Chunghwa Telecom Co., Ltd. (CHT) on Q2 2021 Results - Earnings Call Transcript
Operator: Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the Company’s Second Quarter 2021 Operating Results. For your information, this conference call is now being broadcasted 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/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.
Angela Tsai: Thank you. This is Angela Tsai, Director of Investor Relations for Chunghwa Telecom. Welcome to our second quarter 2021 results conference call. Joining me on the call today are: Harrison Kuo, our President: and Vincent Chen, our Chief Financial Officer. During today’s call, management will begin by providing an overview of our business from this quarter, followed by a discussion of operational and 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.
Harrison Kuo: Thank you, Angela Tsai. Hello, everyone, welcome to our second quarter 2021 earnings call. In the second quarter of 2021 5G and stay-at-home opportunities under COVID-19 level three alert continue to enhance our overall business performance. In our mobile business, we are pleased to report that our accumulative number of 5G sign-ups exceeded 1 million by the end of the quarter, which is ahead of schedule and expect to meet our guidance of 2 million sign-ups by the end of this year. We expect to maintain the growth churn, as we go out a variety of mid to low end 5G handsets continue to develop 5G innovative applications and introduce our 5G enterprise network and vertical peers. As expected, our postpaid ARPU turned positive on a year-over-year basis in the second quarter, mainly due to the continued growth of postpaid mobile subscribers and 5G contributions and customers who renewed contracts to adopt 5G services contributed an average of 21% uplift to their monthly fees. Moreover, to provide quality 5G services, we have accelerated our 5G deployment and have more than these 8,000 base stations at this time and we expect to approach 12,000 base stations by the end of this year. According to the first-ever Taiwan 5G experience award report in July, we received extensions of 5G and best mobile coverage in the first quarter and the second quarter this year. We will endeavor to maintain our leading status in Taiwan's mobile market. Next, COVID-19 also drove up demand for fixed broadband service in the second quarter. Our sign-in subscriber net adds turned positive on a year-over-year basis in the second quarter as a result of increased demand for work from home and online learning capabilities. Broadband ARPU continued its uplift. Subscriber migration to our broadband of 300 megabit per second or higher continued to increase by approximately 52% year-over-year. The number of home Wi-Fi devices increased by 650% year-over-year to support the popularity of our home-centric applications. The number of MOD subscribers also increased quarter-over-quarter. As we continue to introduce cutting-edge technologies to enhance viewing experience. In July forecasted – the Tokyo Olympic Game was 4K quality on our MOD process and platform and we exclusively delivered the first-ever VR simulation on Hami video. Our VR plus 5G bundled services enable this to further engage in doing contests building VR headsets and we have demonstrated the performance of our 5G technology for multi-angle broadcasting during the event. We expect our video services to continue to grow in the digital convergence.
Vincent Chen: Thank you, President Kuo. Good afternoon everyone. I will now review our second quarter financial results. Please turn to slide 10, which provides highlights from our income statement. For the second quarter of 2021, on a year-over-year basis, total revenues increased by 3.8% and operating costs and expenses increased by 3.2%. Income from operations increased by 5.9% and our net income increased by 4.1%. In addition, our EBITDA margin increased to 41.9% from 40.5% in the same period of 2020. Slide 11, provides a breakdown of revenue by business segment. In the second quarter of 2021, total revenues increased by 3.8% year-over-year, mainly due to the increase in handset sales revenue, mobile service revenue and fixed broadband revenue, which offset the decrease in voice revenue as a result of VoIP substitution. Moving on to the slide 12. Our operating costs and expenses in the second quarter increased by $1.18 billion or 3.2% year-over-year, mainly due to the increase of depreciation and amortization expenses cost of goods sold and marketing expenses. Slide 13 shows that cash flows from operating activities for the second quarter of 2021, increased by $4.75 billion or 36.1% compared to the prior year period. This was mainly attributable to an increase in the collection of accounts receivable and the increase of accounts payable. As of June 30, 2021, the balance of cash and cash equivalents was $32.14 billion, an increase of $12.99 billion or 67.8% relative to June 30, 2020. The increase was primarily due to the issuance of corporate bonds and an increase of cash flows from operating activities. On page 14, you may find that table that compares our financial results with forecasts. As you can see for Q2 2021, our revenue almost met our second quarter guidance and the performance measures including income from operations, net income, EPS, EBITDA and EBITDA margin, all exceeded our expectations.
Harrison Kuo: Thank you, Vincent. Next slide 16 illustrates our awards and recognitions from the second quarter. Highlighting our destination in 5G speed mobile coverage, corporate governance sustainability and social responsibility. Going forward, we will continue to leverage our infrastructure advantage to provide integrated services with our quality network to meet customer demand. Now we are open the floor for questions.
Operator: Thank you. We are now beginning our question-and-answer session. The first question is coming from Shaile Lao from HSBC. Go ahead please.
Unidentified Analyst: This is Shaile Lao from HSBC. So I would like to ask about the target of base stations, 5G base stations. So in your -- annual report mentioned that the target should be at 10k by the end of the year, so now you have increased the target, is it?
Harrison Kuo: Yes. Hello and thank you for your asking. On the original five-year construction will be completed within three years. It is expected that about 12,000 base stations will be completed by the end of this year. Now we have more than 8,000 base stations. Thank you.
Operator: Thank you. The next question is coming from Lisa Chan from . Go ahead please.
Angela Tsai: Yes. Sorry, I think I need to -- back to the HSBC's question about the original target for the 5G base stations for this year. I think that our original target, I think, we were not really clear about the question. I want to clarify the question. I think your question is about the original target for the -- our 5G base station number this year, right? I think that the original number was 10,000. And now we are thinking about -- we will approach 12,000 by end of this year. Thank you.
Operator: Thank you. Now we are having Lisa Chan from . Go ahead, please.
Unidentified Analyst: Thanks for taking my question. We just have one question for -- could you give us more color for third quarter or fourth quarter of this year's outlook?
Harrison Kuo: Okay. Thank you for your question. So the second half of the year, because -- despite the outbreak of pandemic, but we still see a very exciting results from our mobile services revenues also the broadband revenues. So, although, we will expect some turbulence ahead in the second half, but we are confident that our revenue generation stream will -- on track and we'll keep the momentum going and we are confident that we can meet our forecast for the second half, yes, also for the full year.
Unidentified Analyst: Thank you.
Operator: Thank you. The next question is coming from Sara Wang from Morgan Stanley. Go ahead please.
Sara Wang: Thank you. I have three questions. So first question is that, is there any change in our full year, say, revenue or profit guidance? And then, the second question is that, regarding the 5G base station target numbers, so we previously target 10,000 now 12,000, but the total CapEx budget remain unchanged. So may I ask if there's a change in the CapEx structure or the price proposition is lower than expected? And then, my third question is on, ICT. So would you -- management would you please provide some outlook on ICT say, in terms of revenue growth, or as a percentage of the revenue contribution for say, next year or, -- next one or two years? Thank you.
Harrison Kuo: Okay. Thank you, Sara for asking. So for the first question, regarding the full year revenue profit guidance, we still maintain our forecast at this point. So we tend – although, our performance is better than expected, but because of the uncertainty of the pandemic. So we still want to stay in a more conservative manner, make our -- making our forecast. But we'll provide updates, if we make any changes. So for your second question on the 5G base station right and also our CapEx budget, so although, we increased our target of the number of base stations from 10k to 12k, we don't revise our CapEx for 5G, always because for the 5G equipment right, as time goes by the cost will be lower. Yeah and also the construct, we deploy our 5G network in a more precise manner, we use the big data. So now we'll save some money and some capital expenditures. Thank you.
Angela Tsai: As for the third question about the IPTV MOD services I think the recent Tokyo Olympics Games. I think we are experienced pretty good. And our close -- our second quarter MOD services revenue, I think is also pretty -- oh, ICT. Oh, okay, I'm sorry. I talked about ICT business, okay? I think the outlook for ICT I think there's growth, you mentioned about the percentage of ICT contribution. So this year we already mentioned earlier, I think in the early quarter we mentioned about this year the percentage having compared to last year is a little bit lower. But just -- yeah for the next year and for the year after next year, we believe it will continue to increase for sure.
Sara Wang: Sorry, just to clarify this double-digit is further growth rate, right?
Angela Tsai: So the growth rates not really for -- let me check, for the growth rates we are already double-digits for the second quarter yes, for the second quarter, for the whole year, also double-digit. Yes.
Sara Wang: I see. And then, what's the percentage?
Angela Tsai: But let me say that, I think for the -- this year, I think in the original -- this year, we mentioned about this year our budget in ICT, total project revenue formation in our guidance already mentioned about the project revenue, which budget is even lower compared with the -- compared with that of last year, because last year we had government number -- government project. So this year, the total consolidated revenue for the ICT revenue should be around like -- we were talking about the gross number should be like double digits for sure. I'm not talking about gross number. I think the -- accounted to like 12% for the total consolidated revenue. But the gross number, the small gross number should be a little lower than that of the -- total ICT revenue number should be lower than that of last year. If you exclude, the large project happened last year, the number should be gross, okay? I think that we already explained earlier this year. I hope this explain your question.
Sara Wang: Yeah, got it. Thank you.
Operator: Thank you. And ladies and gentlemen, we are now in our question-and-answer session. The next question is coming from Neale Anderson from HSBC. Go ahead please.
Neale Anderson: Hi, there. Good afternoon. Just a question on the mobile revenue outlook please. Presumably you saw some benefit year-on-year from roaming being weaker also last year in the second quarter. So from here on, how do you see the outlook for 5G revenue under mobile revenue? Do you think that will continue to improve? Do you think it will accelerate or stay fairly steady? Thank you.
Harrison Kuo: Thank you for asking. And the 5G revenue, we anticipate the growth momentum will continue. Thank you.
Neale Anderson: So on a percentage basis, can you give any indication of where you think that might reach, or currently 3% year-on-year growth is it possible to give any indication of where you think that will be by the end of this year?
Harrison Kuo: To answer your question this information is proprietary and we don't want to introduce any irrational competition if we disclose such information. Thank you.
Neale Anderson: I see. Understood. Thank you.
Operator: Thank you. Currently we don't have further questions. I will turn it back over to President Kuo. Go ahead please.
Harrison Kuo: Thank you for your participation. Goodbye everyone.
Operator: 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 under the IR Calendar section. You may now disconnect. Goodbye.
