Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the company's First Quarter 2022 Operating Results. [Operator Instructions] For information, this conference call is now being broadcast 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..

Thank you. This is Angela Tsai, Director of Investor Relations for Chunghwa Telecom. Welcome to our first quarter 2022 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 in the first quarter followed by a discussion of our segment performance and financial highlights. After, we will move on to the question-and-answer portion of the call. On Slide 2, please note our safe harbor statement. Now I will turn the call over to President Kuo.

President Kuo, please go ahead..

Thank you, Angela, and hello everyone. Welcome to our first quarter 2022 earnings call. As an integrated telecom service provider, we achieved strong performance in the first quarter in terms of mobile, fixed broadband and ICT businesses under our new corporate structure. Let's go on Slide 4 for an overview of our business.

In the first quarter, the mobile market in Taiwan remained steady although the competitive landscape may change as our peers announce their major plans. We were pleased to see the market consolidation and I believe the in-market structure could lead to further competition in Taiwan.

For Chunghwa with our most extensive networks for services, we are fully confident in maintaining our leading position in the market going forward. Our revenue and our subscriber market share, excluding IoT SIMs, continued to outperform peers in the first quarter by reaching 39.1% and 36%, respectively, currently in the digital status.

Slide 5 presents our overall mobile business performance. Our mobile subscriber number, excluding IoT SIMs, increased by 0.7% year-over-year. With the successful upsell from existing subscribers, our mobile service revenue increased by 4.9% year-over-year and maintained its upward trend.

In addition, 5G penetration developed steadily during the quarter, which helped to enhance the postpaid ARPU to achieve 3.2% year-over-year increase. Meanwhile, we observed an average 35% uplift in monthly fees attributable to customers who renewed contracts to adopt 5G services.

Moving on to Slide 6 for an overview of our overall fixed broadband business. In the first quarter, we are pleased that we see both our fixed broadband subscriber number and high LAN subscriber number continuing to grow year-over-year reflecting our leading market share in Taiwan's fixed broadband market.

Fixed broadband revenue in the first quarter continued to increase by 4.4% year-over-year due to the ongoing growth of higher speed service adoption driven by digital opportunities. The number of sign up for commercial speeds of 300 megabits per second or higher increased by 41% year-over-year owing to work from home lifestyle.

Fixed broadband ARPU also continued the growth trend for the tenth consecutive quarter increasing by 3.5% year-over-year further enhancing our overall performance. Now let's move on to the performance of our customer-centric business groups. Slide 8 illustrates the revenue picture of our Consumer Business Group or CBG.

CBG revenue in the fourth quarter increased by 2.2% year-over-year reflecting our success in satisfying customers' needs during the quarter. Mobile service revenue for the Consumer Group grew 4.9% year-over-year mainly due to the increase in postpaid subscriber numbers and 5G migration.

Fixed-line service revenue maintained its upward trend during the quarter attributable to additional stay-at-home digital opportunities thus encouraged higher-speed service adoption.

Sales revenue decreased year-over-year mainly due to the handset supply issue under COVID-19 and the demand at home and from consumers continued to drive up the group's other revenues say MoD and HiNet video to achieve a 5.2% year-over-year increase during the quarter.

Looking ahead, to further expand opportunities in the consumer market, we will package and deliver more customer-centric services to increase market demand focused on media, sports, gaming and automotive or reality -- virtual reality applications. Slide 9 further demonstrates our highlights of Consumer Business Group.

Including MOD, formal media and the Triple Play program that promotes fixed broadband, mobile and WiFi services. In January catering to work from home demand and state opportunities, we rolled out a Triple Play program to encourage consumers to enjoy seamless broadband connections by adopting our mobile and WiFi services together.

This program at the same time sign up of Home WiFi device continued to grow by 29% year-over-year to sustain the popularity of our home centric applications.

In terms of our IPTV and OTT businesses, we are glad to report that the total subscriber number of MOD and Harmonic video [grew] their monthly fee on yearly basis instead of onetime setup, increased to approximately 2.6 million during the quarter remaining the largest media platform in Taiwan.

MOD revenue maintained its upward category as SVOD revenue grew by the fifth consecutive quarters driven by upscale and channel service continued to increase year-on-year. which was due to 90% sell-off of HiNet packaging among the tier pricing space.

In addition, Harmonic media subscriber number boosted in the first quarter thanks to popular packages and international at [Indiscernible] during the quarter.

We expect the growth trend to continue for this year as popular international sports events will be held one after another to attract subscribers such as Asian Games and FIFA World Cup held in the second half. Please turn to Slide 10 for our Enterprise Business Group performance.

In the first quarter, Enterprise Business Group revenue increased 2.1% due to the year-over-year growth of mobile and fixed broadband revenues and enterprise customers increased communication usage in the new normal.

In addition, Taiwanese overseas small and medium enterprise that shift their operations and their investments back home also brought in fixed broadband demand and related revenues. For Enterprise ICT business, we are glad to see the total gross margin and the profit increase year-over-year.

In the first quarter, the revenue decreased year-over-year owing to certain [different]of project revenue recognition. However, we remain positive about the full year performance of our Enterprise ICT business. Slide 11 demonstrates our Enterprise Business highlights. We are glad to report growth momentum of our emerging enterprise applications.

In the first quarter, 5G Enterprise private network revenue tripled its growth year-over-year confirming our strong progress ahead of our peers.

On a year-over-year basis, mobile ICT revenue and the IDC revenue increased in the first quarter due to completion of large projects while cybersecurity revenue reached double-digit growth attributable to an increase in both project and recurring revenue. Our efforts to develop capabilities of big data analysis worked and achieved 9% revenue growth.

For ICT project performance we work with subsidiaries, the Chunghwa System Integration and Chunghwa Security International, to successfully acquire the first Smart Harbor project in Taiwan to realize 5G unmanned vehicle inspection.

We also acquired a large integrated Smart Health project, which translates our strong network and ICT capabilities into long-term recurring revenue. Going forward, we will continue to leverage company resources and technologies to further develop our enterprise business opportunities.

Slide 12 demonstrates our International Business performance to duplicate our successful solutions and services to the overseas market.

For decades, our International Business Group has continued to develop a localized approach in many overseas markets and serve global clients to deliver services in Taiwan, which is a unique advantage for Chunghwa among peers in Taiwan.

In the first quarter, our International Business Group revenue increased 13.8% mainly from growing demand of our IDC, cloud and ICT services offering for global clients, including some global OTT service providers.

Our strategy is to cater to the growing business opportunities and provide quotable service including fixed line, undersea cable, IDC and HiNet peering to sustain revenue growth.

I would like to highlight our investment in international undersea cables in particular, primarily in the [Indiscernible] and airport consortiums, that enable us to capitalize on growing opportunities from international OTT service providers. Now I would like to turn the call to Vincent for our financial highlights..

Thank you, President Kuo. Good afternoon, everyone. I will now walk you through our first quarter financial results. Let's start with Slide 14 that provide highlights from our income statement.

For the first quarter of 2022, total revenues increased by 2.4% on a year-over-year basis while operating costs and expenses increased by 1.7% mainly due to the increase of personnel expenses of subsidiaries amid business growth and depreciation expenses from the deployment of 5G network.

Income from operations increased by 4.6% and our net income increased by 2.5%. EPS increased by TWD0.02 to TWD1.16 in Q1 compared with same quarter last year. In addition, our EBITDA margin increased to 41.51% from 41.08% in the prior year period. Please turn to Slide 13 for our balance sheet highlights.

Compared to December 31, 2021 total assets increased by TWD5.38 billion or 1.1%. Total liabilities decreased by TWD3.78 billion or 3.1%. The increase of total assets was mainly due to cash proceeds from issuance of sustainable bonds.

The decrease of total liabilities was mainly due to the payment of accounts payable for equipment and suppliers, which offset the increase of bonds payable. Debt ratio is 22.77% and net debt over EBITDA is minus 0.17x, which demonstrate our financial strength. Slide 16 shows our cash flow summary.

Cash flows from operating activities for the first quarter of 2022 increased by 19.8% year-over-year to TWD11.84 billion mainly due to the increase of net income before tax and the increase of collections of accounts receivables.

As for our capital expenditure, in the first quarter 5G CapEx spending increased year-over-year due to cash outflows for 5G network deployment constructed in last quarter. We see a 22% increase of free cash flows in Q1 compared with same quarter last year.

Altogether, these numbers demonstrate strong cash flows generated from our operating activities, which provides strong support to fund our acquisitions and future expansions. On Page 17, we present a table that compares our financial results with forecasts.

As you can see, in first quarter of 2022 our revenue almost met our first quarter guidance and the performance measures; including income from operations, net income, EPS, EBITDA and EBITDA margin; all beat our guidance.

Revenue attributed to project business fell short of our expectation while we had better-than-expected revenues of core business from mobile services and broadband access. Operating costs and expenses were lower than our first quarter guidance because of low project business costs, maintenance and repair costs.

That's the end of the financial review section. Now I turn the call back to President Kuo. Please, President Kuo..

Coming to Slide 8 illustrates our awards and recognitions in the first quarter, highlighting the domestic and the international recognitions for ESG and ICT achievements.

We received an award of S&P Global Sustainability award ranking as 1 of the Top 10 in the global telecom sector and affirming our leading status of ESG practices and sustainable operations. We were also the award winner in the Small City Summit & Expo in Taiwan for our excellent and innovative digital applications delivered in Thailand.

In addition, we also got the international accreditation from AWS, Microsoft and Google in the first quarter to further sustain our international public cloud services. Thank you for your attention. Now I would like to open the floor for questions..

[Operator Instructions] Our first question is coming from Neale Anderson from HSBC..

I have a question on the International Business, please. So very good growth in the first quarter. My question relates to how that relates to your prior reporting and what I assume is it's quite similar. Most of the business is quite similar to what it used to be international fixed.

And that was -- you had good growth in the fourth quarter of last year. But prior to that, it was a little bit mixed.

So could you -- do you expect this growth rate to continue? And are there any sort of legacy businesses in that segment that will likely decline over time or would that mostly grow?.

So for the International Business Group, right, so basically we organized the revenue structure. So basically now IPG revenue is comprised of several hundred plus global accounts.

And for the business line, in addition to the traditional, the international, the domestic and the long distance and so the -- it also includes the submarine cable business and also for IDC and cloud. So these are the major business lines of the International Business Group..

Okay. So other operators have reported declines in things like international wholesale.

But it sounds like most of the businesses in this segment are businesses that we can expect to grow? Would that be fair to say?.

You're right because we reorganized the revenue structure so it's not fair to compare the IBG performance with that of the last year. You just mentioned what we expect the growth rate is going to be, right? So we are still positive about the revenue growth from our global accounts. So we will expect the governance momentum to go up.

This is based on our observation on the recent business trends and business climate..

Got it. Very helpful. Could I just ask one more question about your enterprise business? It's a similar question. So in your reporting you've got mobile fixed, ICT and other.

Could you call us a bit more what is in the other part of the Enterprise Business and how you expect that to grow or decline this year, please?.

Okay. First for other drivers. The EBG is comprised of like international, public -- like satellite communication or some sales revenue and some revenues from the undersea cable..

As a reminder, when you are speaking, please be louder or closer to the microphone. The next question is coming from Peter Milliken, Deutsche Bank..

My question is on the ARPU. You mentioned that when people migrate to 5G, they're spending 35% more. That's a big number and it's good to see.

My question is how much of that increase is kind of taken out by handset subsidies that go with those deals? Is there some sort of net number that you can provide of how much more you're getting on 5G after accounting for handset costs?.

Okay. Peter, for your first question. Because we don't discuss such information to the public. That's for your questions..

Okay.

Is there any significant change though that we could see like would you say the people that are churning off these contracts are on the 499 plans and now they're typically taking 999 and getting a handset subsidy? Is that what's happening?.

Okay. So for this number, right? So actually it's definitely increased, but we don't disclose specific numbers..

[Operator Instructions] The next question is coming from Sara Wang, UBS..

So I have just 1 question.

So may I ask how the 5G penetration and migration trend so far and what's our target by the end of this year?.

As for the 5G penetration, you're right, the target toward the end of the year will be 30% and that will be passed 20% mark. So we are on the right track to achieve the target..

Got it. And just one quick follow-up.

What do you think is the biggest driver for 5G penetration? Is it handset or is it faster speed or application set up?.

Actually just like you said, the handset is kind of a driver to push up 5G migration. Other than that, we also expect that the 5G innovative applications also can help our 5G migration to increase. For example like the AR and the VR related services, gaming and other like lots of music applications.

All that are the innovative applications that the users would like to choose to increase the overall 5G migration..

[Operator Instructions] The next question is coming from Marvin Lo from Bloomberg..

Actually I have 2 questions. The first one is about the Mother's Day promotion, which I read from the news. That seems to be quite a significant discount.

I'm just wondering if that would have any impact on the monthly fee uplift for the second quarter? The second question is related to the recent increase in the confirmed cases of COVID-19 in Taiwan starting at the end of April. I'm just wondering if that would have any impact on the performance of the company in the second quarter as well..

Okay. Thank you, Marvin, for your questions. So for your first question about the promotion, right, actually it doesn't affect our ARPU -- our LAN speed ARPU. For your second, it's about COVID-19, right? So because the telecom business is a steady business so we don't think that will severely affect our business.

And when it comes -- because the COVID-19 also may affect the disruption in the supply of products, right? In fact we have already taken precautionary measures to prevent that happening. So we have already taken measures to mitigate that kind of risk..

[Operator Instructions] If there are no further questions, I will turn it back over to President Kuo. Go ahead, please..

Thank you for your participation. Goodbye, everyone..

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..