Chunghwa Telecom Co., Ltd. (NYSE: NYSE:CHT) reported strong financial results for the first quarter of 2024, with revenue reaching an eight-year high at $55 billion, marking a 1.4% increase from the previous year. The company's income before tax hit a record high since 2016, excluding one-time items, demonstrating robust growth in Taiwan's telecommunications market.
Despite this success, the company experienced a slight decline in income from operations and net income, attributed to a high base from the previous year's government compensation. Chunghwa Telecom is making strategic investments in AI infrastructure and network solutions, expanding its content offerings with exclusive rights to the 2024 Paris Summer Olympic Games, and is growing its fixed broadband, enterprise, and international business groups.
Key Takeaways
- Chunghwa Telecom's total revenue for Q1 2024 hit $55 billion, an 8-year high for the same period, with a 1.4% increase year-over-year.
- Income before tax reached a record high since 2016, excluding one-time government compensation.
- The company is investing in AI infrastructure and has plans to establish AI data centers and develop GPU as a service.
- Chunghwa Telecom acquired exclusive broadcasting rights for the 2024 Paris Summer Olympic Games.
- The company's international business saw a 23.5% increase in income before tax and a 13.3% increase in total revenue year-over-year.
- Chunghwa Telecom's commitment to sustainability is evident with a 40% reduction in carbon emissions and plans to transition its corporate fleet to electric vehicles by 2030.
Company Outlook
- Chunghwa Telecom is focusing on IDC, cybersecurity, and AIoT as key pillars for emerging application revenues.
- The company remains the largest IDC service provider and is confident in maintaining its lead despite increased electricity fees.
- Investments in energy efficiency and inclusion of electricity fees in service contracts are expected to mitigate the impact of rising costs.
Bearish Highlights
- Income from operations and net income decreased by 2.2% and 2.6% respectively due to a high base effect from the previous year.
- The company faces challenges from increased electricity fees, although it has taken measures to address this.
Bullish Highlights
- Chunghwa Telecom's strategic investments in AI and network solutions are expected to capture new opportunities in AI exploration.
- The company's expansion into the global market is demonstrated by the acquisition of its first overseas data center construction project.
- Chunghwa Telecom's partnership with EXATEL to launch a 5G zone in Warsaw highlights its international growth and smart application capabilities.
Misses
- There were no specific financial misses reported in the earnings call.
Q&A Highlights
- Harrison Kuo discussed the company's performance in the cloud business, emphasizing growth in IDC and integrated services provided to clients.
- Kuo expressed confidence in managing increased electricity fees through energy efficiency investments and strategic service contract terms.
In summary, Chunghwa Telecom is showing a strong financial performance and strategic growth in key technological areas, while also demonstrating a commitment to sustainability and global market expansion. The company's investments in AI and network solutions, along with its successful content acquisitions and international partnerships, position it favorably for future growth. Despite facing challenges such as increased electricity fees, Chunghwa Telecom's proactive measures and strategic service offerings underscore its confidence in maintaining a competitive edge in the market.
InvestingPro Insights
Chunghwa Telecom Co., Ltd. (NYSE: CHT) has demonstrated a stable financial performance with a slight increase in revenue for the first quarter of 2024, aligning with its strategic growth initiatives. Here are some insights based on the latest data and tips from InvestingPro:
InvestingPro Data:
- The company's Market Cap stands at a robust $29.74 billion.
- With a P/E Ratio of 26.05, the company is trading at a premium relative to its near-term earnings growth.
- Revenue for the last twelve months as of Q4 2023 is reported at $7.27 billion, showing a modest growth rate of 2.98%.
InvestingPro Tips:
- Chunghwa Telecom has a history of dividend reliability, having raised its dividend for 3 consecutive years and maintained payments for 23 consecutive years, which could be appealing for income-focused investors.
- The stock is noted for its low price volatility, suggesting it could be a suitable option for investors seeking stability in their portfolio.
Chunghwa Telecom's commitment to dividend growth and its position as a prominent player in the Diversified Telecommunication Services industry are reflected in these metrics. Investors interested in further insights can find additional InvestingPro Tips by visiting https://www.investing.com/pro/CHT, and can use the coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription. There are 11 more tips available on InvestingPro that can provide a deeper understanding of the company's financial health and market position.
Full transcript - Chunghwa Telecom Co Ltd (CHT) Q1 2024:
Operator: Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the Company's First Quarter 2024 Operating Results. During the presentation, all lines will be in a listen-only mode. When the briefing is finished, directions for submitting your questions will be given in the question-and-answer session. 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 would like to turn it over to Ms. Angela Tsai, Assistant Vice President of Investor Relations. Thank you. Ms. Tsai, please go ahead.
Angela Tsai: Thank you. I'm Angela Tsai, Assistant Vice President of the Financial Department for Chunghwa Telecom. Welcome to our first quarter 2024 results conference call. Joining me on the call today are our Chairman. Harrison Kuo; President, Ivan Lin; and Vincent Chen, our Chief Financial Officer. During today's call, management will begin by providing Chairman's message and our business overview in the first 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 notes concerning forward-looking statements. Now I will turn the call over to Chairman. Chairman, Kuo, please go ahead.
Harrison Kuo: Thank you Angela and hello everyone. Welcome to our first quarter 2024 results conference call. In the first quarter, we proudly announced our success in expanding our lead in Taiwan's telco market. Amidst the robust three player landscape, our revenue share in Taiwan's mobile market continued to steadily grow, climbing from 40.3% to 40.4% quarter-over-quarter, while subscribers share enjoying an increase from 37.6% to 37.7%, maintaining the growth trajectory after the market consolidation completed last third quarter. Our financial performance also speaks for our business success. Total revenue in the first quarter hit a new high for the same period since 2017. Income before tax also reached a record high for the same period since 2016. On the basis of excluding the one-time item of the government compensation for ST-2 satellite recognized in the first quarter last year. To invest our leadership and the long term growth, we have been establishing AI infrastructure to enhance our operations and see opportunities in the AI mega trend. Our AI powered network solution have been successfully used to predict network degradation and optimize energy consumption to enhance our network efficiency and contribute to cost reduction. In addition, generative AI is another technology that we leverage problem shooting to enhance service quality, response time and cost efficiency in operations, particularly in relation to network maintenance and customer service. To capture AI exploration opportunities, we actively deployed computability across cloud, edge and the terminals to bring computing resources closer to our customers with an intent to access AI applications. We also plan to establish AI data centers and develop GPU as a service empowering industries to complete their AI transformations. To achieve this goal, we will team up with local and global ICT partners to establish ecosystems for the AI power of the future. Another value added deployment lies in the expansion of content investments. In addition to network and the platform strengths, we have been continuously investing in quality content to win subscribers over and thus are able to form the largest video platform in Taiwan. We are glad to announce that recently, we have acquired exclusive broadcasting rights of the 2024 Paris Summer Olympic Games and believe that this will significantly enrich our content -- broadcasting our content portfolio in the incoming quarter. Moreover, following the announcement made last December, we officially set up Chunghwa Digital Culture and Creative Capital, CDCCC, in the first quarter to scale up our investment in video content and intellectual property management. In February, our Board of Directors further approved the investment in fund of cultural content industry managed by CDCCC. This fund will work as an important vehicle to upgrade cultural content industry and further integrate our network, platform and content IP to deliver quality content to users. Last, I'd like to share that we were threatened by the serious earthquake that happened in Taiwan in April, and in response, we offered complimentary communications to help disaster relief in Hualien by successfully leveraging a low earth orbit satellite, Leo. Going forward, in addition to Geo, the geostationary orbit and Leo, we also plan add Mio, the Median Earth Orbit, to our satellite portfolios this year to continuously strengthen our network resilience and further provide services to enterprise and government customers. Now let me hand the call over to Ivan for the business updates on the first quarter of 2024.
Ivan Lin: Thank you, Chairman Kuo and hello everyone. Now please stick to Page five for an update on our outperforming mobile business. As mentioned by the Chairman Kuo, we maintain our leading position in the Taiwan mobile market in the first quarter of 2024, with the largest subscriber share of the 37.7%. Meanwhile, our revenue share continued to stay above the 40%, hitting 40.4% by the end of March, further widening our leading against our peers. Our exceed revenue shared over the subscriber and shared 2.7% due to the exciting progress of the subscriber share gains. In addition, 5G migration and international roaming continue to drive our mobile service revenue and post-paid output, recording 5.1% and 3.4% year-over-year increased respective mobile service revenue and ARPU also continued to maintain their growth for six [ph] consecutive month and 12th consecutively the quarterly respectively. As 5G continue to penetrate sterile [ph], we sold averaged monthly feed uplift from clustering who migrate from 4G to 5G pool to 14 [ph] and 5% in the first quarter and it's rebuilding and spreading upward trajectory. Let's move on to the Slide six for an update of our fixed broadband business. In the first quarter, we are glad to see the accelerated growth in the fixed broadband sector due to our successful strategy to encourage speed upgrade and fixed broadband revenue and ARPU increased by 3.8% and 2% respectively on year-over-year basis and both expanded their year-over-year growth margin compared with light of the previous quarter. Our size up of the service of the 300 megabits per second for the higher continue to be popular among all speed mix with 29% year-over-year increase in the first quarter, maintaining its double digit growth. Now let's move on to the performance of our custom centrist business growth. Slide eight present the performance of our CBG Group. In the first quarter, income before tax of the CBG increased by 3.7% year-over-year, mainly due to substantial growth of the telecom service. On a year-over-year basis, total CBG revenue increased by 1.7%, meaning driving by the healthy 4.2% increase of our mobile service revenue. Going to the continued 5G and migration post-paid subscribers increased and roaming revenue, fixed broadband performed whereas its revenue growth increased to 4.6%, offset by the revenue decrease of the 6th [ph] voice sales revenue decreased 1.5%, mainly due to the higher base in the first quarter last year going to the deferred demand resulting from the supply chain issues. Slide nine further illustrate our consumer business group highlights. In the first quarter, our multiple trade packages continue to support CBG's growth momentum. The subscriber numbers of the mobile and fixed broadband and Wi-Fi service all together demonstrate 23.3% quarter-over-quarter growth, which achieved an eight quarter of the double-digit quarter-over-quarter growth. This is attributable to the well-received promotion package and value added service bundles. In terms of individual and home centric applications, we remain the largest video platform in Taiwan as the subscriber number of our video service status set. Notably, we subsist for acquired the exclusive broadcasting rights for 2024 Olympic Games in April, which we believe will bring in the subscription and revenue increase of the MOD and HamiVideo. In addition, we are also excited to see a 17% year-over-year increase in our CBG cybersecurity service and SaaS Ops in the first quarter and mainly due to the increased demand from the service to avoid an phishing website and block malicious connection. In addition, our service for filtering out adult content on the Internet and setting time limits on the Internet surfing has also been popular among the families and driving up the popularity of our cybersecurity service. We expect the growth trend will continue and further contribute to our CBG performance. Please turn to Slide 10 for an overview of our enterprise business group performance. In the first quarter, the EBG revenue slightly decreased by 0.9%, primarily due to the recognition of the government and compensations in the same period last year. Excluding the one-time item EVG revenue increased by 1.9% on year. Additionally, our ICT business revenue increased by 3.3%, mainly driven by the business expansion of the big data search, cybersecurity and AIoT and cloud service, all of which report and mean to high single digit year-over-year growth or higher. Going forward, we will continue our B2B 2X model to build up the ecosystem with key partners and further boost ICT performance. Furthermore, EBG mobile service revenue also demonstrate strong growth at 3.7% on year, many prepared by the continued 5G upselling as well as the growth of the international loan and revenue. We observed text message revenues also turned positively un-yielded due to growing enterprise marketing demand. Although the fixed line revenue slightly decreased, data communication revenue and assets revenue continued to grow, which offset this voice declined, only to the fixed voice, the decline and higher base of the aforementioned one time item recognition last year EBG report 13.4% year-over-year decrease of the income before tax. However, excluding the one-time effect EBG, the income before tax decreased Nano to 1.5% year-over-year. Slide 11 illustrate our enterprise business highlights. In the first quarter, we were glad to see our total enterprise emerging application revenue increased by 5.2% on year-over-year basis. Notably big data analysis delivered significant 71.6% year-over-year growth, due to the smart energy project injection and cybersecurity revenue included year-over-year for the nice consequent quarter end and additionally the AIoT business is being experienced 6.5% growth on yield driving by revenue, the injection from the green energy project and our cloud service revenue increased by 5.8% with substantial growth of the international public cloud recurring revenues at 13.8% on year. Although our IDC revenue decreased on a yearly basis due to the recognition of one-time project in the same period last year, we are glad to report our recurring revenue of IBG service delivered stable growth at 7.6% this quarter and we successfully expand our national expertise into the global market with the acquisition of our first overseas data center construction project. Furthermore, we are proud to announce that we are the first company in Taiwan to successfully introduce an Automatic Vehicle Identification, AVI, and the vehicle detection system to monitor overtime parking in the freeway service area, which we believe is replicable success and could be an extent to other minions. Slide 12 illustrate our international business performance. In the first quarter, both income before tax and total revenue for the IBG report positive and double digit growth on a year basis at 23.5% and 13.3% respectively. The impressive growth was mainly fuelled by the growing demand for overseas ICT project as our clients expand their global footprint, which offset the year-over-year decrease of the fixed line revenue the result from the service portfolio change. During this quarter, we partnered with EXATEL, the Poland telecom operator to launch the 5G zone in Warsaw, where our innovative 5G, the smart application are showcased to attract business opportunities. It also serves as the foundation for local touch and the business extension in Europe. In addition, we not only won the 2024 Smart City the Innovation Application Award for our Smart Transportation solution and democracy and we also won 2024 System Integration Award Intelligence Smart City export for our successful overseas smart health care solutions, proving our successful in the Internet of the Medical Things globally. Now I 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 first quarter results in 2024. Let's begin with Slide 14 income statement highlights. During the first quarter in 2024, revenue was about $55 billion, which hit an eight-year high for the same period. Compared to the same quarter last year, revenue increased by 1.4%, primarily driven by higher mobile service revenue, growing ICT business revenue and broadband service revenue. Income from operations and net income decreased by 2.2% and 2.6% on year respectively, mainly due to the high base from last year as a result of government compensation related to ST2 satellite. Excluding this one-time item, year-over-year changes in income from operation and net income remained in positive territory, which demonstrates the healthy growth momentum of our core and ICD businesses. EPS for Q1 is NT$1.21, EBITDA and EBITDA margin remains steady. Now move on to Page 15 for balance sheet highlights; as of March 31, 2024, total assets increased by 0.9% compared to the year end of 2023. This increase was mainly caused by the increase in current assets and long term investments, which offset the decrease in property, plant and equipment. Total liabilities decreased by 4.1%, primarily attributable to the decrease in accounts payable. Additionally, debt ratio decreased by one percentage point and the net debt over EBITDA remained zero. Page 16 provides the summary of our cash flows. For the first quarter in 2024, we generated solid cash flows as cash flows from operating activities grew by 26.1% compared to the same quarter last year. The increase was mainly attributable to a decrease in settlement of accounts payable and payments for inventory. Regarding capital investment, the amount of CapEx declined by 6.9% on year, of which mobile related CapEx decreased by 50%, while non-mobile CapEx increased by 9.1%. The latter was primarily due to FTTH deployment and asset vitalization. On top of that, free cash flows increased by 56.9% on year. Taken together, we maintain solid balance sheet and keep generating strong operating cash flows, both of which are underpinnings to support our business expansion and to seize digital opportunities. On Slide 17, let's turn to the table that presents operating performance against our forecast. In the first quarter of 2024, revenue was about in line with our estimate. For performance measures, income from operations, net income, EPS and EBITDA all beat our forecasts by a modest margin. The better-than-expected performance was primarily driven by the steady growth of core business and improved profitability of ICT business. That concludes the first quarter financial results. Let me turn the call over to Chairman, Harrison.
Harrison Kuo: Thank you, Vincent. On Slide 18 you can see our awards and ESG achievement highlights from the first quarter of this year. First, I'd like to report that relative to 2020, our revenue of the parent company increased about 5.7%, while the carbon emissions experienced a downward trend by decreasing 40% in 2023. The inverse relationship between revenue growth and the carbon emissions trend, highlights the effectiveness of our dual track approach to operations and sustainable development. Moving forward, we will intensify our carbon reduction efforts by enhancing energy efficiency with innovative technology and the usage of renewable energy. Additionally, we are the first telecom company in Taiwan to receive approval from EV100 and committed to transitioning 100% of our corporate fleet to electric vehicles by the year 2030. Besides, we once again ranked in the top five of companies in S&P Global Sustainability Yearbook 2024 and was honoured with the highest leadership level. The A ranking recognition involved the CDP climate change assessment and supplier engagement rating. In addition, we were the leading telco in Taiwan, receiving top awards for most committed to ESG and best Investor Relations from Finance Asia. This accolade attest to our position as an international industry leader with outstanding performance in all aspects of sustainable development. Furthermore, we cringed the first prize for overall ESG performance for three consecutive years from Global Views Monthly, one of the most prejudiced ESG awards in Taiwan, which exempted us from competing in the same category for the next three editions. This outstanding outcome demonstrates a track record of long term and stable performance in ESG evaluations and is featured on the annual honor roll. This concludes our prepared remarks. Thank you for your attention. At this time, I would like to open our conference call for questions.
Operator: The first question, Neale Anderson of HSBC. Go ahead please.
Neale Anderson: Thank you. Good afternoon. Thanks for the presentation. I had a few questions relating to Slide number 11 please, the emerging enterprise applications. So with the percentage numbers it's a little bit hard to get a sense of the absolute contribution and growth in these business areas. So would it be possible to give us any more detail and say which is the largest one on an absolute basis and which business area you think has the capacity to be again larger in a few years' time, again on an absolute basis rather than percentage wise? And the other question is relating to the revenue and the margin trends in the data center and the cloud business because we're getting something of a mixed picture from other telcos in this area. So it'd be great to get your views on that. Thank you.
Harrison Kuo: Okay. Thank you, Neale for your questions. So regarding the contribution of the emerging application revenues, so basically we don't disclose detailed information, but what we will share is that the IDC contribute the most and followed by cybersecurity and AIoT. So these are the key pillars. This is just for the first quarter. Yes. And for the revenue and margin trend on data center, okay, so what we'll say the revenue trend, what we see, because, for the IDC, right. Sometimes we will have the one time setup service revenue, but we focus more on the recurring revenues and we attach a greater weight on this. So what we can share is that for the recurring revenue of our IDC, the growth has been increased. As we mentioned, now, the recurring revenue of IDC for this quarter year change is almost 8% and we think actually the recurring revenue makes up a big chunk of the total IDC revenue and it's on a healthy trajectory.
Neale Anderson: Thank you. Any comment on the margin side or competition in the IDC in the cloud area, please.
Harrison Kuo: Okay, so basically for the margin for data center, actually when we see IDC business, we take a holistic view to see this, because for client using our data center, normally they will use our other services. So when we look at the profit we will take as a holistic view. This is unlike our competitors and because their main advantage is, or their main business is on data center per se, but they don't provide integrated services to the clients. So what we'll see is together with our subsidiary, Chief Telecom, actually we are still the largest IDC service providers and we are way ahead of our competitors and we are very confident that we can maintain our lead in this line of business.
Operator:
Angela Tsai: Okay, maybe we have the first question from the platform. It is about that as the government announced the policy of raising the electricity fee, could Chunghwa Telecom Management share the impact to Chunghwa Telecom?
Harrison Kuo: Okay, thank you. We don't anticipate a significant impact from the increase in electricity fees as we have continued to invest in energy efficiency. For example, our centralized ran architecture and the retirement of 3G networks all constantly contribute to energy savings. In addition, we have taken some countermeasures to respond to the electricity cost increase as well. For the energy intensive services like IDC, we have factored the electricity fee issue into our service contracts, including transferring the mark-up of the electricity fees to our clients. Thus, for us, the electricity fee increase is generally manageable. In the long run, we will still continue to invest in the initiatives of carbon emission reduction, aiming to control the overall energy cost as well as to respond to ESG cost. Thank you.
Operator: [Operator instructions] Ladies and gentlemen, we thank you for your questions. If there are no further questions at this point, I'll turn it back over to Chairman, Kuo Guo, for closing comment. Thank you.
Harrison Kuo: Thank you for your participation. Goodbye.
Operator: Thank you. Chairman, Kuo. 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 now disconnect. Thank you and good bye.
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