Chunghwa Telecom Co., Ltd. (NYSE:CHT) Q2 2025 Earnings Call Transcript

Chunghwa Telecom Co., Ltd. (NYSE:CHT) Q2 2025 Earnings Call Transcript August 5, 2025

Chunghwa Telecom Co., Ltd. beats earnings expectations. Reported EPS is $0.4379, expectations were $0.4191.

Operator: Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the Company’s Second Quarter 2025 Operating Results. [Operator Instructions] And for your information, this conference call is now being broadcasted live over the Internet. A webcast replay will be available after the conference is finished. Please visit CHT IR website, www.cht.com.tw/ir under the IR Calendar section. And now I would like to turn the call over to Ms. Angela Tsai, Vice President of Financial Department. Thank you. Ms. Tsai, please go ahead.

Cho-Fen Tsai: Thank you. I’m Angela Tsai, Vice President of Financial Department for Chunghwa Telecom. Welcome to our second quarter 2025 results conference call. Joining me on the call today are our President, Rong-Shy Lin; and our Chief Financial Officer, Audrey Hsu. During today’s call, management will begin with the recent strategic achievements and provide an overview of our business in the second 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 2, please read our disclaimers and note concerning forward-looking statements. Now I will turn the call over to President. President Lin, please go ahead.

Rong-Shy Lin: Thank you, Angela, and hello, everyone. Welcome to our second quarter 2025 results conference call. We are pleased to report our exceptional financial results with revenue, operating income, net income and EPS exceeded the upper end of our forecast. For both the second quarter and the first half of the year, second quarter revenue achieved — reached a 10-year high for the same period, fueled by the solid growth momentum of the core business and expanding ICT segment. Notably, ICT revenue also set a new record for any second quarter since 2021. These achievements underscore our strong commitment to innovation, operational excellence and delivering sustained value to our stakeholders. Meanwhile, I’ll continue to execute our sea, land and sky strategy to enhance network resilience and seize future opportunities.

In July, we officially launched the Southeast Asia Japan Cable 2 as Stage 2, enhancing network performance across the Asia Pacific region and supporting the rapid growth of bandwidth-intensive applications such as AI and the cloud computing in addition to the previously announced investment in E2A, the Trans-Pacific undersea cable connecting Asia to North America. We announced to invest in new Asia United Gateway, AUG, East submarine cable in July, which connects the Asia and is expected to bring in revenue after its completion in 2029. In terms of our multi-orbit satellite business, in the second quarter, Chunghwa Telecom not only obtained the new exclusive commercial license for OneWeb LEO services, but also extend the satellite services to broader use, including the in-flight WiFi services for aviation industry and the applications for maritime industry.

Moreover, for the land, we have partnered with NTT to successfully present the world’s first cross-border co-performance conducted in both Taiwan and Osaka at the same time through IOWN, the all-photonics network at Expo 2025, demonstrating the ultra-low latency and its application. Notably, we are honored to receive the highest MSCI CSG rating of AAA in May, the only Taiwan telecom to be recognized with the highest rating, reflecting our strong performance in governance and data privacy and carbon management. We also earned the prestigious 2025 Taiwan Data Center Services Competitive Strategy Leadership Award from Frost & Sullivan, recognizing our AI-ready data center capability. In addition, our long-standing commitment to corporate governance was reaffirmed by the Taiwan Stock Exchange, which recognize us as one of the top 5% of listed companies.

Q&A Session

Now let’s move on to the business overview of the second quarter of 2025. Please turn to Page 5 to review our success in Taiwan mobile market. In the second quarter, we further strengthened our leadership position in Taiwan mobile market. According to the data from Taiwan’s telecom regulator, our mobile market share rose to 40.7% as of June, reaching a new high. We also achieved the highest subscriber share among peers at 39.1%, driven by the continuing growth of postpaid subscribers. Both revenue and subscriber shares increased year-over-year, highlighting our solid and sustained growth momentum. Our 5G market share reached 38.7%, maintaining our leading position in this segment, supported by robust network quality, the ongoing expansion of our subscriber base and continued 5G migration.

Mobile service revenue grew approximately 2% year-over- year. Additionally, the average month fee increased by 38% as more users upgraded to 5G, helping stabilize mobile ARPU, which delivered a modest quarter-over-quarter increase in the second quarter. Let’s move on to Slide 6 for update of our outperforming Fixed Broadband business. In the second quarter, our Fixed Broadband revenue increased 1.8% year-over-year, driven by the success of our strategic bundled plan and our distinguished offering of symmetrical uplink and downlink speeds for service above 300 megabits per second. Fixed Broadband ARPU also rose approximately 2% on yields as well, representing an increase of TWD 14 per month, an encouraging sign of value expansion. Our cross-tier upgrade promotions featuring bundled plans, such as MOD, WiFi and streaming services, continuing to perform well.

Nearly 70% of adopters opted for plans with speed of 300 megabit per second and high, including 1 gigabit per second services. As a result, the number of subscribers with speeds of 300 megabits per second and above increased by 14% year-over-year, while those with speeds of 1 gigabit per second subscription multiplied impressively. Building on this momentum, we will continue promoting strategic bundlings to support ARPU growth. We also plan to incentivize existing mobile subscriber to add fixed broadband services, further expanding our market share. Slide 7 provides a deeper overview of highlights from our consumer application services. In the second quarter, we were pleased to see solid growth across all consumer service categories. Our multiple packaging, which integrates mobile, fixed broadband and WiFi services achieved impressive year-over-year growth of 26%, marking its 14th consecutive quarters of expansion.

This momentum was largely driven by the successful launch of new fixed broadband promotion bundles in May. Our video business also maintained its strong growth trajectory with total subscriptions increasing 6% and the revenues increased 5% on a year basis. This was fueled by the growth of Hami video subscribers, particularly among user seeking live sport content. Additionally, our exclusive investment in Taiwanese dramas and the broadcast of Korean variety shows has attracted a wider user base with a robust pipeline of new content scheduled for release. We are confident in accelerating user growth in the second half of this year. Meanwhile, our consumer cybersecurity services recorded a 20% year-over-year growth, contributing to steady revenue gains in line with our expectations.

This performance was driven by our service offering to assist users and the families to block malicious link due to inappropriate content and manage Internet serving scheduling. Slide 8 illustrated the key highlights in our enterprise ICT business. In the second quarter, we are excited by the strong performance of our enterprise ICT business. Group enterprise ICT revenue increased by 27% year-over-year with recurring ICT revenue also rising 25%. Both were encouraging results. Our core service pillars, including IDC, AIoT and cloud remained the primary revenue drivers, delivering robust year-over-year growth of 71% and 40%, respectively. Cybersecurity and 5G private networks also reported a healthy growth of 11% and 150%, respectively. A close look show that demand from the financial and high-tech sectors continue to significantly contribute to the increase in IDC and cloud revenues.

In the second quarter, IDC not only accounted for the largest share of absolute revenue growth, but also demonstrated strong future growth potential. Meanwhile, AIoT service saw a sharp revenue increase largely driven by projects related to the smart energy, smart surveillance, smart building and smart transportation. Our 5G private network deployment for the National Culture Center and Exhibition Home delivered a year-over-year revenue increase at 1.5x, while cybersecurity revenue rose 11% in response to growing market demand. Among the newly secured projects in the second quarter, the highlight was our deployment of building remote surveillance platform for correctional institution nationwide. This project integrated the IDC, cybersecurity, AIoT and VPN capabilities to support their smart surveillance operation.

We were also proud to share that our AIDC AI data center construction expertise continue to win recognition both domestically and internationally with new contract awards exceeding TWD 1 billion during this quarter. Lastly, we signed a contract to assist the leading petrochemical companies to implement AI-powered image recognition and automatic optical inspection. This solution is expected to extend to other chemical related sectors, generating additional revenue opportunity going forward. Slide 9 illustrated our international subsidiaries performance. In the second quarter, revenue from our international subsidiaries declined by 41% year-over-year, primarily due to the project-based fluctuations resulting from the onetime revenue recognition from the U.S. and the Japan subsidiaries for the same period last year, excluding the higher base sector, their performance actually exceeded our internal expectations for the second quarter.

On the other hand, Southeast Asia market delivered double-digit revenue growth driven by the continued demand for the ICT services from high-tech companies. We are pleased to have secured ICT solution contracts in Vietnam and Singapore, which are expected to support continued growth in the region. While global market sentiment remained cautious amid ongoing uncertainty around tariffs and exchange rates, we continue to invest strategically for long-term growth in the United States, Japan and Southeast Asia. In particular, we are targeting overseas AIDC-related construction project for Taiwan-based high-tech firms leveraging our proven capabilities in both air-cooling and liquid-cooling solutions. Now let’s move on to the performance summary of our 3 business groups.

As mentioned in the beginning, our revenue and profit performance were all better than expected. In line with these results, in the second quarter, our CBG delivered a solid year-over-year increase of 4.8% in income before tax, driven by steady growth in both Mobile and Fixed Broadband ARPU. In addition to stable performance of our core service revenue, CBG also benefited from higher smartphone sales as consumer accelerated their purchase in anticipation of potential tariff fluctuation. Our EBGs exceeded expectations with strong ICT performance. Total revenue rose 12% , while ICT revenue grew even more significantly, up 37% year-over-year. As a result, EBG reported a robust 5.4% increase in income before tax during this quarter. In contrast, our IBG faced headwinds.

Revenue and income before tax both declined year-over-year, primarily due to softening demand for international fixed voice services and the decline in international roaming services. Now I would like to hand the call over to Audrey for financial updates.

Wen-Hsin Hsu: Thank you, President. Good afternoon, everyone. It’s my pleasure to present an overview of our financial results for the second quarter of 2025. Let’s turn to Slide 12, income statement highlights. I will walk you through the key financial metrics for the second quarter of 2025. During the second quarter in 2025, revenue reached over TWD 56 billion, making the fifth consecutive year of second quarter growth. This represents a 4.8% year-over-year increase of — driven mainly — this growth is mainly driven by the expansion of our ICT business and higher sales revenue. Income from operations and net income rose by 5.2% and 3.5% respectively, compared to the same period last year. This performance was supported by growth in our Internet Data Center business, steady increase in Mobile and stronger sales contribution from our subsidiary, Chunghwa Precision Test Tech.

Earnings per share increased from TWD 1.27 to TWD 1.31, reflecting consistent profitability and effective cost control. EPS reached their highest levels in 9 years for second quarter period, reflecting the continued strength of our core operations. EBITDA also recorded modest gains during the quarter. EBITDA increased by 3.5% year-over-year, reaching TWD 22.58 billion for this quarter. The growth reflects continued operational efficiency and healthy cash-generating ability across our core business. The EBITDA margin was 39.8%, remaining broadly stable compared to last year. So now looking at the first half of 2025 in Column 5 to Column 8. Revenue grew by 3.2% year-over-year, supported by momentum in our ICT business and strong performance of our subsidiary, Chunghwa Precision Test Tech, which contributed to overall sales growth.

Income from operations and net income rose by 5.1% and 3.9%, respectively. These gains were driven by the ongoing growth of our IDC and cloud services, along with steady performance from our subsidiaries. Earnings per share for the first half totaled TWD 2.57. EBITDA increased by 3.4% year-over-year to TWD 45.11 billion. The EBITDA margin was 40.09%, broadly in line with the same period last year. This reflects stable operational efficiencies. Now let’s turn to Slide 13, balance sheet highlights. Total assets increased by 1.9% as of June 30, 2025, compared to the year-end 2024. This growth was primarily driven by an increase in other current monetary assets, which further strengthened our liquidity position. Property, plant and equipment declined by 1.7% as depreciation expense exceeded net additions of fixed assets during this quarter.

This reflects our continued emphasis on capital discipline and asset efficiency. Total liabilities increased by 20.9%, primarily due to higher dividend payable in this quarter. Our current ratio remained above 100%. This highlights healthy short-term liquidity and financial flexibility. Our reported debt ratio stood at 30.28%, reflecting the impact of dividend payable recorded at the end of the second quarter. If we exclude the effect of dividend payable, the adjusted debt ratio would be 23.15%. This will show a slight decrease compared to the year-end 2024. In addition, net debt-to-EBITDA remains at 0. Taken together, these indicators highlight our solid financial position and prudent capital structure. Moving to Slide 14, cash flow summary.

Cash flow from operating activities decreased by 0.2% year-over-year, primarily due to higher settlement of accounts payable in the first half of the quarter. Capital expenditures increased by 11.9% year-over-year, primarily due to the front-loaded deployment of 5G, 4G equipment in the first half of the year. While this resulted in temporary increase in CapEx, we continue to take a disciplined strategic approach to capital allocation and full year Mobile-related CapEx will remain on track to be lower than in 2024. As a result of these factors, free cash flow declined by 6.8% year-over-year. This is 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 returns.

Now let’s move to Slide 15, performance relative to Q2 2025 guidance. During the second quarter of 2025, revenue exceeded our targets. Key performance measures, including income from operations, net income, EPS, EBITDA and EBITDA margin all came in above guidance by modest margins. For the first half of 2025, revenue also outperformed expectations. In addition, income from operations, net income, EBITDA and EBITDA margin all exceeded our internal forecast. These better-than-expected results were driven by the steady growth of our core business, enhanced profitability in our ICT and strong sales of mobile phones and related products and lower-than-expected operating costs, which reflects our ongoing efforts to streamline operations and maintain disciplined cost control.

That concludes our financial results for the second quarter. We now open the floor for questions and welcome your insights. Thank you.

Operator: [Operator Instructions] Ladies and gentlemen, if there are no further questions, I will turn it back over to President, Lin.

Rong-Shy Lin: Okay. Thank you for your participation. See you. Bye-bye.

Operator: Thank you, President, Lin. And thank you, ladies and gentlemen, for your participation in Chunghwa Telecom’s conference. There will be a webcast replay. Please visit www.cht.com.tw/ir under the IR Calendar section. You may now disconnect. Thank you again, and goodbye.