Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom conference call for the company's first quarter 2021 operating results. During the presentation, all lines will be on listen-only mode. When the briefing is finished, the reference for submitting your questions will be given in the question and answer session. For your 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 2021 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 from this quarter, followed by a discussion of operational and financial highlights. After, we will move on to the question and answer session. I'll try to please note that I safe harbor statements. Now I will turn the call over to President Kuo. President Kuo, please go ahead.
Thank you, Angela Tsai. Hello, everyone. Welcome to our first quarter 2021 results conference call. Let's begin on slide four. In the first quarter of 2021, mobile business continued to be the main focus in the market. We set a target of accumulating 2 million 5G subscribers by the end of this year, and we are glad to report the number of our 5G sign-ups are on track and potentially exceed our internal targets. Over 3/4 of 5G subscribers and roughly 90% of iPhone 12 subscribers have adopted plans of TWD 999 or above. We remain positive about achieving year-over-year growth of our mobile post-paid ARPU in the second quarter, and I expect the trend to continue as well. In addition, with more than 6,300 5G base stations completed during the quarter.
Compared with the annual target of accumulating 10,000 5G base stations by the end of this year, our 5G network construction is well ahead of schedule. In the International Institute on Opensignal's 5G experience report in April, Taiwan was ranked the top position in terms of 5G upload speed and the second position of 5G download speed in the world. As Taiwan's leading telecom service provider, we remain committed to spearheading 5G deployment to enhance 5G user experience in Taiwan. Regarding our broadband business, we are pleased to see ARPU uplift continue as a result of ongoing increase in higher price plan adoption. Subscriber migrate to our broadband of 300 Mb/s or higher continued to increase by approximately 58% year-over-year, contributing to year-over-year broadband revenue growth for the 14 months in a row.
The number of home Wi-Fi devices also increased 352% year-over-year to supporting the popularity of our home-centric applications. MOD business continue to roll out popular packages to enhance overall performance. We are pleased to see upsell in both SVOD services and the channel services. Now allow me to walk you through each of our business lines. Turning to slide five, you can see an update of our mobile business. In the first quarter, we continued to maintain our leading position in the mobile market. Excluding IoT SIMs, as revenue market share increased to 79% and the subscriber share reached approximately 60%. Since the international roaming revenue loss had a full impact by border lockup into COVID-19 in the second quarter last year. We remain optimistic and expect an overall year-over-year growth of mobile service revenue in the second quarter this year.
Please turn to slide six for an update on our broadband business in the first quarter. This quarter, we are pleased to see our broadband ARPU increase by 3% year-over-year, which reflects our success in migrating subscribers to adopt higher speed services and other benefits stemming from stay-at-home opportunities in the new normal. The number of subscribers that sign up for connection speeds of 300 Mb/s or higher increased by 58% year-over-year. Our VPN service revenue contributions from enterprise customers grew as well. Thus, we are confident that we will maintain the overall upward trend in our broadband business despite the ongoing decline in the number of low-speed subscribers quarter-over-quarter. Looking ahead, we intend to encourage migration by rolling out our higher speed services to further enhance overall ARPU and solidify our leading status in both household and enterprise markets.
Slide seven illustrates our mobile business performance. In the first quarter of 2021, our MOD IPTV platform continued to be the largest video platform in Taiwan, with more than 2.06 million subscribers. Since the COVID-19 pandemic delayed majority large sports events and movie releases, our subscription momentum decelerated as a result. However, our MOD ARPU achieved a slight growth year-over-year as a result of the successful design of our product portfolio and pricing schemes. During the quarter, we rolled out a new service package, S-VOD All Pass, by aggregating several SVOD as a complete packaging, which resulted in a quarter-over-quarter decrease in the number of SVOD sign-ups, but successfully brought in SVOD service upsell and drove up SVOD revenue to increase quarter-over-quarter. In addition, our tiered price channel packages continued to be popular, which actually upsells as well.
Going forward, we will continue to focus on strengthening customer contribution to enhance ARPU. We aim to explore more famous content and introduce the hot influencer channels to create new growth drivers. Please turn to slide eight for an update on our ICT business. Overall ICT project revenue in the first quarter increased by 20% year-over-year. Our emerging ICT service revenue increased year-over-year as well. IDC revenue and the cloud revenues increased by 14% and 16% year-over-year respectively, mainly due to revenue recognition from some government-related projects. Cybersecurity revenue increased 31% year-over-year, which was primarily due to small campus projects. As ICT project revenue accounted for a greater portion of our total revenue year-over-year, we will continue to enhance our overall ICT technology capabilities and be more selective to further increase project margin. Now, I would like to turn the call over to Vincent, who will review our financial results.
Thank you, President Kuo. Good afternoon, everyone. I will now discuss our first quarter financial results. Please turn to slide 10, which provides highlights on our income statement. For the first quarter of 2021, on a year-over-year basis, total revenues increased by 4.1%, and operating costs and expenses increased by 3.7%. Income from operations increased by 5.5%, and our net income increased by 6.4%. In addition, our EBITDA margin increased to 41.09% from 40.18% in the same period of 2020. Slide 11 provides a breakdown of revenue by business segment. In the first quarter of 2021, total revenue increased by 4.1% year-over-year, mainly due to the increase in ICT project revenue and handset sales revenue, which offset the decrease in the revenue from voice and mobile services as a result of COVID-19 impact and Voice over IP substitution. Moving on to slide 12.
Our operating costs and expenses in the first quarter increased by TWD 1.37 billion, or 3.7% year-over-year, mainly due to higher ICT project costs and cost of goods sold. Slide 13 shows that cash flows for operating activities for the first quarter of 2021 decreased by TWD 3.34 billion or 25.8% compared to the prior year period, which was mainly due to a decrease of accounts payable and an increase of accounts receivable. As of March 31st, 2021, the balance of cash and cash equivalents was TWD 30.26 billion, an increase of TWD 13.49 billion or 81.4% relative to 2020. The increase was primarily attributable to the issuance of corporate bonds. On page 14, you will find a table that compares our financial results with forecasts.
As you can see, for Q1 2021, though our revenue was more than our first quarter guidance, our performance measures, including income from operations, net income, EPS, EBITDA, and EBITDA margin, all exceeded our forecasts. Lastly, please turn to slide 15. For 2021, we are budgeting TWD 43.1 billion in CapEx, including spending on business focuses in 2021, such as accelerating the construction of 5G network, IDC, and submarine cable. That's the end of my presentation. Over to you, Harrison. Now we open to the questions.
Thank you. We're now beginning our question and answer session. If you have a question for any of today's speakers, please press zero one on your telephone keypad and you will enter a queue. After you are announced, please ask your question. When you are speaking, please speak louder or closer to the microphone. If you find that your question has been answered before it is your turn to speak, please press zero two to cancel the question. Our first question is coming from Sarah Wong from Morgan Stanley. Go ahead, please.
Thank you for the opportunity to ask a question. I have three questions. First, on the mobile side, just want to ask what's the apple-to-apple ARPU lift for the 5G adopters? Meaning, for example, before they migrate to 5G, when they were on 4G, the dollar amount they paid, and then how is the increase on the dollar amount they paid after they migrate to 5G. My second question is, so far, how is the fiber-to-the-home penetration for our, say, broadband customers? Is that possible to assume all the customers with speed over 100 Mbps will be on fiber-to-the-home? The third question is on the ICT project. It seems the growth of the ICT revenue has been quite solid for the past few quarters. Would management please share with us, how does the customer base look like?
Are they mostly government agencies or enterprises, or what kind of industries they're from? Do you have any target on, say, ICT revenue growth or revenue contribution for 2021? Thank you.
Thank you for your question. To answer your question number one, about the mobile ARPU trend. Our post-paid mobile subscribers net adds continues to maintain positive in the first quarter, and we see upsell among 4G users, while 5G continues to strengthen adoption of higher price plans. We continue to expect our mobile service revenue to be bottom out in the second quarter of 2021 and that the trend will likely to continue. The second quarter about the fiber-to-the-home penetration rate is approximately about 85%. The ICT project. Regarding the ICT question, for quarter one, our ICT, the growth rate is about 20%. In terms of the customer base, the major customers we have in quarter one are basically from government agencies like the Taipei City government and some research institution. Yeah.
We expect the ICT revenue, we will say the revenue compared with last year will be probably about the same. Because for this year, we'll be more selective in picking our ICT projects. We expect the ICT margin will be higher than last year. That's my response. Yeah.
Got it. Thank you.
Thank you. As a reminder, press zero one on your keypad if you would like to ask a question. The next question is coming from Neil Anderson from HSBC. Go ahead, please.
All right. Good afternoon. I had a question related to 5G data usage and the network piece. Can you tell us what the average data usage relative to 4G? Is that driving any changes in your network rollout? I presume at the moment you're still focused on coverage. Can you tell us how you're thinking about adding capacity later on in the rollout? Thank you.
Neil, could you repeat your question? This is Susan. I'm not quite clear about that.
The first one relates to data usage, average data usage on your 5G subscribers so far. Is that very different from 4G or not so much? Related to that, in terms of network hotspots or areas where you've got a lot of traffic, how are you going to address those? Will you think about adding millimeter wave or additional sites to deal with that? Thank you.
The average 5G user data usage is actually larger than that of the average mobile data usage for sure. For the first quarter this year, the average 5G data user, 33 GB, versus the average mobile data user, 24 GB. I think that's the difference.
Got it. Thank you.
Thank you. Ladies and gentlemen, we are now in question and answer session. If you would like to ask a question, please press zero one on your keypad. Thank you. As a reminder, press zero one on your keypad if you would like to ask a question. The next question is coming from Neil Anderson from HSBC. Go ahead, please.
Hi there. Thanks for letting me ask a follow-up. I had a question relating to the ICT business, and whether you can give us any insight on what sort of return level you're targeting on your investment in the ICT business. I ask this because we don't have any visibility on profits at the moment. It's quite hard also to distinguish the level of investment. It'd be helpful to get your view on what you're targeting in the next year or two in terms of return on investment in that sector. Thank you.
I think we've been working on the ICT project for many years. Of course, we've been using that. We've been trying to increase the profit margin every year. In between, we also like to bundle our own product into this project in order to increase the margin as well. You can see that year by year, it's actually improving a lot. I think that's how we are doing. In between, also, I think we would like to model this in different kind of project. Try to figure out how to increase to enhance the whole process. I think we've been doing okay. Hopefully this will facilitate in later years for sure.
Let me add one point that in the enterprise side, we actively develop 5G commercial private network solutions for industries. For smart manufacturing application, the smart factory for the leading semiconductor company, the ASE Technology Holding, a joint deal with Qualcomm and Chunghwa, had been launched last year. We will continue to develop projects in the semiconductors and other industries. As you know, we will team up with our partners for various verticals to develop 5G service via B2B2X business model. Our focus includes smart logistics and manufacturing as I mentioned earlier, and smart transportation, smart agriculture.
Smart healthcare, autonomous driving, et cetera. That's applied in different verticals. Thank you.
Thank you.
Thank you. The next question is coming from Sarah Wong from Morgan Stanley. Go ahead, please.
Thank you. I have another two questions. First, on the first quarter result. First, congratulations on the quarter result. It exceeded our expectations. Can management share what's the biggest beat in terms of results versus our expectation? Which area are we seeing actually higher growth than our previous expectation? Our second question is still on the ICT. For our 2021 guidance, either revenue or net profit. Are we factoring in any upside from potential 5G enterprise applications? Or in other words, do we see some monetization of business models for the early 5G enterprise applications?
Okay. For the first quarter results, right? As you can see on page eight. For page eight. What type of beating our expectation is the revenues for our emerging business, such like IDC, Cloud, and Cybersecurity. As you can see, the growth is pretty much over 10%-30%. That's really positive news to us. For your second question with regards to enterprise application and the enterprise we are working on on their private enterprise network. At this point, we respect the privacy of our customers, so we are unable to disclose their names.
Got it. Just in terms of the revenue or profit contribution factor in the 2021 guidance, do we factor in any incremental revenue from those 5G enterprise applications?
Because we are still on the very early stage for the private network, the proportion actually is quite small.
Got it. Thank you.
Thank you. The next question is coming from Peter Milliken, Deutsche Bank. Go ahead, please.
Yes, good afternoon, and thanks for the call and for the good results. My question is really about the CapEx for 2021, in particular, the internet CapEx of TWD 8.8 billion, which is about five times as much as the previous two years. Can you just remind us what's the reason behind the increase in that part of CapEx in 2021? Would you expect revenues to come from that in 2021, or would it be a longer-dated CapEx? Thank you.
Okay. For the CapEx, right? The question is why in 2021 the CapEx has gone up, right, relative to prior periods. The reason is that for the 5G network, we want to enhance and accelerate our deployment of 5G network. That's one of the reasons. Also, we see a lot of demands from customers with regards to our IDC Cloud Services. That's why we spend some money. We spend quite a lot of money on these capital expenditures and constructions. Also, we also see the need from the submarine cables. That's why we work with our international partners to build more submarine cables. In terms of your second question, right? Do we expect revenue to come in 2021? We will say yes and no. Yeah. For some of the capital expenditures, we can see profits in near term.
For some capital investment, we will see it in a longer term. Yeah.
When I look at the internet part of the CapEx, the TWD 8.8 billion, that would be mainly data center build. Is that correct? Or is there a lot of other things you're also expanding very sharply in 2021?
Yeah. Yes, you are right. Yeah. Mainly data center, IDC.
Right. Okay. Thank you very much.
Thank you.
The next question is coming from Jack Hsu, SinoPac Securities. Go ahead, please.
Hello. Do you hear? Sorry.
Yeah, go ahead, please.
Okay. Thank you. Thanks for giving me the chance to ask question. I have three questions. My first question is, I'm interested, our EBITDA margin is growth, but also with the increase of the mobile devices sales also increased. Could you give us more color about the reason why the EBITDA margin can growth even the mobile device revenue growth? This is my first question. My second question is about, we have informed where we have collaborated with some customers on the commercial private network. I just read from the news, and some news have informed the CHT may have the commercial private network revenue in 2021 may be above maybe 1 or TWD 2 billion. Is that correct? How many billion the revenue are related to the private networks in the 2021? This is my second question.
My third question is, could you give us some information about 5G base station numbers until now or maybe until May or even until the June? Yeah, because the governments, they will give the subsidy that will relate to the number of the base stations deployed on the market. I'm interested how many 5G base station we have deployed until now. Thank you. This is my question. Thank you.
For the first question. Why EBITDA margin is high? We just mentioned. For the first quarter, there's an increase in our ICT revenue, and also there is a lot of contribution from our application via value-added services. Broadband revenue also increases. That's why our EBITDA margin increased. For the second question, with regards to the private enterprise network. The revenue, we cannot disclose at this point. One reason is that because our customers don't want us to disclose their identity, so it's not nice for us to disclose. For the revenue, because it's at a very early stage. Many of them are still at the POC stage. We are unable to comment at this point. For the third question regarding the number of base stations.
Actually, the construction of the 5G network progresses as planned. By the end of this year, we will hit more than 10,000 base stations. Now it's over 6,300 base stations already. Yeah. At the end of the first quarter. Yeah. In terms of the government subsidies, the government budget TWD 16.5 billion, and we'll get the portion, we pay roughly 1/3. Yeah. Along with the spectrum cost.
Got it. Thank you. It's helpful. Just two follow-up questions. First follow-up question is about, if we get the subsidy from the government, how does the subsidy will affect the income statement? Will affect the cost or will affect the EBITDA margin? Thank you.
The government subsidy, right? How should we account for it? Basically, once The budget is approved, we will record it as a deferred revenue. We will always amortize it over the useful life of the 5G base station.
Does that mean the revenue will be accrued to the revenue segment? Is that true?
Yes. It will be recorded as revenue. Yeah.
The revenue will be accounted for in the second quarter, or will be accounted for in the second half of the year? Thank you.
Yeah. We will include it once NCC approves. Yeah.
Okay. Does the NCC have the approval now, or will it be until the second half of the year?
Okay. It's not up to our decision. Yeah. We will leave for the NCC to decide the timing. Yeah.
Okay. Got it. Thank you. My second follow-up question is, we just have informed the commercial private network now, and we cannot disclose our customer's information. I'm just interested because we gathered the news from the media. They have informed about the commercial private network revenue, maybe we're up to more than TWD 1.7 billion. Could you give us some more details or even color about how many the commercial private network revenue in 2021 will be above the TWD 1 or 2 billion TWD 20 in 2021? Thank you.
We have no idea about the number you just mentioned. Yeah. We are not able to comment at this point.
Okay. Got it. Thank you. It's still helpful. Thank you.
Thank you.
The next question is coming from Jack Hsu, SinoPac Securities. Go ahead, please.
Many thanks for another chance to ask a question. I'm also interested with the ICT revenue segment. Some question is about the ICT revenue. I just want to clarify, if the ICT revenue is almost the same as the enterprise revenue or that is different? Thank you.
Yeah. ICT revenue, right? They are mostly enterprise revenue. Yeah.
Okay. How many percentage of the revenue is related with the ICT?
I think we mentioned that in the last year, the ICT related revenue, I think in the past it was already more than 10%, right? Roughly 10%. Last year, it's larger because last year we have a lot of large government-related project incurred. It's more than 13%. This year, we mentioned in the first quarter, in January, when we mentioned about the guidance for this year for ICT, which we mentioned about the percentage will be a little bit less because this year the bid project will be a little less. I think this year we anticipate like 12% kind of portion.
Okay. The ICT will be the 13% last year, and that will be the 12% in 2021. Is that correct?
Yeah, it's correct.
Okay. Got it. Thank you. Just one follow-up question, we just mentioned we will sum the budget about the data center deployment. Because I just missed the information, can you give us the information, how many our CapEx will relate to the IDC data center deployment in the 2021? Sorry. Thank you.
For Internet, our total capital expenditure is TWD 8.8 billion. In that section, mostly for IDC.
Got it. Thank you. It's very helpful.
Thank you.
As a reminder, press zero one on your keypad if you want to ask a question.
Okay. 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