue and the subscriber share for 4 consecutive quarters. In the Third Quarter, we increased our revenue share to 39.4% and the subscriber share to 36.5% on a year-over-year basis, respectively.

Our transition revenue share is larger than the subscriber share for (inaudible) that our customer-site business strategy is proving successful. We are confident that we can maintain our leadership position going forward.

Please turn to slide 5 for a closer look at our mobile business. In the third quarter, our total mobile service revenue increased by 4.2% year-over-year, attributable to the outperforming subscriber number increased and the up resulting from factor migration, mobile subscriber members, excluding IoT sales increased by 2.6% year-over-year, possibly due to the increase of both post pay and prepaid (inaudible).

In particular, our prepaid lenders grew significantly, reflecting our success in enhancing sales in the segment of following August. In addition, our turn rate continues to remain the lowest among our peers. Our post pay approved reached 1.8% year-over-year growth in the third quarter, maintaining its upward strategy for 6 consecutive quarters.

Meanwhile, we observed an average 44% update in mobile monthly fees attributable to consumer migration from 4G to 5G with our most extensive model of deployment and the solid fundamentals, we are confident in our ability to maintain leadership in Taiwan's mobile market in the face of more close competition resulting from industry consolidation.

Moving on to slide 6. We may have an update of our fixed broadband business. In the third quarter, our fixed broadband business continued its upward trend for 12 consecutive quarters in terms of ARPU growth as total subscriber lenders increased by 0.5% year-over-year, we are expected to see the speed of great adoption increase as a fiscal pace, thanks to our effective promotion package Su Zai bi xing.

In the third quarter, 75% of Su Zai bi xing factors upgraded their service speed. In addition, more than 60% of the (inaudible) speeds of 500 megabits per second or higher, paired with upstream about 250 megabits per second, which distinguishes from our peers.

Meanwhile, the accumulated setup for solving speeds of 300 megabits per second or higher increased by 46.7% year-over-year in the quarter, mainly attributable to those who negated their services from service space of 100 megabit per second or below.

In terms of financial performance, our (inaudible) broadband revenue and ARPU year-over-year growth in the third quarter, indicating increases of 3.3% and 2.4% respectively. Now let's move on to the performance of our Consumer Business Group.

Slide 8 presents the revenue of our Consumer Business Group, CDT, of which business line of Consumer Business Group delivered positive results in the third quarter. Total revenue of Consumer Business Group increased by 3.8% year-over-year. Mobile service revenue of consumer business group grew by 5.4% year-over-year, mainly due to the increases of post-paid subscriber number and the 5G migration.

Fixed-line service revenue remained flat year-over-year. While we are delighted to see approvable upscales prepared by the Su Zai bi xing promotion package. However, (inaudible) revenue continue to decrease, even though the decline has decelerated them. In addition, sales revenue of Consumer Business Group increased by 5.4% year-over-year in the third quarter, mainly due to early range of iPhone series in September with total sales of iPhone 14 high-end models.

Slide 9 further illustrates our consumer business group highlights. As we continue our effort in promoting multiple package to enhance Consumer Business Group's overall performance. In the third quarter, the number of subscribers sign up for our mobile fixed broadband and Wi-fi services altogether demonstrated a 43.8% quarter-over-quarter growth. In particular, our home wifi device subscription increased by 75.3% year-over-year contributing to subscription-based revenue and taking the way for our home-centric applications.

In the third quarter, our investment in original streaming content helped us successfully maintain our status as the largest service platform in Taiwan, attracted by the exclusive (inaudible) we invest. Our subscriber numbers for video services, including MOB and HonHai video charging monthly fees instead of 1.5 ops, achieving 7.4% year-over-year growth exceeding $2.7 million.

As the FIFA World Cup is coming up in the fourth quarter, we are ready to bring our customers the most exciting experiences. We obtained the exclusive right to broadcast 64 World Cup games, and we all combine 5G and the AR technology to deliver super attraction, which we believe will significantly boost our video service turn up in the third quarter.

Please turn to slide 10 for an overview of our Enterprise Business Group Performance. In the third quarter, Enterprise Business Group maintained its growth strictly by demonstrating 5.1% revenue increase on a year-over-year basis, mainly attributable to the robust growth of our ICT business.

Enterprise ICT business revenue increased by 10.4% year-over-year, mainly due to our emerging growth engines. Particularly ICT, service (inaudible) and the cloud services. Other revenue of Enterprise Business Group also increased due to the growth of (inaudible) government subsidies and the launch of iPhone 14.

Additionally, although digital transformation demand continued to drive up data communication and the broadband assets revenues, especially demand for space upgrades from growth, our sales line revenue in the third quarter decreased slightly year-over-year.

Slide 11 illustrates our enterprise business highlights. In the third quarter, our total enterprise emerging application revenue increased by 16.1% year-over-year as most of our major applications demonstrated a strong performance by exceeding 20% year-over-year growth. 5G private network revenue delivered multiple fold growth mainly due to the increased accumulated projects, but bringing in recurring revenues.

For (inaudible) data analysis, Cloud in ITC services, we are delighted to see year-over-year revenue growth of 17.3%, 26.4% and 26%, respectively, owing to the contention of some government-related projects, higher cyber security revenue reached 28.4% growth.

Slide 12 illustrates our international business performance. In the third quarter, our international business group revenue continued to increase by 22.6% year-over-year, maintaining its growth momentum. Attributable to the rising demand for IDC and the cloud services from global clients.

In addition, other revenue increased as well many due to a contribution from subsidiaries in Vietnam and Thailand. In September, our 5G private network project in Thailand amongst its launch of operations, putting our success in introducing smart mutating services abroad. We plan to replicate this successful model and continue to cultivate the Asian market. Now I would like to turn the call to Yu-Shen for our financial highlights.

Thank you, President Kuo. Good afternoon, everyone. I will now walk you through our Third Quarter Financial Results. Let's start with Slide 14, income statement highlights.

For the Fourth Quarter of 2022, total revenues grew by 5.2% on a year-over-year basis, mainly due to increased IDC contract completion and higher revenues from core businesses, such as mobile services and broadband access. Meanwhile, operating costs and expenses increased by 4.7%, owing to higher manpower expenses and depreciation expenses from 5G network deployment. Income from operations increased by 6.7%. Net income and EPS remained stable compared to the prior year period. Additionally, our EBITDA recorded a 5% Y-o-Y increase and EBITDA margin remained stable in the third quarter.

Now move on to Page 15 for our balance sheet highlights. Compared to December 31, 2021, total assets decreased by 1.9%, mainly owing to decreased cash and cash equivalents for dividend payable, for dividend payment and the acquisition of property, plant and equipment. Total liabilities is lower by 1.9% primarily attributed to payment of accounts payable for equipment and suppliers, which offset the increase of accounts payable. We continue to maintain a healthy balance sheet as our debt ratio stands at about 24% labor and net debt over EBITDA is 0.

Page 16 presents a summary of cash flows. Cash flows from operating activities decreased by 1.6% on year, mainly due to the settlement of accounts payable. As for capital expenditure, mobile-related CapEx including 5G decreased year-over-year as (inaudible) capital spending reached peak in 2021. Additionally, free cash flows increased by 8.3% compared to the same period last year. Taken together, our healthy balance sheet and strong cash flows enable us to manage economic uncertainty and support business development through challenging times.

On Slide 17, we provide a table that compares our financial results with our financial guidance. In the third quarter of 2022, all performance measures with respect to revenue and profitability exceeded our financial forecast. Revenue guidance mainly attributable to better-than-expected performance of core businesses as a result of growing subscriber numbers, migration and broadband business.

Operating costs and expenses were higher than our third quarter guidance due to higher costs of result for smart devices and depreciation expenses. EBITDA and net income top our forecast due to the steady growth of core businesses and the improved profitability of emerging businesses.

That concludes the overview of our Q3 Financial Results. Let me turn the call over to our President, Harrison.

Thank you, Vincent. The next page demonstrates our ESG efforts. In the third quarter, we announced to participate in the global renewable energy 100 initiatives to demonstrate our resolution to transition to 100% renewable power by 2040.

In addition, we secured the single largest corporate power purchase agreement in Taiwan (inaudible), which allows us to realize the use of 100% renewable electricity for our IDC in 2030. Additionally, we worked with world famous (inaudible) badminton player to initiate planting projects aiming to plant 5,000 trees in the next 3 years.

Forward ongoing ESG efforts has been recognized globally, receiving multiple awards from international institutes and the organizations. Going forward, we will continue to develop our ESG practices to satisfy the sustainable development goals and to promote the greater growth for our local and global communities.

Thank you for your attention and support. At this time, I would like to open up our conference call for questions.

We'll now begin our question-and-answer session. (Operator Instructions). Our first question is coming from Neale Anderson from HSBC.

I have 2 questions, please. The first relates to the international business growth and that was quite strong. Can you give us any color on how big you think that market can become. And whether you can sustain this type of 20%-plus growth?

The second question is a general question on costs. And I'd be very interested to know if you're seeing any cost inflation pressures found in any areas of your business such as energy, wages, et cetera.

Okay. So, for the first question about the margins from the international business group (inaudible) we don't disclose the margin yet, but roughly for all of the margin, EBITDA margin of our business groups is in the range of 40% to 42%. So, it's around this range. And we are quite confident that because we see there is a demand from the overseas power transportation. And also, there is an IDC demand locally. So, we believe the margin can be sustainable.

For your second question about the cost pressures from inflation. So basically, we do face the pressure because the government raised the electricity rate 3 months ago, but likely because we have been undertaking the energy saving initiative 2 or 3 years ago. So, the energy savings from our operations type of offset, the rising utility bills. So that's my answer.

(Operator Instructions). The next question is coming from Sara Wang from UBS.

So I actually only have a very quick question. So, in third quarter this year, we see that both EBITDA and operating income so quite good growth, but net profit remained flat. Just wondering what the gap is on the nonoperating items.?

So, if I understand the question correctly, so this is -- you are talking about why EPS actually is most flat, right? For our EBITDA, actually, the Y-o-Y growth of 6%, 7%, right, 6% to 7%, right? So that's because of our nonoperating business because we have invested -- we have made several investments in venture capital.

And some of our investments actually in the last year, same period because of the bond market. So, we have recorded the valuation gains. But because for this year, there's a market correction. So, there is a valuation adjustment. So that heavily affects our nonoperating income.

The next question is coming from Neale Anderson, HSBC.

Could I ask about the 5G uplift and how you expect that trend, particularly next year. So, it's still quite high, 32%. Do you think that can be sustained into 2023?

For the 5G, right? So basically, we will disclose more detailed information in early January or February in the next results call.

(Operator Instructions). If there are no further questions, I will turn it back over to Preston Kuo.

Thank you for your participation. Bye-bye.

Thank you, thank you, President Kuo. 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 on the IR Calendar section. You may now disconnect. Goodbye.