Chunghwa Telecom Co Ltd (CHT) 2025 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom conference call for the company's third quarter 2025 operating results. (Operator Instructions)

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 broadcasted live over the Internet. A webcast 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.

And now I would like to turn it over to Mr. Angela Tsai, Vice President of Financial Department. Thank you. Ms. Tsai, please begin.

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 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 vision, strategic achievements and provide 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 2 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.

Thank you, Angela, and hello, everyone. Welcome to our third quarter 2025 results conference call. Extending the outperforming results of this first half, we continue to beat the financial guidance in the third quarter. Our revenue, operating income, net income, and EPS are exceeded the upper end of our forecast. Third quarter revenue hit its highest level since 2017, reflecting the robust growth in our core business and expanding ICT service.

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 results 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 these areas. We are pleased to see our cybersecurity subsidiary, Chunghwa Telecom Security, successfully complete its public listing in September with International Integrated Systems soon to follow in its upcoming IPO. Moreover, in October, we launched InventAI, a new subsidiary spun off from our research division, dedicated to monetizing AI innovations.

Our AI capabilities have received significant recognition and honors. On the global stage, our first well self-developed Vision Language Model technology secured first place in the transportation category at the global AI City Challenge, a prestigious international competition co-organized by NVIDIA and leading universities worldwide. This recognition was earned through our technology’s 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 basis 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 catastrophic typhoons, we overcame challenges to deliver portable OneWeb equipment and restore communication in isolated areas affected by the blackout, demonstrating our commitment to social responsibility. Additionally, as we continue to invest in facilitating ESG practices, we completed the issuance of a TWD3.5 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 5 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 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 percentage point year-over-year increase, mainly driven by continued growth in the postpaid subscribers. We are pleased with this solid growth momentum.

Our 5G performance was equally impressive. Based on regulatory 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. Postpaid ARPU 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 6 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 of migration and the success of our HiNet 30th anniversary promotion package. Alongside our existing bundle plans that combine MOD, Wi-Fi, and streaming services, we are pleased to report that the number of subscribers choosing speeds of 300 megabits and above increased by about 14% year-over-year, while those opting for 500 megabits and above recorded double-digit growth, and 1 gigabit and above achieved multiple-fold expansion.

These higher-speed migrations contributed to stronger ARPU performance. In the third quarter, our fixed broadband ARPU rose 3% year-over-year, representing an increase of TWD23 per month, an encouraging sign of ongoing value expansion.

Slide 7 provides a deeper overview of highlights from our consumer application services. In the third quarter, our multiple-play packages, integrating our mobile, fixed-broadband and Wi-Fi services, achieved impressive year-over-year growth of 22%, marking 15 consecutive quarters of expansion.

In terms of our video services, subscriptions 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 these event-driven variations, our video subscription and ARPU sustained its expected upward trend. Notably, we are proud to highlight the success of our drama investments in the third quarter; for example, The Outlaw Doctor won Best Asian Content in the Global OTT Awards in Busan and shone at the 60th 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 8 illustrates the key highlights in our enterprise ICT business. We are pleased with the 14% year-over-year increase of our group’s ICT revenue in the third quarter, fueled by the emerging services 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 cloud service recurring revenues.

Regarding core service pillars, IDC, cloud, and cybersecurity, remained key ICT revenue growth drivers, posting year-over-year growth of 34%, 24% and 19%, respectively, driven by the strong demands from financial and government-related sectors. 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 the quarter, we are glad to report the acquisition of our largest-ever network infrastructure project, both by scale and contract value, from a leading life insurance company in Taiwan. This project is expected to generate both one-time and recurring revenues. We also won a landmark project from Taipower to assist in building its largescale 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 digital twin and 5G technologies, simulating train control cabin dashboards, enabling railway operating centers to proactively identify failing equipment and monitor dispatching vehicles, further enhancing operational efficiency and reducing maintenance costs.

Slide 9 illustrates the performance of our international subsidiaries. In the third quarter, our US subsidiary delivered outstanding results by achieving 70% year-over-year revenue growth, primarily fueled by AIDC construction projects for a Taiwan-based high-tech company in Texas. Together with the efforts of our Japan subsidiary, we anticipate securing additional related projects, strengthening our role in the global AI supply chain.

Meanwhile, our South East Asia markets continue to thrive, with our Singapore and Vietnam subsidiaries actively delivering plant construction services that are expected to contribute to future revenue. Excitingly, this quarter, we successfully introduced our proprietary solutions to global markets. First, through cross-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 operations platform and integrated AI and IoT solutions. This solution delivers services including adaptive lighting control, localized digital signage in Thai, and traffic flow analytics. We placed 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 revenues from Paraguay and Eswatini. Last but not least, we are pleased to see the submarine cable, SJC2, has commenced operation and is contributing revenues, while another cable, Apricot, 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 services, plus the higher sales driven by iPhone demand, our CBG delivered a solid year-over-year increase of 2.2% in revenue. Additionally, last year’s elevated expenses related to content broadcasting rights contributed to the relative increase of 11.4% year-over-year in CBG’s income before tax, broadly supporting the group’s outperformance.

Our EBG also performed well with strong ICT performance as revenue increased 7.4% year-over-year, while income before tax decreased mainly owing to reduced fixed voice revenue during the quarter, as well as a decline in sales margin to secure long-term end price contracts 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’s ICT and mobile services, which rose 14% and 19% year-over-year, respectively, supported by clients global expansion and increased roaming revenue.

Now, I would like to hand the call over to Audrey for financial updates.

Thank you, President. Good afternoon. Please turn with me to slide 12, income statement highlights, where I’ll cover our performance for the third quarter and first nine months of 2025.

The third quarter demonstrated strong execution and profitability. First, let’s look at the top line. Revenue reached TWD57.92 billion, achieving a significant milestone as the highest third-quarter revenue level in nine years. This represented 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 services 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 businesses, alongside the expansion of high-value services, including internet data center IDC and cloud services.

As a result of this performance, earnings per share increased from TWD1.16 to TWD1.22. 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 4.0% gain, reaching TWD22.11 billion for the quarter. The EBITDA margin of 38.17% was virtually in line with the 38.23% recorded in Q3 last year, demonstrating sustained cash generation.

So moving now to our year-to-date performance through the first nine months. Please focus on columns five through seven for these 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 services, supported by sustained positive momentum from our core telecom businesses.

Year-to-date EPS stands at TWD3.79, compared to TWD3.64 last year. Furthermore, EBITDA increased 3.6% to a strong TWD67.22 billion. The EBITDA margin stood at 39.43%, broadly consistent with the prior year period. So in summary, these results highlight the dual strength of our stable core telecom foundation and our successful pivot into high-growth ICT services.

Now turning 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 assets decreased by 4.0%, a reduction primarily stemming from the utilization of cash and other current monetary assets to meet a debt maturity obligation during the period. inaudible 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 obligations decreased significantly by 10.1%. 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 de-leveraging, our reported debt ratio stood at a healthy 23.91%, showing a slight decrease compared to year-end 2024.

Regarding liquidity, our current ratio remained stable and above 100%, highlighting healthy short-term financial flexibility. Meanwhile, our net debt-to-EBITDA ratio stood at an exceptionally low 4.5%, which reflects our highly de-leveraged 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-date 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 settlement, specifically, increased payments for accounts payable and higher accounts receivable as of September 30.

Capital expenditure 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 higher investment activity.

On an accrual-based, CapEx has actually trended lower, and full-year mobile investment is expected to remain below 2024 levels, consistent with our disciplined approach to capital management. As a result of these factors, free cash flow declined by 16.5%to TWD28.19 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 returns.

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 revenues and EPS, while our key profitability metric 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 validate 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. This success was powered by the sustained profitability of our ICT services and the reliability of our core telecom businesses. Crucially, revenue growth outpaced operating expenses, reflecting excellent operating leverage and efficiency.

This concludes our review of financial performance for the third quarter and the first nine months of 2025. We are now happy to open the floor for your questions.

(Operator Instructions)

Okay. We got one question from the dashboard. The question is that what is the driver of our international projects business? Okay. For international business, just as we mentioned, that in the international market, we found that Chunghwa can play a role in the global AI supply chain.

So actually, we see great potential of opportunities in the market in United States. So now our subsidiary in the United States, are doing the projects in Texas, in there stays that a lot in Taiwan high-tech company relocated there to do some plant construction, and most of them are play a very important role for the AI supply chain globally. And in the Japan markets, we also see similar opportunities in Japan, right?

And in addition to that, we also tried to introduce our self-development solutions to the global market. So for this quarter, our subsidiary, the CHT security, their cybersecurity services, we successfully introduced the services to Southeast Asian markets and in Japan, okay, 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. That's the main driver of the business growth in Southeast Asia company. And we also try to introduce the smart city-related projects there. So in the third quarter, we see that we successfully introduce our smart home there. What we want to notice that the smart home is mainly developed, and we introduced our in-house solutions, and we also collaborate with the partners to make -- to make it successful in Thailand. Okay.

(Operator Instructions)

There seems to be no further questions at this moment. Please go ahead.

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

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.