Chunghwa Telecom Co., Ltd. (CHT) Q3 2026 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the company's Third Quarter 2026 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 has 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, the Vice President of Finance. Thank you. Ms. Tsai, please go ahead.

Thank you. I'm Angela Tsai, Vice President of Finance at Chunghwa Telecom. Welcome to our third quarter 2026 earnings conference call. Joining me today are Chunghwa's President, Rong-Shy Lin; and our Chief Financial Officer, Audrey Hsu. During today's call, management will begin by sharing our recent strategic achievements and providing an overview of our third quarter business results. This will be followed by a discussion of our segment performance and the financial highlights. We will then open the floor for questions and answers. Please turn to Slide 2 to review our disclaimers on forward-looking statement disclosures. Now, I will turn the call over to our President. President Lin, please go ahead.

Thank you, Angela, and hello, everyone. Welcome to our third quarter 2026 results conference call. To begin with, we are proud to report excellent performance in the third quarter. Our revenue, operating income, net income, EBITDA and EPS all beat the upper end of our guidance and hit their highest level for any third quarter since 2009. We are satisfied with our continuous leadership in Taiwan's mobile and fixed broadband markets and even more pleased to highlight that our ICT revenue alone reached its highest third quarter level since 2021. Our asset revitalization efforts has also paid off, contributing a one-off gain in the third quarter and validating the soundness of our policy. With all these achievements, we are quite confident that we will exceed our full year's forecast. While delivering solid third quarter performance, we also continue to lay the foundation for the future growth. For stand-alone 5G network deployment, we continue to upgrade our base station with population coverage expected to exceed 50% by the end of 2026, primarily in metropolitan areas and along high-speed rail routes with nationwide coverage to follow in 2027. Consumers are expected to experience network slicing functionality in 2027. In addition, we sustained our continuous AI-related deployment across all fronts of our business. Earlier today, we announced an expanded collaboration with Google to broaden our AI-enabled services and accelerate consumer AI adoption, which we expect to enhance the digital services we offer to customers and strengthen our long-term growth positioning. On the enterprise front, in addition to our existing AIDC service, we are also expanding our AI-related business through new ventures. Chunghwa Telecom's InventAI, which we spun off years ago, is already gaining traction with its GenAI governance and AgentHub services. We have seen increasing demand from the financial and public sectors and have begun to generate revenue. Following this success, we took another step forward in AI by establishing Chunghwa Telecom's Intelligent Vision intelligence and Edge AI technologies. These strategic moves lay the foundation for our future growth in the AI area. Finally, we are delighted to report that our ESG-related achievement. First, we became one of the first companies worldwide to obtain BSI's AI Mark of Trust, validating our AI governance and against international standards and strengthen stakeholder trust. We were also recognized globally for our Leadership in Sustainability, Telecommunication Services and 5G Innovation by TIME Magazine and Frost & Sullivan. Domestically, we are again named among the Taiwan top 100 company preferred by foreign institutional investors and received multiple honors for digital transformation from Harvard Business Review. This achievement reflects our continued progress and leadership across key areas. Now let's move on to our third quarter of 2026 results. Please turn to Page 5 for our success in Taiwan's mobile market. In the third quarter, our market share continued to outperform peers across all metrics. Our mobile revenue market share climbed to a record high of 41.2%, while our subscriber market share rose to 39.9% according to our telecom regulator. Particularly, our revenue share continued to exceed our subscriber share, reflecting the premium quality of our subscriber base in the industry. Our 5G performance was equally impressive. In the third quarter, our 5G market share in Taiwan reached 39.4%, maintaining #1 status. In addition, our 5G penetration rate among smartphone users increased to 49.6% as of September, and we anticipate it will surpass 50% by year-end. The average monthly fee uplift from 5G migration remained stable at 40%, and our postpaid churn rate stood at a low level of 0.41%, reflecting strong customer loyalty. As a result, we are glad to see a nearly 3% year-over-year revenue increase in our mobile service in the third quarter due to the growing 5G adoption, mostly driven by the high-end smartphone sales and increased roaming revenue, which delivered an 18% increase year-over-year in the third quarter. Meanwhile, postpaid ARPU increased by 2% of TWD 11, sustaining the growth trajectory. Let's move on to Slide 6 for our fixed broadband business update. In the third quarter, our fixed broadband revenue and subscriber number increased by 3% and 0.7%, respectively, driven by our success in promoting speed upgrade. In the third quarter, sign-ups of 300 megabits per second and above maintained a double-digit growth at 14.4% year-over-year, while sign-ups of 1 gigabit per second and above increased by 42% (sic) [ 52% ] year-over-year. Accordingly, sign-ups of 300 megabits per second and above reached 43% of our total fixed broadband customer base, serving as a strong driver to spearhead fixed broadband business. As a result, our fixed broadband revenue posted a 3% increase year-over-year in the third quarter, while the ARPU rose by 1.6% of TWD 12 year-over-year. We expect the growth dynamics to continue alongside the ongoing digital demand. Page 7 highlights the performance of our million subscriber customer services. In the third quarter, sign-ups of our multiple-play offering, which integrates our mobile, fixed broadband and Wi-Fi services, continued their upward trend and grew 13% year-over-year, driving up our overall telecom revenue growth. Notably, our Wi-Fi penetration among fixed broadband subscribers reached 58%, accelerating the popularity of the smart home environment for customers. For our video business in the third quarter, thanks to the broadcast of FIFA World Cup in June and the Asian Games in September, our video subscriber number steadily maintained above 3 million, serving as one of the key revenue contributors in our consumer business. Our success in content investment came not only from sports, but also from dramas. For the upcoming 63rd Golden Horse Awards in Taiwan, we have received the largest number of nominations in the telecom industry this year, recognizing the quality of our content selection. We are happy to provide appealing content to our customers and look forward to talent return related -- forward to related return in the future. Meanwhile, our digital services continue to expand. Our consumer cybersecurity service maintained over 1 million subscribers and delivered 12% year-over-year growth, supported by rising demand for the digital security. The number of transacting users of our direct carrier billing, or DCB, increased by 5% year-over-year. We are also seeing DCB used for a broader range of purposes beyond gaming, including AI tool and social media, which we believe will help diversify our revenue stream and support future growth. Slide 8 illustrates the key development in our enterprise ICT business. With the group collaboration, our ICT revenue in the third quarter increased 19% year-over-year, driven by continued expansion of emerging services. The group recurring ICT revenue also rose by 19% year-over-year, demonstrating strong momentum across major service lines such as IDC, cybersecurity and cloud services. In particular, we saw AI-related subscription make a positive contribution to our international public cloud service revenue in the third quarter. Among our core ICT service pillars, cloud, IDC, cybersecurity and AIoT service delivered a strong year-over-year growth of 45%, 26%, 22% and 14%, respectively. In the third quarter, cloud and cybersecurity revenue growth was primarily driven by transportation and financial projects, while IDC revenue achieved its 10th consecutive quarters of year-over-year growth, supported by installation projects for high-tech company. Additionally, AIDC -- AIoT revenue grew steadily on the back of increased delivery of smart city and smart building projects. We are particularly excited to share that our cumulative ICT order intake by September had already surpassed 1.4x the full year 2025 level with the third quarter order intake up 84% year-over-year, mainly driven by large government-related projects as well as AIDC installation for enterprise customer. Taking a close look, during the quarter, we secured several smart surveillance and smart transportation projects, thanks to our outstanding self-developed AI-driven image recognition technology. Also, we leveraged our centralized identity and blockchain technology to help build a government-led digital wallet platform, which enables users to integrate multiple digital credentials on smartphone while also demonstrating cross-border interoperability identity verification, such as for international driving license. We look forward to related opportunity ahead. Slide 9 highlights the excellent performance of our international subsidiaries and the continued progress in global expansion. In the third quarter, our international subsidiaries delivered an 8% year-over-year revenue increase. The United States market surged 27%, fueled by the completion of AI supply chain equipment deployment in California. Meanwhile, Southeast Asia revenue rose 3%, supported by ongoing construction project in demand. Alongside the solid growth of our overseas ICT business, our network resilience business continued to continue its upward trajectory. 9.8% year-over-year lift in the satellite-related revenue highlights this expansion driven by emerging demand for secure and diversified connectivity. Furthermore, by September, our cumulative satellite-related wins from the government's joint procurement system and has reached over TWD 250 million, paving the way for upcoming revenue contribution. Another key growth driver for the network resilience business was the international private leased circuit, or IPLC. IPLC revenue grew 33% year-over-year, and the SJC2 and Apricot submarine cable system steadily generated a recurring revenue stream. Additionally, our new branch in Guatemala officially launched in October to serve as a regional base for ICT service expansion across Central and South America. Building on this momentum, we secured a data center construction project from Guatemala government, marking a meaningful milestone in our regional growth road map. At the same time, we continue to deepen our relationship with Taiwanese enterprise, expanding overseas, securing follow-on ICT opportunities in Japan and the United States as well as capturing ICT projects from sports-tech companies in Thailand and -- in the third quarter. This encouraging win and strong performance conclude a productive third quarter for our global business development. Now move on to -- let's move on to the Page 10 for the financial performance of our 3 business groups. In the third quarter, our core telecom business remained strong. Growth in the mobile services, fixed broadband and handset sales drove Consumer Business Group revenue up 6.3% year-over-year, while income before tax increased by 1.4%, partially offset by higher costs from sports broadcasting rights. Enterprise Business Group revenue increased 8.2% year-over-year, supported by robust ICT performance and continued growth in mobile and fixed broadband services. However, income before tax declined slightly due to the group higher costs associated with strong ICT revenue growth plus the increased seasonal personnel-related expense alongside continued investment in talent retention. In terms of our international business group, its revenue increased by a solid 6.6%, while income before tax grew by 12.2% year-over-year despite a decline in ICT due to a high comparison base resulting from a one-off project recognized last year. Strong contribution from IPLC continued to drive IBG's revenue and profitability growth. That concludes the business overview for the third quarter. Now I would like to hand the call over to Audrey for financial updates.

Thank you, President, and good afternoon, everyone. I'm pleased to walk you through our financial results for the third quarter of 2026. Now please turn to Slide 12. We delivered strong results in the third quarter. Consolidated revenue reached TWD 67.59 billion, up 16.7% year-over-year. Income from operations rose 27.1% and net income grew 29.5%, bringing EPS to TWD 1.57. Both revenue and EPS were the highest we have ever recorded for our third quarter. Let me highlight the 3 key drivers behind our revenue growth. First, we recognized a onetime contribution from our subsidiary's asset revitalization project. Second, product sales grew strongly. This was driven by higher handset average selling price and volumes, increased sales of 3C products and accessories and solid contribution from Chunghwa Precision Test on the back of robust AI-related demand. Third, our core telecom business continued to grow steadily and ICT service maintained strong momentum as the President highlighted earlier. Now turn to profitability. You will note that income from operations grew faster than revenue. This reflected the 3 things: the onetime contribution, stronger earnings at Chunghwa Precision Test and the continued resilience of our core telecom operations. EBITDA increased 16.1% to TWD 25.66 billion, representing an EBITDA margin of 37.97%. Let me now turn to our year-to-date performance. For the first 9 months, revenue increased 10.8% year-over-year to TWD 188.95 billion. Income from operations rose 12.3% to TWD 41.74 billion, and net income grew 12.1% to TWD 32.97 billion. EPS was TWD 4.25 compared with TWD 3.79 a year ago. EBITDA increased 7.8% to TWD 72.48 billion. So overall, the results reflect solid execution across our business. They reinforce our confidence in meeting and potentially exceeding our full year guidance. Please turn to Slide 13 for an overview of our balance sheet. As of September 30, 2026, total assets stood at TWD 527 billion, down 1.7% from the end of 2025. This was primarily because depreciation exceeding capital expenditures as well as the continued amortization of our 4G and 5G spectrum license. On the liability side, total liability decreased by 1.7% from year-end 2025. This decrease primarily reflected the repayment of maturing debt during the period. Our debt ratio remained stable at 25.19%. Our balance sheet remains sound. The current ratio stood at 135.78%, and our net debt-to-EBITDA ratio was 0. This provides us with ample financial flexibility to support future growth. Please turn to Slide 14 for our cash flow summary for the first 9 months of 2026. Net cash provided by operating activities increased 9.6% year-over-year to TWD 49.84 billion, primarily reflecting improved profitability during the period. Capital expenditure totaled TWD 16.17 billion, down 6.5% year-over-year. Mobile CapEx decreased 4.5%, mainly reflecting the timing of network investments, while non-mobile CapEx declined 7.4%, primarily due to higher comparison base last year. Free cash flow increased 19.6% year-over-year to TWD 33.67 billion. This provides us with financial flexibility to support continued network investment, business growth and shareholder returns. Finally, please turn to Slide 15 for our performance highlights and guidance. We delivered strong third quarter results with revenue exceeding our expectations. This performance was supported by steady growth in our core telecom business, continued momentum in ICT service, stronger-than-expected product sales and a onetime contribution from our subsidiary's asset revitalization project. Revenue growth outpaced the increase in operating costs and expenses, which strengthened our profitability. As a result, all of our major financial metrics exceeded the upper end of our third quarter guidance. This includes revenue, income from operations, net income, EPS and EBITDA. This concludes our financial review. We will now be happy to take your questions.

[Operator Instructions] We have our first question, Ranjan Sharma of JPMorgan.

Two questions, please. Firstly, on the 19% year-on-year growth in your ICT business, can you please help us understand like how much of the growth is from recurring revenues? And how much is from revenues recorded at a point in time and the sources of those revenues? The second is on the asset revitalization initiative, if you can help us understand what are the key strategies that you have? And how much revenue should we expect from these initiatives over the next year or so?

According to our ICT revenue, okay, we don't disclose the breakdown for the -- how much percentage for the recurring revenue and how much percentage for the onetime. But actually, I can say that for the absolute number, the projects, the onetime project revenue is still larger than the recurring revenue. That's because sometimes we will receive a pretty large project, which contributes a lot of revenue. But we continue to see the recurring revenue continue to increase year-over-year. So that's a good part -- the good thing for our ICT business, yes.

Okay. Ranjan, let me add some to the asset revitalization. So this quarter, we did have a onetime recognition from the asset revitalization from our subsidiary. So our subsidiary, Light Era Development Company built a residential project in Taoyuan. So usually, as you know, that under IFRS 15, so revenue from residential project is usually recognized when units are delivered to buyers. So most of the contribution will be recognized in the third quarter. So -- and so asset revitalization is an ongoing effort, but the timing and size of each project are very hard to predict. But we should say that this -- so we do not expect a contribution of similar size in the near term.

Can I have a quick follow-up, please?

Sure.

On the ICT business, the project-based revenues that you are seeing growth in, is it coming from IDC, cyber or cloud, please?

Yes. It's mainly coming from like IDC services and cloud. Cloud, particularly, we see the growth from the international public cloud, okay, and then the cybersecurity because we also provide subscription-based cybersecurity services. So it's also contributed recurring revenue, yes.

[Operator Instructions]

Okay. We received one question from our Internet platform. That is why the decrease of the income -- why the decrease of the income before tax of EBG? And how is the future outlook? Yes.

Thank you for the question. So the slight decline in profit in Enterprise Business segment was mainly due to 2 factors. So first, our full-year earnings are tracking above expectations. So we accrue higher performance bonus in the third quarter, so including the catch-up adjustment. So this is a timing effect, not a structural change. And second, our ICT business grew strongly, and ICT project generally, as you know, that carry lower margin than telecom service because they include equipment and construction costs. So this just reflects a change in revenue mix. So going forward, we will focus on improving project margins and as recurring revenue continue to grow, so we expect our ICT margin to improve.

[Operator Instructions] Next one, Sigrid Qiu of JPMorgan.

I just want to dive a little bit deeper on your ICT side. For currently our ICT revenue, could you kindly provide the percentage of hardware sales versus service revenue within our Enterprise and International ICT segment? And secondly, is it possible for management to give us a breakdown of different product types? For example, out of our total ICT contract value, how much percentage comes from cloud, IDC, cybersecurity and AIoT?

Sigrid, thank you for your questions. For your first question, it's about the hardware, how much our ICT revenues from the hardware sales and how much for the service revenue. Currently, we don't disclose this kind of segment. But going forward, we will try to give you more colors. But actually, when we do the -- I can explain that, when we do the project, most of the time, the project may comprise 2 revenue streams, including the hardware sales and including the service. This is why we try to gain the pilot contracts, okay, from the industry leader because if we gain the pilot contracts, then we can do some -- we can do the add-on or the follow-up services. And maybe this kind of services is recurring on a recurring basis, just like the servicing revenue. So we don't disclose the breakdown, but I think we will try to -- we can try to give you more colors later. And for the contract value breakdown of different project types, okay, how much from cloud, yes, just like we don't disclose this kind of breakdown, but I can say -- we can see that for the cloud services, now we see a lot of enterprises that will use -- we have our own cloud brand. It's called hi brand. It's hicloud. It's mainly for the SME companies. But for the large companies, we see a lot of -- more adoption of international public cloud. So you can see from the presentation for this quarter, our cloud revenue increased like 45%, right? That's part of the results. So -- I'm not sure if it is helpful.

That's very helpful. Maybe just a follow-up on the margin profile for our ICT business. Is it possible for you to comment on the margin profile of different project types? If you can't disclose the absolute number, that's fine, but maybe just a pecking order of which type of project actually contribute to higher ICT margin? And then, in terms of the overall ICT margin trajectory going forward, I want to understand a little bit more on management thoughts on how to improve on the ICT margin going forward?

Okay. Sigrid, thank you for you question. And I think that I understand your interest in a more detailed breakdown about the individual element. But first of all, I just want to share more about the underlying behind the ICT in our company. So the main reason is that most of our business is delivered as a total solutions. So in many cases, a single project, which will include several elements at the same time, such as hardware, software, system integration, cloud, cybersecurity and IDC service. So for example, when we have a government agency or a high-tech company build a new platform, we may provide the equipment, the cloud infrastructure or the cybersecurity protection and also the ongoing maintenance and operation service all under one contract. So our customers value us as a one-stop partner that can take the responsibility for this entire solution, not just the individual component. So this is actually one of our key competitive advantage because few players in Taiwan can combine network, data center, cloud, cybersecurity capabilities the way we can. But it also means that the splitting the revenue into separate categories will not fully reflect how the business work. So I think that this is quite crucial for you to understand that the total solutions business model behind the -- our ICT margin. So IDC and cybersecurity are 2 of our most profitable ICT service. So they are mainly -- both are mainly recurring service. So many customers, we signed long-term contracts. So they give us stable and predictable revenue. So in IDC, our strong -- as you know, we basically have a very strong market leadership in Taiwan, and this give us a very good niche in the margin. So in cybersecurity, our value also come from our own expertise and experience, not just from reselling the hardware. So the margins are also quite solid.

[Operator Instructions]

Okay. We have one more question from our Internet platform. That's about contract liability.

The contract liability in the balance sheet, usually it represents the prepaid revenue of the -- I mean, from the customers. So it usually represents the future revenue and also the secured revenue. So as we mentioned -- as our President mentioned earlier that you can see we already secured a huge amount of the order taking. Some of them have been reflected in the contract liability.

Okay. In terms of the AIDC contribution, I think, yes, there will be more and more recurring revenue coming from our AIDC as we roll out more capacity, and the occupancy rates will increase from our AIDC. One more question is about the GPU is about 100 or 200. Actually, Chunghwa Telecom, we have our GPU resources. And if our clients want to rent the GPU resource from us, it's okay. But most of the time, our clients, they can also use their GPU resources in the AIDC. Yes.

Okay. So I think that the question is about also very interesting in the contract liability. So thank you for this question. So most of our contract liability, as I just mentioned, let me reemphasize again, they are related to ICT projects. So going forward, we expect recurring revenue to play a larger role, especially as our -- like Linkou AIDC came online. This AIDC will serve confirmed customers under long-term contracts, which will bring stable recurring revenue. As for leasing computing power, our current focus is on AIDC infrastructure service. So we will continue to evaluate other business model based on market demand.

[Operator Instructions]

So thank you for the question. So now there's another question. Do you have plan to help enterprise customers deploy AI models such as Gemini in their own data center? And how is the level of interest from Taiwanese enterprises? So thank you for the question from Kevin. So we are seeing strong interest from Taiwanese enterprise, especially in the financial and public sectors. So many of them want to use advanced AI model, but they also need to get sensitive data with their own environment or within Taiwan. So this is where we can help. So we can combine our AIDC and IDC facilities, private cloud and network capability to host AI models in a secure local environment. And our subsidiary, CHT InventAI also provides AI governance and AgentHub service to help enterprise deploy and manage AI safely. So building on our expanding collaboration with Google, we will continue to explore more ways to bring advanced AI models to our enterprise customers.

[Operator Instructions] If there are no further questions, I'll turn it back over to President Lin.

Okay. Thank you very much for your participation. Bye-bye.

Thank you, President Lin. 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 now disconnect. Thank you again. Bye.