Chunghwa Telecom Co (NYSE:CHT)., Ltd. (TPE: 2412) has reported a moderate increase in revenue for the second quarter of 2024, despite slight decreases in income from operations and net income. The company, which is Taiwan's leading telecom operator, showcased a strong performance in the telecom market with a revenue of TWD 54 billion, marking the highest for the quarter in seven years.
This growth was primarily driven by a rise in mobile and broadband service revenue, as well as their growing Information and Communication Technology (ICT) business. However, higher personnel and utility costs have led to a decrease in income from operations by 2.7% and net income by 1%. The company's Earnings Per Share (EPS) stood at TWD 1.27, with an EBITDA margin remaining above 40%.
Key Takeaways
- Chunghwa Telecom's Q2 revenue rose to TWD 54 billion, the highest in seven years.
- Income from operations and net income slightly decreased due to higher costs.
- The company reached 3 million video platform subscriptions during the exclusive broadcast of the 2024 Paris Olympic Games.
- Chunghwa Telecom's AI Factory aims to aid enterprises in AI transformation.
- The company is preparing to make Chunghwa Telecom Security a publicly traded entity and is exploring potential M&A opportunities.
Company Outlook
- Chunghwa Telecom anticipates positive performance in its Consumer Business Group (CBG) and Enterprise Business Group (EBG) for the second half of the year.
- The company expects a 40% revenue distribution in the first half and 60% in the second half for its ICT business.
- They remain open to potential M&A opportunities to enhance growth and market value.
Bearish Highlights
- The decrease in income from operations and net income was primarily due to higher personnel and utility costs.
- The high base effect from one-time government compensation related to the ST-2 satellite last year contributed to the decrease in income.
Bullish Highlights
- Chunghwa Telecom has expanded its lead in Taiwan's telecom market with a steady increase in subscriber share.
- The company's investments in content and AI development have been fruitful, with significant subscriber growth for their video platform.
- Strong balance sheet and robust operating cash flows were reported, with free cash flows increasing by 14.1% year-over-year.
Misses
- Despite the revenue increase, the company faced a slight decrease in net income and income from operations.
Q&A Highlights
- Chunghwa Telecom plans to assist enterprises in AI transformation through its AI Factory, which provides AI-driven information systems.
- The company's leadership in sustainability and corporate governance was recognized with several awards.
- A webcast replay of the earnings call will be available for those who missed the live event.
Chunghwa Telecom's strategic focus on leveraging content investment to enhance video performance has paid off, with a significant milestone of 3 million video platform subscriptions during the 2024 Paris Olympic Games. The company's investment in AI development and plans to list Chunghwa Telecom Security as a publicly traded company reflect its commitment to driving growth and increasing market value. With a strong financial position indicated by a debt ratio of 22.79%, the company is well-equipped to pursue its growth strategies, including potential mergers and acquisitions. As Chunghwa Telecom maintains a positive outlook for the remainder of the year, it continues to look for suitable M&A targets that align with its ICT business, both in Taiwan and internationally.
InvestingPro Insights
Chunghwa Telecom Co., Ltd. (CHT) has demonstrated resilience in its latest quarterly report, with a revenue increase highlighting its leading position in the Taiwanese telecom market. The company's commitment to dividend consistency is notable, as it has maintained dividend payments for 24 consecutive years, a testament to its financial stability. This is further reinforced by the fact that Chunghwa Telecom's cash flows can sufficiently cover interest payments, suggesting a solid financial foundation for its operations and investments.
InvestingPro Tips for Chunghwa Telecom reveal that the company operates with a moderate level of debt, which aligns with its strategic focus on growth and potential M&A opportunities. Additionally, the stock generally trades with low price volatility, which could appeal to investors looking for stable returns in a turbulent market. For those interested in deeper analysis, InvestingPro offers additional tips on Chunghwa Telecom at https://www.investing.com/pro/CHT.
InvestingPro Data metrics provide a snapshot of the company's financial health. Chunghwa Telecom has an adjusted market capitalization of 28.86 billion USD and a Price to Earnings (P/E) ratio of 25.44 for the last twelve months as of Q1 2024. The company's dividend yield stands at 3.04%, which is competitive in the Diversified Telecommunication Services industry. These metrics, combined with the company's recent performance, offer investors a clearer picture of Chunghwa Telecom's value and growth potential.
Full transcript - Chunghwa Telecom Co Ltd (CHT) Q2 2024:
Operator: Good afternoon, ladies and gentlemen. Welcome to the Chunghwa Telecom's Conference Call for the Company's Second Quarter 2024 Operating Results. [Operator Instructions] And 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 ends. 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, Assistant Vice President of Investor Relations. Thank you. Ms. Tsai, please proceed.
Angela Tsai: Thank you. I'm Angela Tsai, Assistant Vice President of the Financial Department for Chunghwa Telecom. Welcome to our second quarter 2024 results conference call. Joining me on the call today are our Chairman and CEO Harrison Kuo; President, Ivan Lin; and Vincent Chen, our Chief Financial Officer. During today's call, management will begin by providing the CEO's message and our business overview of the second quarter, followed by a discussion of our segment performance and the financial results. After, we'll move on to the question-and-answer portion of the call. On Slide 2, please read our disclaimers and notes concerning forward-looking statements. Now, without further delay, I will turn the call over to our Chairman. Chairman Kuo, please go ahead.
Harrison Kuo: Thank you, Angela, and hello everyone. Welcome to our second quarter 2024 results conference call. We are pleased to announce our continued success in expanding our lead in Taiwan's telecom market in the second quarter. Amidst the 3 player market landscape, our revenue share in Taiwan's mobile market continues to steadily grow from 40.4% to 40.5% quarter-over-quarter, while subscribers share enjoyed a slight increase to 37.7%, maintaining growth in the new market landscape. In addition, for the past 6 consecutive quarters, our postpaid mobile ARPU has demonstrated the highest year-over-year growth in the industry, showcasing our growth capability. With this contribution, our total revenue in the second quarter reached a new high for the same period since 2018. In addition, our strategy of leveraging content investment to enhance our video performance has been successful. In August, during the first week of our exclusive 2024 Paris Olympic Games broadcast, we were pleased to see our video platform subscriptions surplus 3 million, a milestone that further expanded our lead among all the video platforms in Taiwan. As the games are more intense, we are optimistic about the overall performance of our Olympic Games broadcast. Another area in which we currently invest in is AI development. As Chunghwa Group holds the largest IDC market share in Taiwan. We are well-positioned to extend our leading IDC and cloud experiences to construct AI data centers and the GPU cloud. We offer our enterprise customers to leverage the GPU cloud either to build their own sovereign AI or use our GPU as a service. In addition, targeting the vast opportunities of AI driven applications, we are developing the CHT AI Factory. This initiative aims to produce various customized AI models, AI-driven operation process and the AI agents for enterprise customers, supporting them in their AI transformation. We believe this market has immense potential. Lastly, to strategically enhance our group's value, we are excited to announce that our subsidiary, Chunghwa Telecom Security, CHT Security, the largest managed security service provider in Taiwan, will become a publicly traded company this month and will pursue its main Board listing next year. This will be followed by our another subsidiary, International Integrated Systems company, a benchmark company in Taiwan focusing on opportunities related to government projects, smart city, fintech and digital healthcare. We also continue to seek potential M&A target to create synergy and enhance our agility in driving growth and increasing market value. Now, let's move on the business overview on the second quarter of 2024. Let's move on page -- Slide 4 -- Slide 5. We are pleased to report another quarter of market share gains in the second quarter of 2024. As per the industry's market consolidation, our revenue share of Taiwan's mobile market continued to stay about 40%, hitting 40.5% as of the end of June, further widening our lead against our peers on both year-over-year and quarter-over-quarter basis. Meanwhile, our subscriber share was 37.7%, achieving a stable year-over-year increase. Our excess revenue share over subscriber share was 2.8% due to the exciting revenue share gains, reflecting our healthy growth. As our postpaid subscriber net adds continue to outperform peers along with growing 5G migration and steady international roaming contribution, our mobile service revenue and the postpaid ARPU recorded a 3.5% and 2% year-over-year increase respectively, maintaining their growth for 39 consecutive months and 13 consecutive quarters. In the second quarter, the average monthly fee uplift from customers who migrated from 4G to 5G, exhibited 39% uptick, maintaining healthy momentum. Let's move on Slide 6 for an update of our fixed broadband business. In the second quarter, the year-over-year growth of our fixed broadband revenue and the subscriber number continued to increase by 4.4% and 0.6% respectively, expanding gross margin compared with that of the previous quarter. Thanks to our successful strategy of encouraging speed upgrade. 300 megabits per second or higher continue to be the mainstream service offerings. Its sign-ups increased by 24% year-over-year in the second quarter, maintaining double-digit growth and resulting in the 2% increase of fixed broadband ARPU on a year-over-year basis, which is outstanding. Now let me hand the call over to Ivan Lin for the performance of our customer-centric business groups.
Ivan Lin: Thank you, Chairman Kuo, and hello everyone. Now please flip to Page 8 for an update on our CBG performance. In the second quarter, total CBG revenue increased by 2.6% each year-over-year, driven by the increase of the mobile service revenue from ongoing 5G migration and more postpaid subscribers, steady growth for fixed broadband revenue and the strong sales of iPhone series due to effective promotions. Although, the CBG delivered promise in the business performance, its income before tax decreased by 1.6 percentage year-over-year, many due to the increase of the talent investment, including salary rise. Slide 9 further illustrate our consumer business group highlights. In the second quarter, our multiple-play package which provide subscribers with the combination of our mobile, fixed broadband and Wi-Fi service altogether demonstrate 80 percentage year-over-year growth in line with the growth of the CBG's core business. In terms of the individual and home centric applications, we saw 5.2 percentage increase of our video platform subscriptions mainly from Hami Video stemming from the pre-promotion of the 2024 Paris Olympic Games in the second quarter. In August, we introduced AR and multi-camera replay function to broadcast the Summer Olympic Games for the first time, which successfully creates exciting new viewing experience for customers and attracts new sign-ups. We expect subscriptions to continue rising as games become more intensive, leading to greater revenue contribution. In terms of the well-received consumer cybersecurity service, we are pleased with its growth momentum as the sign-ups increased by 15.3 percentage year-over-year in the second quarter, making meaningful revenue contribution. Please turn to Slide 10 for an overview of our enterprise business growth performance. In the second quarter, EBG's total revenue decreased by 3.7 percentage year-over-year, mainly due to decreased ICT business revenues resulting from last year's high base from large projects and the deferred of the revenue expect in the second quarter. Notwithstanding these factors, our ICT business remained on track as expected. In addition, although revenue from EBG's mobile services decreased slightly, excluding the impact of prepaid card projects, mobile revenue from 5G, roaming and text businesses continued to increase year-over-year. For EBG's fixed-line business, despite the continued and steady growth of broadband access revenue and data communication revenue from clients' speed upgrade, the decline in fixed voice revenue significantly offset these gains. This was the main cause of the 9.6% year-over-year decrease in EBG's income before tax for the second quarter. Slide 11 illustrate our enterprise business highlights in the second quarter. Our IDC and cybersecurity business continued to demonstrate robust growth. IDC revenue achieved 6.6% growth year-over-year owing to growing project numbers and the long-tailed recurring revenue injection. Meanwhile, cybersecurity revenue exhibited 6.9% growth year-over-year and driven by rising demands for consulting services and network security products, particularly the zero-trust related offerings, making cybersecurity revenue achieve growth for 10 consecutive quarters. In spite of encouraging performance in IDC and cybersecurity business, EBG's total emerging enterprise application revenue decreased by 5.9 percentage year-over-year in the second quarter, mainly due to the aforementioned higher basis resulted from large ICT project in the same period last year. It's worth noting that although our cloud service revenue decreased year-over-year due to onetime project recognition in the base period, we are pleased to see our recurring revenue from international public cloud services continued to grow strongly by 42% year-over-year. In addition, our limited racks priced at a premium in Banqiao IDC designated for the financial industry were sold out quickly after the launch in the second quarter, reflecting the strong demand for IDC service. In the meantime, to meet future demand, we continue to invest in construction of AI data centers, aiming to offer various AI-enabled functions and GPU as a service. Looking into second half of the year, as the revenue deferred from the second quarter is expected to be recognized and with a healthy pipeline of orders, we remain confident in our full-year ICT performance. Slide 12 illustrates our international business performance. In the second quarter, we are pleased to see another positive quarter result for IBG, as its revenue and income before tax increased by 21.8 percentage and 8.2 percentage on a yearly basis, respectively, mainly contributed from overseas ICT business, which offset the slight decrease of fixed-line revenue resulting from portfolio change. During this quarter, leveraging our robust integrated ICT capabilities, we successfully secured overseas ICT projects from Taiwan high-tech companies to support their new plant construction in Thailand and Vietnam. In addition, Chunghwa's subsidiary, CHT Security, aims to expand in Singapore. Our subsidiary based in Singapore will collaborate to promote our cloud security and network security business in Southeast Asia. Now, l would like to turn the call to Vincent for our financial highlights.
Vincent Chen: Thank you, President Ivan. Good afternoon, everyone. Now, I will present a financial summary of our second quarter results in 2024. Let's begin with Page 14, income statement highlights. Revenue for the second quarter of 2024 was around TWD 54 billion, the highest for the same quarter in 7 years. This is a 1.2% increase from the same quarter last year, primarily driven by higher mobile service revenue, increased broadband service revenue and growing ICT business revenue. Income from operations and net income decreased by 2.7% and 1% on year, respectively, largely attributed to higher personnel and utility costs. EPS for Q2 is TWD 1.27. EBITDA margin continued to stay at above 40%. Overall, in the first half of the year, revenue increased by 1.3% compared to same period last year as a result of higher mobile service revenue, increased broadband service revenue, growing ICT business revenue and greater handset sales revenue. Income from operations and net income decreased by 2.4% and 1.8% on year, mainly due to the high base from one-time government compensation related to ST-2 satellite last year, and higher personnel and utility costs. Excluding the one-time item of government compensation, year-over-year changes in net income have remained positive, demonstrating the healthy growth momentum of our core and ICT businesses. EPS is TWD 2.48. EBITDA and the EBITDA margin exhibited stability. Now move on to Page 15 for balance sheet highlights. Total assets increased by 2.4%, as of June 30, 2024, compared to the year-end of 2023. This increase was largely attributed to higher current assets, mainly driven by other current monetary assets, which offset a decline in property, plant and equipment. Total liabilities expanded by 23.4% relative to the year-end of 2023 and increased by 1.9% year-over-year. The rise was primarily due to dividends payable. Excluding the effect of dividends payable, debt ratio is 22.79%, indicating a healthy financial position. Page 16 provides the summary of our cash flows. Cash flows from operating activities increased by 3% on year, mainly due to a rise in unearned revenue from ICT projects. Capital expenditures, CapEx experienced an overall 12.8% decline on year. Specifically, mobile-related CapEx decreased by 51.1% while non-mobile CapEx increased by 6.7%, primarily attributed to the deployment of FTTH and submarine cable. Additionally, free cash flows increased by 14.1% year-over-year. Taken together, our strong balance sheet and robust operating cash flows provide the foundation needed for business expansion and the pursuit of digital opportunities amid economic uncertainty. On Page 17, let's turn to the table that shows our operating performance relative to the guidance. During the second quarter of 2024, revenue was in line with our projection. Performance measures, such as income from operations, net income, EBITDA, and EBITDA margin all exceeded our forecasts by modest margins. For the first half of 2024, revenue was about expected. However, income from operations, net income, EBITDA, and EBITDA margin all outperformed our guidance. The better-than-expected results were primarily driven by the steady growth of core business and the enhanced profitability of ICT business. This wraps up our financial results for the second quarter. Let me hand it over to Chairman Harrison.
Harrison Kuo: Thank you, Vincent. On Slide 18, you can see our awards and ESG achievement highlights from the second quarter of this year. First of all, in our pursuit of global sustainability initiatives, we have successfully passed the greenhouse gas emission Net-Zero Targets review by SBTi in July. Our goal is to achieve the reduction of Scope 1 and Scope 2 greenhouse gas emissions by 95% by 2040 compared to the baseline year of 2020 in the long-term. We've also published the inaugural TNFD English report as the first Taiwanese telco, reinforcing our dedication to transparency and biodiversity, in line with global best practices. Besides, I'd like to report that Chunghwa has been recognized among the top 2% of the world's most sustainable companies by TIME Magazine and included in the FTSE4Good Taiwan ESG Index for the eighth consecutive year. We've been consistently ranked in the top 5% by Taiwan Stock Exchange's corporate governance evaluation for the ninth time. These comprehensive achievements underscore the company's commitments to lead the telecom industry through sustainable governance. Moreover, I'm glad to share that we've been honored with 5 top awards from the Asian Excellence Awards for our exceptional leadership in sustainability and IR practices. Additionally, we won the golden prize from the Taiwan Sustainable Investment Awards this year. As the sole telco awardee as we are the first Taiwanese telco to issue a bond in 2022 and fully utilize the raised funds for initiatives for sustainability within 2 years. We will continue to mutually benefit with the environment, society, and stakeholders to achieve a sustainable vision. This concludes our prepared remarks. Thank you for your attention. At this time, I would like to open our conference call for questions.
Operator: [Operator Instructions] The first one to ask question is Neale Anderson from HSBC.
Neale Anderson: I'd like to ask about the potential M&A that you mentioned on Slide 3. So could you give any more details about which sectors or areas you'd be looking at and also which countries? I presume that you'd be looking at countries where you have an existing presence or edge. If you could say any more about that, that would be great.
Vincent Chen: Okay. So related to the questions on M&A, actually we focus on the areas related to our 3 pillars of ICT business. ICT, basically the AIoT, IDC and cloud and cybersecurity. But we are also open -- we are quite open-minded and open to any areas that can enhance our core and our more business. And in terms of the country where we are looking at, as we are -- we also keep the option open. So we are looking for any suitable targets in any countries. But for cybersecurity, perhaps we are more open to any target in other countries because of our CHT Security. For our CHT Security, we have an ambition to explore and expand our footprint overseas. Thank you.
Operator: [Operator Instructions]
Angela Tsai: I guess, before the questions on the internet, now I have 2 -- I have, 3 questions, from the other -- from the Internet. The first one is the, CHT is -- it's about the CBG and EBG developments and the targets for the second half of this year. Just one question. And another question is about the AI. The question is, what are the -- what is the CHT AI Factory? What is this used for? And how CHT to build up the GPU [computility] and how to construct the CHT AI Factory, is the second question. And for the -- yes, that's the 2 questions. Thank you.
Vincent Chen: So the first question about the outlook for the CBG and EBG. So basically for both segments and we still maintain a positive outlook for the second half of the year. For the CBG because we have been able to effectively migrate our subscribers from 4G to 5G. So you can see for our mobile service revenue, it continues to grow. And for our broadband services, the growth rate for our broadband service revenue, keeps at between 4% and 5%, and our subscriber base has been going up. So we believe our effective promotion package, along with our strategy to promote our products that will help us, to make sure our CBG performance will maintain its momentum. So this is for the CBG. And for the EBG, we still maintain a positive view for our EBG services. For EBG services, our focus is on the ICT business. And for -- you know, for the typical pattern for the ICT business, the revenue distribution between the first half and second half is about 40% and 60%. So for the full year forecast for the ICT business, actually we are quite confident that we can achieve the full year forecast. So that's our view on the performance for these, 2 segments in the second half of the year.
Ivan Lin: And about what difference between AI and transition of IDC? I think AI datacenter require a lot of the GPU and the data to operate. It internally requires high power supply, efficient cooling system and low the bearing flow and high external bandwidth and data security and so on. We have overcome this challenge with our extensive experience and our confidence to deliver high quality product and service. We have been operating the high cloud service for long time, supporting the information systems of our enterprise client, especially in solving cloud applications. The GPU cloud, we call it upgraded hicloud 2.0. It's a new designed version based on the original hicloud service featuring the number of GPUs and AI Factory, the [indiscernible] assistance to address the need of the AI driven information systems. Our target customers include both public and the private sector across in the various fields that require digital and AI transformation. To achieve AI transformation an enterprise need to develop several different key information systems such as the AI models. For example, the large language model, and AI chatbots or AI agents which required the GPU computation the software developer and model training and so on. We have to consolidated all these resource into a standard product mechanism we called AI Factory.
Operator: [Operator Instructions] There are no further questions at this point, I will turn it back over to Chairman Kuo.
Harrison Kuo: Thank you for your participation. Goodbye.
Operator: Yes. Thank you, Chairman Kuo. 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 www.cht.com.tw/ir under the IR Calendar section. You may disconnect now. Thank you, and goodbye.
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