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Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom conference call for the company's first quarter 2018 operating result. [Operator Instructions] For your information, this conference call is now being broadcast here 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. Fu-Fu Shen, the Director of Investor Relations. Ms. Shen, please go ahead.
Thank you. This is Fu-Fu Shen of Chunghwa Telecom. Welcome to our first quarter 2018 results conference call. Joining me on the call today are Mr. Sheih, our President; and Mr. Kuo, our CFO. During today's call, management will begin by providing an overview of our business during the quarter, followed by a discussion of operational and financial highlights. And then we will move on to the QA session.
Now I would like to hand the call over to President Sheih. And please note our safe harbor statement on Slide 2. President Sheih, please.
Thank you, Fu-Fu, and hello, everyone. Welcome to our first quarter of 2018 earnings conference call. For the first quarter of 2018, the overall market remain competitive. In mobile business, we continue to retain our market-leading position in both subscriber numbers and revenue. We are pleased to see the continuous mitigation of subscriber loss. And we would maintain the [ voice ] and mobile service revenue decrease year-over-year among 3 major telecoms in Taiwan.
In our broadband business, we are encouraged to see subscriber net adds turned positive. For the first quarter, we demonstrate the success of our strategy of promoting home-centric services that bundle broadband, Wi-Fi, MOD in IoT services to further solidify our broadband subscriber base. Meanwhile, MOD subscriber numbers and the revenue continue to grow in the first quarter as we have been endeavoring to facilitate the overall TV operational environment and introducing popular content as well as OTT service.
Despite the decrease of ICT revenue year-over-year in the first quarter owing to some delays in gradual revenue recognition, we observe that revenue share from enterprise customers continue to increase as that kept enhancing our overall capabilities to provide ICT related solutions to our enterprise customers. Our IoT platform continue to support development of smart city, smart agriculture, smart manufacturing and other IoT related applications. We also furthered our efforts to increase network capacity by joining the construction of SJC2 consortium submarine cable in March.
And in February, our highest-rated IDC in Banqiao completed the second phase of its construction and open to customers. We are pleased to report that so far 70% of the newly constructed space has been sold or reserved. Going forward, we will continue to leverage our advantages in IDC and CDN to cater to the growing demand of comprehensive Internet services in the digital economy.
Now I will walk you through each of our business lines. On Slide 5, I would like to update you on our mobile business. As of March 2018, our total number of 4G subscribers has exceeded 8.2 million and mobile Internet adopters continue to grow reaching 84.4% of total postpaid subscription, which consequently drove up our mobile Internet revenue by 3.04% year-over-year. However, the overall mobile revenue for the first quarter is decreased year-over-year mainly due to the accounting measure change from IFRS 15 adoption.
Factoring out the impact of IFRS 15, we still see a decrease in mobile service revenue due to the increasingly competitive market landscape. Despite intense competition, we are delighted to see that mobile subscriber loss has been mitigated quarter-over-quarter due to improvements in our customer retention. Going forward, we will continue to roll out incentives for existing customers. And further respond to market dynamics in a flexible way to consolidate our subscription base.
Slide 6 shows the performance of our broadband business. For the first quarter, we are encouraged to see our broadband subscriber net adds turn positive with 0.3% increase year-over-year. In addition, we continue to see a migration of our broadband subscribers to higher speed fiber services. We are pleased with the number of users signing up for connected speeds of 100 megabit per second or higher which grew by 10.7% year-over-year to 1.32 million in the first quarter.
We expect to improve this number by upselling highest bid offerings and differentiating our products by bundling digital convergence services. To incentivize customers to migrate to higher speed services, we roll out a short-term promotion plan for 300-megabit per second services in the first quarter. Going forward, we will continue this strategy and stay ahead of our competitors by enhancing user stickiness on our network through smart home services and that leverage our Wi-Fi advantages as well as MOD and OTT offerings.
Now let's move into -- on to Slide 7. We are glad to report another robust quarter for the IPTV business. Our IPTV/MOD platform became the largest video platform in Taiwan with 1.7 million subscribers in the first quarter of 2018, that representing a 27.4% increase year-over-year. Our IPTV revenue continue its growth trajectory as well with a 25.2% increase year-over-year primarily driven by the healthy growth of IPTV and SVOD subscribers. We are pleased to see that the number of SVOD subscribers exceeded 1 million in the first quarter and customers continue to sign up for additional SVOD programs.
In addition to our on-demand service, we plan to leverage popular sport event such as the upcoming 2018 FIFA World Cup and eSports to further expand our channel subscription base and enhance the popularity of 4K quality viewing. Going forward, the quality and the diversification of our IPTV content offerings will continue to be our priority. In order to further strengthen user acquisition and user stickiness, we will also carry more OTT offerings to increase customers' total contribution to our revenue.
Please turn to Slide 8 for an update on our ICT initiatives. In the first quarter of 2018, our ICT revenue decreased year-over-year owing to some delay in revenue recognition. The IoT platform continue to demonstrate the latest solutions including applications in smart agriculture, smart manufacturing and the smart transportation. And the number of our overall IoT connected device has exceeded 500,000 as well. Our highest-rated Banqiao IDC finished its second phase rack installation in February and currently enjoys satisfactory occupancy rate of 70% so far.
Going forward, we remain committed to leveraging our competitive advantages in network infrastructure, IDC and CDN to offer reliable, customized and comprehensive ICT solutions to our enterprise customers. We also aim to develop new opportunities in our innovative business lines with advanced technologies such as AI, blockchain and information security and seek partnerships to establish a comprehensive ecosystem in this sector.
Now I would like to hand over the call to Mr. Kuo for our financial results.
Thank you, President Sheih. Now I will go through our financial results in details.
Beginning on Slide 10. Slide 10 provides you with highlights from our income statement. For the first quarter of 2018, total revenues decreased by 1.7%, and the operating costs and the expenses decreased by 0.9% year-over-year. Our income from operations decreased by 5.1%, and our net income decreased by 9% year-over-year partially due to the increase of enterprise income tax rate starting from 2018. In addition, our EBITDA margin decreased to 35.26% in the first quarter from 35.96% in the same period of 2017.
Please refer to Slide 11 for revenue breakdown by business segments. The decrease in total revenue for the first quarter 2018 was mainly due to the decrease in voice revenue and the ICT project revenue, which offset the increase of handset sales revenue. However, the decrease of revenue of voice -- voice revenue and the increase of handset sales revenue are both mainly affected by the adoption of IFRS 15.
Moving on to Slide 12. Our operating costs and expenses decreased by TWD 0.37 billion or 0.9% year-over-year in the first quarter due to no ICT project costs. The decrease in project costs was partially offset by the increase in cost of goods sold.
Slide 13 shows that cash flow from operating activities for the first quarter of 2018 decreased by TWD 3.26 billion or 30.6% compared to the same period of 2017. This was mainly the result of cash contribution to the pension fund as required by labor law. As of March 31, 2018, we had TWD 31.59 billion of cash and the cash equivalents.
Slide 14 shows our operating results as compared to our guidance. In the first quarter of 2018, our revenue, operating income, net income and the EPS were slightly lower than our expectation. The price, despite the increased market competition, will strive to increase revenue from innovative business and try to execute the cost control in order to meet the guidance.
Lastly Slide 15. We are budgeting CapEx of TWD 33.1 billion for 2018 and our actual spending for first quarter of 2018 is lower than that of last year. Going forward, we will continue to focus on investment in our core businesses including FTTx, 4G, IDC and our service platform among others under our precision construction principle.
Thank you for your time. Now we would like to open the line for questions.
[Operator Instructions] Our first question is coming from Peter Milliken, Deutsche Bank.
My question is about pricing in the markets. I understand that you have had a unlimited plan approved at TWD 499 a month, is that correct? And if so what's the thinking behind that?
Okay. As recently launched a 499 price plan, this kind of plan was first offered by our peers, not officially, for a while. However, the majority of the targeted group is Chunghwa's consumer customers. We need to fight back to stabilize the market condition within as a short-term promotional program, countermeasures from market situation. And we will stay nimble to respond to market dynamics.
Right, okay. So is it fair to say you are more determined to hold on to share in 2018 than what we've seen in your broadband promotion and then this one is at the low end you want to make life difficult for the operators who are fighting in that area and you just want to try to be more dominant if you can?
I think share still important. I think market share, but as we mentioned many times that we see we'd like to upgrade people to in our customer to even higher kind of the package, the plan. I think this is just like President just mentioned about. This is a temporary, short-term temporary kind of program, promotional program. Just a [indiscernible], okay. We [Technical Difficulty] is important, but we believe margin is even important. Thank you.
Just one final question. Look at -- I think you made some good points that you are growing in these new areas and really having some success in MOD. Can you explain why that's growing so quickly?
You see the -- I think the MOD, we did a lot measures last year. We actually tried to facilitate a whole environment, okay. So like we also offer kind of single subscription, single-channel subscription. This kind of innovative way to help to let our customer understand they have this kind of choices, okay. And I think the overall a lot of efforts is done for past several years. We also bundle -- because we got a lot of business line, product line, we bundle our Wi-Fi, our broadband in some home-centric kind of services together with MOD. I think later -- I think for the next phase, the home centric, this kind of service is very important. I think the MOD is kind of starting point for us. It's very important. So we are really glad and we have this kind of MOD performance recently.
[Operator Instructions]. The next question is coming from Varun Ahuja, Crédit Suisse.
I've got couple of questions. I just want to go back to mobile competitive intensity.
Excuse me, excuse me. Ahuja, could you approach more close to your microphone. It's not really clear here.
Is it fine now?
Yes, it's better. Thank you.
Now I just want to go back to mobile competitive part. If you know last 3 to 6 months even in your previous results, you've been highlighting that you're going to concentrate your marketing spend in terms of your effort on high tier customer. And even in Slide 5, you mentioned that you would continue to promote the higher tier plan, but increasingly we continue to see the short-term promotions happening. I think you expected this apart that you want to do respond to your competitor. But just wanted to know over the next 12 to 18 months, what's your view or the strategy in terms of mobile service revenue growth? And because it's been almost more than 12-15 months that this mobile service revenue hasn't seen any growth, so what should we think about in a medium-term view? How do you want to revive the growth in mobile services revenue? That's #1. And in the same light if you can give color, is it mobile competition? Is it improving or it's same? That will be helpful. Secondly, you mentioned about the southbound initiatives. So anything different that you're doing that you highlighted previously besides opening up some cable landing station in these countries? What other steps do you foresee in this part of southbound initiatives?
I think for the -- I think for your first question, measure volume promotes higher tier price plan. I think we've been working on that part very, very -- we put a lot of efforts and do have some kind of performance. But the only thing the market is really dynamic, okay. So we not only this too smaller players, they continue to offer low priced plan. And also our peers, major peers here also doing something, this limited kind of a low price plan. This just going on and on. So it's really difficult for us to just -- I think usually we got different segment, okay, for different target group. So we need to have different strategy for different target group. So this is what my answer to your first question. So over 12-15 months, no growth. Yes, that's true. And also you can see that this quarter our ARPU -- if you look at our -- the YoY, even when we -- before adopting IFRS, we also disclosed that ARPU number. We still see a small decline, but for even for the [ casino ] market very competitive, okay. So even for the rest of the year, we still believe that the market will continue to kind of stir. So the ARPU slightly to have -- to continue to have some small decrease, okay. As for the southbound initiative, yes, I think the marine cable, we deploy -- this is really for further -- when we talk about next phase, the digital economy, I think the -- our IDC data -- Internet data center, cable marine, audit capacity, this is all very important to this next phase kind of growth. Also we specifically talk about southbound. We will explore market opportunities like Indonesia, especially to further expand our think tank and ICT, IoT type of business. As we mentioned that we have this IoT platform and we tried to figure out how we can let this IoT platform to be applied in Southeast Asia, this countries, we are working on that.
Sorry. Just to be clear on that, so this 499 plan that you have launched, is it in response to Taiwan Star and APT? And those were the 2 more aggressive, and then obviously your peers Taiwan Mobile and FarEasTone have kind of responded also. So am I right, is it a plan that you responded Taiwan Star and APT?
That's not respond to the smaller players, okay. For smaller players, we would -- I think the major responding to is for the major players. So when we talk -- so just like our President mentioned earlier that Chunghwa, we have never been the first operator to offer any specific unlimited mobile data plan below 1,000. Even though usually because we are the largest operator in Taiwan. So the media -- whenever we announce any plan like that, media will have really huge disclose -- huge kind of media broadcasting for that. So just like we say, we've never been the first one, okay, to offer below 1,000 unlimited data plan.
So I am still not clear. Is it a response to FarEasTone and Taiwan mobile or to Taiwan Star and APT?
To the major players.
The next question is from Peter Milliken, Deutsche Bank.
Sorry, I just wanted to go back to the pension payment. I didn't quite hear that. Did you say that earnings are down partly because of a one-off pension payment that you made in the first quarter? And if so, about how big an impact would that have had?
Sorry, I -- you see, the pension fund is for [indiscernible], not for our earnings.
[Operator Instructions] Our next question is coming from Colin Liu, HSBC.
I have a question regarding ICT business. I'd like to ask what's the margin trend in this segment when we shift our focus from Internet access to IoT and IDC and other data center business. Does it necessarily mean that we have more downward pressure on margins?
ICT business, you mentioned about the margin for ICT business which is the trend?
Yes, exactly. Yes.
Was that your question? Okay, ICT business, we -- I think the margin of course, it's much lower than the -- compared with the traditional telecom business for sure. But we tried to increase the margin, so we became very -- became more and more selective since fourth quarter 2016. And here now, we see this margin actually improve, but not a big number. But we still try to make it bigger. And so that's why some of the ICT project -- if the margin is not really meet our requirements, we will ask our colleagues to give up, okay. Then you mentioned about when we're going to shift the focus from Internet to IoT and IDC. This has already happened. I think like we just mentioned about in Banqiao, we already have this constructed second phase kind of construction for those in racks. And the occupancy rates already reach 70% for that, even for that second phase part. The first part is already occupied, okay. So this makes more pressure on margin. We already affecting your orders. The revenue change, revenue shift of the business any time, we already affecting orders kind of things. So even though it's a different margin to -- because if you believe those innovative kind of services is our new revenue stream, we need to grab this kind of opportunity for sure.
Our next question is coming from Allen Duan, Nomura.
Just 2 questions. One, what is your view on the Line package that has been offered by a fitting and joint association with Line mobiles? And lastly if there are any thoughts on the 5G development progress?
As the question about Line mobile, Line mobile service has already launched in Japan and Thailand. And their performance are not really well received as we understand. Mobile market in Taiwan is quite competitive. Some offers various packages to meet customer demand, and we aim to offer quality and reliable service to our customer. Network coverage and the number of base stations are our advantage. We don't rule out the possibility to offer speed cap instead of data [indiscernible] cap service plan to our customers if there is a demand. We will continue monitoring closely the market development. Thank you.
Sorry. Allen, what's your second question?
Any thoughts on the 5G development progress that you have?
5G? Our looking for 5G?
Yes. Right, that's right. That's like what are your thoughts on the 5G deployment and trials and anything in progress?
5G because the standard haven't finalized yet. And in Taiwan, the spectrum for 5G haven't had any auction. I think the earliest -- the current situation is like this where the auction will be like early 2020. And so the earliest deployments for Chunghwa will be in 2020, but before that we have this trial 5G already. We are working on that, okay. So we have some kind of MOU signed with like AXON, like with Nokia, so this is something we are monitoring, this kind of technology, kind of progress for sure.
[Operator Instructions] The next question is coming from Emerson Chan, Bank of America Merrill Lynch.
I just have one quick question. For the 499 unlimited data plan, is it open to all subscriber in Taiwan or it is only available for teacher and military person?
This is only open for the civil servants, the teachers. Yes, this is only for -- including the military person. Yes. And their -- first, I do not expect in English. They're -- probably they would like their wife, their daughter, their parents, the first grade kind of relatives, that's all.
[Operator Instructions] If there are no further questions, I will turn you back over to President Sheih. Go ahead please.
Okay. Thank you for your attending. See you next time.
Thank you, President Sheih. Thank you for your participation in Chunghwa Telecom's conference. There would be a webcast replay within an hour. Please visit www.cht.com.tw/ir under the IR Calendar section. You may now disconnect. Goodbye.