Chunghwa Telecom Co, Ltd (CHT) Q2 2021 Earnings Call Transcript

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Chunghwa Telecom Co, Ltd (CHT 0.13%)
Q2 2021 Earnings Call
Jul 30, 2021, 3:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the Company's Second Quarter 2021 Operating Results. [Operator Instructions] 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 -- Director of Investor Relations

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 the 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.

Shui-Yi Kuo -- President

Thank you, Angela Tsai, and 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 3 alert continued to enhance our overall business performance. In our mobile business, we are pleased to report that our accumulated 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 trend as we roll out a variety of mid- to low-end 5G handsets, continue to develop 5G innovative applications, and introduce our 5G enterprise network and vertical fields. 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 contribution, as customers who renewed contracts to adopt 5G services contributed an average of 21% uplift through their monthly fees. Moreover, to provide quality 5G services, we have accelerated our 5G deployment and have more than 8 thousand base stations at this time, and we expect to approach 12 thousand base stations by the end of this year. According to the first-ever Taiwan 5G Speedtest Award report in July, we received distinctions of Fastest 5G and Best Mobile Coverage in 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 HiNet 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, as subscriber migration to our broadband of 300 megabits per second or higher continued to increase by approximately 52% year-over-year. The number of Home Wi-Fi devices increased by 660% 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, we broadcasted the Tokyo Olympic Games with 4K quality on our MOD project and platform, and we exclusively delivered the first-ever VR simulation on Hami Video. Our VR+5G bundled services enable users to further engage in viewing contests using VR headsets, and we have demonstrated the performance of our 5G technology for multi-angle broadcasting during the events. We expect our video services to continue to grow in the digital convergence.

Now, allow me to walk you through each of our business lines. Turning to Slide 5, you can see an update of our mobile business. In the second quarter, we continued to maintain our leading position in the mobile market with a 38.8% of the revenue market share and a 36% of the subscriber market share, excluding IoT SIMs. During the quarter, our mobile customer net-adds and the post-paid net-adds are both highest among the big three majors, and our churn rate remained the lowest among peers. The increase of our mobile service revenue turned positive year-over-year with contributions with increasing post-paid revenue and value-added application revenue. We expect the relatively rational competition to continue, which we believe can further enhance our overall mobile performance.

Please turn to Slide 6 for an update on our broadband business in the second quarter. We were pleased that our broadband ARPU increased by 3% year-over-year, which reflects our success in migrating subscribers to adopt higher-speed services and other benefits stemming from stay-at-home opportunities in the new normal. The number of subscribers that signed up for connection speeds of 300 megabits per second or higher increased by 52% year-over-year, while VPN circuit revenue contributions from enterprise customers grew as well. In addition, we were encouraged to see that our HiNet subscriber net-adds have begun to turn positive after years of decrease. In response to customers' demand for innovative applications requiring high-speed connection, we expect to roll out 2 gigabits per second service in the third quarter. Coupled with the ongoing demand for digital transformation we observed under the new normal, we are confident that we will maintain the overall upward trend in our broadband business.

Slide 7 illustrates our MOD business performance. In the second quarter of 2021, subscriber numbers for both MOD/IPTV platform and Hami Video increased quarter-over-quarter as a result of growing demand for video service under COVID-19 alert, and we successfully continued to maintain our leading status as the largest video platform in Taiwan. In addition, during the first week of broadcasting at the Tokyo Olympic Games, the viewership and the expected advertisement revenue in Taiwan has hit a record, exceeding that of 2018 FIFA World Cup, which is encouraging.

MOD ARPU achieved 2% increase year-over-year as well, mainly due to the successful upsell in both VOD and channel services. Our SVODs ALL PASS package sign-up number almost doubled quarter-over-quarter and 89% of our tiered-priced channel subscribers chose the highest price packages. Moving forward, we will continue to enhance video content and bundle our video services, including MOD and Hami Video, with fixed broadband and 5G service to drive up home-centric business performance and create a revenue stream.

Please turn to Slide 8 for an update on our ICT business. Overall ICT project revenue in the second quarter increased by 10% year-over-year mainly because of the recognition of revenue from public sector and smart solar farm projects. In terms of emerging ICT services, IDC revenue and cloud revenues continued to grow by 11% and 27% year-over-year, respectively. Cyber security revenue decreased by 7% year-over-year due to some project revenue delays; however, we expect to catch up during the second half of this year. Going forward, we will continue to enhance our overall ICT technology capabilities to cater to more emerging digital opportunities and be more selective to further increase project profit driven margin.

Now, I would like to turn the call over to our CFO, Vincent Chen, who will review our financial results. Mr. Chen, please go ahead.

Vincent Y.S. Chen -- Senior Executive Vice President and Chief Financial Officer

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 revenue 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 the voice revenue as a result of VoIP substitution.

Moving on to Slide 12, our operating costs and expenses in the second quarter increased by TWD1.18 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 TWD4.75 billion, or 36.1%, compared to the prior year period. This was mainly attributable to an increase in the collection of accounts receivable and an increase of accounts payable. As of June 30, 2021, the balance of cash and cash equivalents was TWD32.14 billion, an increase of TWD12.99 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 a 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.

Please turn to Slide 15. For 2021, we budget TWD43.1 billion in capex, including spending on business focuses in 2021, such as accelerating the construction of 5G network, IDC and submarine cable. In the second quarter of 2021, our 5G capital spending was on the track and in line with our schedule of 5G base station deployment. Therefore, we maintain our forecast that 2021 is our 5G investment peak.

Now, I would like to turn the call over to President Kuo to introduce our awards and recognitions.

Shui-Yi Kuo -- President

Thank you, Vincent. Lastly, Slide 16 illustrates our awards and recognitions from the second quarter, highlighting our distinction 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.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question is coming from Hasina [Phonetic] from HSBC. Go ahead, please.

Hasina Ayub -- HSBC -- Analyst

Hi. This is Hasina from HSBC. So, I would like to ask about the target of base station -- 5G base station. So, earlier it was mentioned that the target should be at 10K by the end of the year, but now you have increased the target. Is it?

Shui-Yi Kuo -- President

Yeah. Thank you for your question. 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 X thousand base stations. Thank you.

Angela Tsai -- Director of Investor Relations

Okay. Thank you.

Operator

The next question is coming Lisa Chen from Yuanta. Go ahead, please.

Hasina Ayub -- HSBC -- Analyst

Yeah. Sorry, I think I need to -- back to the HSBC's question about the original target for the 5G base stations this year. I think our original target, I think it was not really clear about the question. I want to clarify the question. I think the question is about the original target for the -- our 5G base station number this year, right? I think that original number was 10,000. And now, we are thinking about we are approaching 12,000 by end of this year. Thank you.

Operator

Thank you. Now we are having Lisa Chen from Yuanta. Go ahead, please.

Lisa Chen -- Yuanta -- Analyst

Thanks to taking my questions. I'll just have one question. Could you give us more color for third quarter or fourth quarter of this year's outlook?

Vincent Y.S. Chen -- Senior Executive Vice President and Chief Financial Officer

Okay. Thank you for your question. So, for the second half of the year, because despite the outbreak of pandemic, but we still see very exciting results from our mobile services revenues, also the broadband revenues. So although we will expect some turbulence ahead in the second half, we are confident that our revenue generations are still on track. We will keep the momentum going. And we are confident that we can meet our forecast for the second half, yeah, also for the full year.

Lisa Chen -- Yuanta -- Analyst

Thank you.

Operator

Thank you. The next question is coming from Sara Wang from Morgan Stanley. Go ahead, please.

Sara Wang -- Morgan Stanley -- Analyst

Thank you. I have three questions. So, first question is that, is there any change in our full year revenue or profit guidance? And then, the second question is that regarding the 5G base station target number, so we previously target 10,000, now 12,000, but the total capex budget remain unchanged. So, may I ask if there is 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 thoughts on [Phonetic] ICT, say, in terms of revenue growth or as a percentage of revenue contribution for, say, next year or next one or two years? Thank you.

Shui-Yi Kuo -- President

Okay. Thank you, Sara, for asking. So, for the first question, regarding the full year revenue profit guidance, we still maintain our focus 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 in making our forecast. We will provide update if we make any changes.

So, for your second question on the 5G base station 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, because for the 5G for the [Indecipherable] cost will be lower. And also, we deploy our 5G network [Indecipherable] will use the big data. So, now we'll talk about some money and some capital expenditures.

Sara Wang -- Morgan Stanley -- Analyst

Thank you.

Shui-Yi Kuo -- President

As for the third question about the IPTV MOD services, I think, with the recent Tokyo Olympic Games, I think we are pretty good. And our current MOD, for the second quarter, MOD services revenue, I think it's also pretty -- I think -- OK, I'm sorry. I talked about ICT business, OK. I think, we all look for ICT. I think it was of course, we mentioned the volume. The percentage ICT contribution, so this we already mentioned earlier, I think in the early quarter. We mentioned about this -- the percentage [Indecipherable] last year is a little bit lower. But for the next year, for the year after -- next year, we believe we would continue to increase for sure. Last year, because we had some big -- public government projects, so the number -- the revenue size is large. But for the next coming years, the ICT site -- the business, they will continue to build. So, the percentage accounted for our consolidated revenues should increase. I think this should be out of question. But the percentage of work, we do see -- accounted for double-digit for sure, yeah.

Sara Wang -- Morgan Stanley -- Analyst

Sorry. Just to clarify this double-digit is the sort of growth rate, right?

Shui-Yi Kuo -- President

So, the growth rate not really work. Let me check. For the growth rate, already double-digit for the second quarter, for the whole year also double digits, yes.

Sara Wang -- Morgan Stanley -- Analyst

[Speech Overlap]

Shui-Yi Kuo -- President

But let me say that. I think, so this year, I think the original -- this year, we mentioned the volume. This year, our budget of ICT total project in the revenue -- we mentioned in our guidance, already mentioned about the project budget and revenue. [Indecipherable] even lower compared with the -- yeah, compared with 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 are talking about the gross number should be like double-digit for sure. I'm not talking about gross number. I think the accounted [Phonetic] is 12% for the total consolidated revenue. The gross number -- no, there's no gross number, should be a little lower than that of the total revenue. The ICT revenue number should be lower than that of last year.

If you exclude the large projects happened last year, the number should be 12, OK. I that we already explained earlier this year. Hope this explains your question?

Sara Wang -- Morgan Stanley -- Analyst

Yeah. Got it. Thank you.

Operator

Thank you. [Operator Instructions] The next question is coming from Neale Anderson from HSBC. Go ahead, please.

Neale Anderson -- HSBC -- Analyst

Hi, there. Good afternoon. Just a question on the mobile revenue outlook, please. Presumably you saw some benefit year-on-year from roaming being weak also last year in the second quarter. So, from here on, how do you see the outlook for 5G revenue and mobile revenue? Do you think that will continue to improve? Do you think it will accelerate or stay fairly steady? Thank you.

Vincent Y.S. Chen -- Senior Executive Vice President and Chief Financial Officer

Thank you for asking. The 5G revenue, we anticipate the growth momentum will continue. Thank you.

Neale Anderson -- HSBC -- Analyst

So, on a percentage basis, can you give any indication of where do you think that might reach? It's 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?

Vincent Y.S. Chen -- Senior Executive Vice President and Chief Financial Officer

To answer your question, this information is proprietary and we don't want to introduce any irrational competition. It will disclose such information. Thank you.

Neale Anderson -- HSBC -- Analyst

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.

Shui-Yi Kuo -- President

Thank you for your participation. Good-bye everyone.

Operator

[Operator Closing Remarks]

Duration: 34 minutes

Call participants:

Angela Tsai -- Director of Investor Relations

Shui-Yi Kuo -- President

Vincent Y.S. Chen -- Senior Executive Vice President and Chief Financial Officer

Hasina Ayub -- HSBC -- Analyst

Lisa Chen -- Yuanta -- Analyst

Sara Wang -- Morgan Stanley -- Analyst

Neale Anderson -- HSBC -- Analyst

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