CHUNGHWA TELECOM CO., LTD 2026 Q2 Earnings Call

Thank you. I'm Angela Tsai, Vice President of Finance at Chunghwa Telecom. Welcome to second quarter 2026 earnings result conference call. Joining me on the call today are Chunghwa's President, Lung Shih-Lin, and our Chief Financial Officer, Yu-Chi Hsu. During today's call, management will begin by sharing our recent strategic achievements and providing an overview of our second 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 two to review our disclaimers and forward-looking statement disclosures. Without further delay, I will turn the call over to President. President Lin, please go ahead.

Thank you, Angela. Hello everyone. Welcome to our second quarter's 2026 results conference call. We are excited to announce robust second quarter and the first half results with revenue, operating income, net income, and EPS all exceeded the high ends of our guidance. Notably, total revenue for the second quarter climbed to its highest for any second quarter since 2010, driven by the solid business growth. In addition, our ICT revenue reached its highest second quarter level since 2021. Based on our out-performance in the first half, we are confident in achieving our full year performance targets. In 2026, we continue to invest in AI and see concrete results. In the morning today, we announced the kickoff of the operation of our newly built AI data center in Lunping, Taoyuan, which is expected to add up to 36 megawatts to our total IDC capacity upon full build-out.

In July, we were pleased to sign a memorandum of understanding with Taiwan Stock Exchange to provide dedicated colocation capacity within our new AI data center in Taichung, currently under construction, further extending our market-leading financial colocation ecosystem in Taiwan. Both achievements demonstrate our ability to convert AI infrastructure investments into long-term financial return. Furthermore, leveraging our leading AI DC infrastructure and the sea-land-sky network deployment, we are positioning Chunghwa Telecom as the region's unique Three A's hub for the AI era. Powered by our IOWN network and distributed AI DCs, the Three A's hub delivers three core values. Assurance, providing resilient sea-land-sky connectivity. All photonics, enabling ultra-high capacity, low latency, and energy-efficient networking through IOWN. An AI hub connecting distributed AI computing resources across the Asia Pacific to support customers' AI development.

In addition, in terms of IOWN, we would like to highlight the IOWN AI Fund, which is the financial instrument we jointly established with global partners in June. The fund aims to not only build the IOWN ecosystem, but also create new business opportunities through technology investments. As all investors believe, the optical ecosystem is essential to the AI development. Our subsidiaries also continue to seize AI-related opportunities. In the second quarter, Chunghwa Telecom Precision Test Tech commenced new factory construction to meet the growing AI semiconductor testing demand. While Chunghwa Leading Photonics Tech, which stands to benefit from potential opportunities in the AI supply chain, began trading on the emerging stock exchange in June.

Finally, we are delighted to report the ESG recognitions received in the second quarter, including the CDP's Top A List rating for the supplier engagement and the Best Issuer for Sustainable Finance, and the Best Sustainability Bond award from the ASI, and the top 5% of Taiwan Stock Exchange listed companies for the corporate governance. Additionally, we are proud to report that despite continuing the revenue growth in 2025, we remained on track with our SBTi commitments Reducing scope 1 and scope 2 greenhouse gas emission by 24.5% from our 2020 baseline, and scope 3 emissions by 10.8% from our 2021 baseline. Now let's move on to our second quarter's 2026 results. In the second quarter, we continued our market share leadership in Taiwan's mobile market.

Our mobile revenue market share continued to increase, climbing to a record high of 41.2%, while our subscriber market share rose to 39.8% according to our telecom regulator. We would particularly like to highlight the strength of our premium revenue base as our revenue share continued to exceed our subscriber share. Our 5G performance was equally impressive. The 5G market share in Taiwan reached 39.4%, maintaining number 1 status, while 5G penetration rate amongst smartphone users increased to nearly 49% as of June. The average monthly fee uplift from 5G migration remained stable at 36%, and the postpaid churn rate stayed at a low level of 0.36%, reflecting strong customer loyalty. Thanks to the market-leading subscriber base, growing 5G adoption, and the increased roaming revenue. On a year-over-year base, our mobile service revenue grew by 3.2%, outperforming the industry average. Meanwhile, postpaid ARPU increased by 2.4% or TWD 13.

Notably, we observed our roaming revenue increased 19% year-over-year in the second quarter, with inbound roaming revenue growing 42%, benefiting from the robust tourism demand and the increasing international travel activities. Let's move on to slide six for our fixed broadband business update. In the second quarter, we are glad to see the number of the subscriber adoption services speed of 300 megabits per second and above, reached 42% of our total fixed broadband subscriber base, and the number continued to increase quarter-over-quarter. Among them, subscribers adopting 1 gigabit per second above increased 61% year-over-year, supported by the continued success of our broadband promotion package. As a result, fixed broadband revenue in the second quarter posted a 3% increase year-over-year, while the ARPU rose year-over-year by TWD 20 to TWD 824 per month.

Fixed broadband subscriber also continued to deliver positive growth year-over-year. We will continue to keep the business up and sustainable. Page seven highlights the performance of our million-subscriber consumer services. In the second quarter, sign-ups of our multi-play offering, which integrates mobile fixed broadband and Wi-Fi services, continued to grow year-over-year for the 18th consecutive quarter, representing a 14% increase year-over-year, and driving up our overall telecom revenue growth. Notably, our Wi-Fi registration among fixed broadband subscribers reached 57% as a solid basis for the smartphone connectivity. As the 2026 FIFA World Cup kicked off in June and ran through July, it successfully boosted video subscription numbers to their annual peak in July.

At the same time, the introduction of data entertainment, real-time match data, and the highlights feature during this FIFA World Cup helped drive total views of tech-supported broadcast across MOD and Hami Video up 24% compared with the previous tournament. As a result, we are glad to see our total OTT revenue in the second quarter increased 20% year-over-year. With the upcoming Asian Games in the third quarter, we are optimistic about our video performance through the next quarter. Our digital services continue to deliver solid growth. The subscriber numbers of our consumer cybersecurity services maintained over 1 million and delivered 11% year-over-year growth, supported by the rising awareness of digital security. Meanwhile, the number of transacting users of our digital carrier billing or DCB increased by 4.7% year-over-year.

As the customers continue to adopt the digital content, gaming, and AI application tool, we continue to see the potential growth in DCB services going forward. Slide eight illustrated the key developments in our Enterprise Business Group ICT business. Through the collective efforts across the group, our ICT business delivered another strong quarter, with revenue increasing 32% year-over-year, driven by the continuous expansion of emerging services. Recurring ICT revenue also grew by 9%, maintaining solid momentum across major service lines, particularly IDC, cybersecurity, and international public cloud services. Among our core ICT service pillars, big data, cybersecurity, and IDC are the key growth drivers. Posting year-over-year growth of 167%, 34%, and 14% respectively. Big data revenue, and cybersecurity revenue grow strongly, driven by the recognition of larger-scale projects for public sector customers, while IDC revenue growth was supported by the installation project for the manufacturing companies.

A key highlight is our second-half ICT order intake. Built on the strong momentum in ICT contract acquisitions during the first quarter, our ICT order intake remained robust in the second quarter, with contract value increasing by 30% year-over-year. The total ICT contract value secured in the first half of the year has already matched the full year's total amount achieved in 2025, reflecting a strong project pipeline and reinforcing our confidence in future growth. As of June, our major contract win in the second quarter included large-scale AIDC projects, which are expected to further increase AI-related revenue. Flagship Taipower energy storage project, positioning us for additional smart grid opportunities, and multiple smart surveillance projects from correctional institutions, demonstrating our ability to replicate successful deployment across the sector.

In addition, we became the first telecom operator to provide cloud-based encryption sharing services to the financial industry, further reinforcing our differentiated ICT market leadership. Slide nine highlights the robust performance of our international subsidiaries and global network performance. In the second quarter, our international subsidiaries delivered impressive performance as aggregate revenue increased 242% year-over-year, particularly due to the large-scale ICT project deliveries across the United States and Southeast Asia. In the United States, revenue increased more than elevenfold year-over-year, mainly due to the delivery of the large-scale AI supply chain projects in Texas. Meanwhile, revenue in Southeast Asia doubled on year, supported by the ongoing construction project for key customer in Singapore and Vietnam. In currently, with our proven overseas ICT integration expertise, we have successfully secured new projects across the United States, Singapore, and Thailand, providing strong visibility into future growth.

In addition to the strong momentum of overseas ICT business, our network resilience business continue to expand with our Asia Pacific Three A's hub strength. Satellite services revenue increased 14% year-over-year, supported by increasing adoption of satellite connectivity solution across industry. Notably, satellite-related ICT contracts secured in the first half exceeded $200 million, highlighting the growing demand for the diversified communication infrastructure. Another key growth driver from Three A's hub strength is the international private lease circuit business, whose revenue increased 8% year-over-year, mainly driven by SJC2 and APRICOT submarine cable. Looking ahead, given the ramp-up of the AI-driven data traffic and the growing international connectivity demand resulting from the geopolitical uncertainty, we are well-positioned to capture these opportunities, supported by continued investment in submarine cable and satellite projects. Now, let's move on to the page 10 for the financial performance of our three business group.