Good afternoon, ladies and gentlemen. Welcome to the Taiwan Mobile conference call. Our chairperson today is Mr. Jamie Lin. Mr. Lin, please begin your call, and I'll just stand by for the question and answer session. Thank you.
Thank you, operator. Good afternoon, everyone. Welcome to Taiwan Mobile's second quarter 2026 results conference call. We are reporting a record quarter in revenue and profitability outperformance. But before I share more details, please refer to our safe harbor notice on this page. Now let's start with our business overview. Please turn to page 4 for Q2 highlights. In Q2, our three-tier flywheel demonstrated remarkable momentum. Our core growth engines, namely Telco +, and Telco + Tech, all delivered robust YoY top line growth, reinforcing our position as the market leader as an AI-powered ICT company, or an AICT company, as we call it. On the profitability front, Q2 proved to be the landmark quarter as we continue to embark on our golden decade journey. Consolidated EBITDA and EBIT rose by 9% and 18% YoY, respectively, with EBIT reaching a two-decade high and showcasing powerful operating leverage.
Coupled with significantly enhanced non-operating performance, net income surged by 38% YoY, with EPS reaching TWD 1.49, delivering the highest EPS in the sector for three quarters in a row. This standout profitability was underpinned by our proactive integration of AI to drive operational efficiencies, optimized subsidy and commission structures, as well as disciplined CapEx management, which led to a lower D&A expenses. George, our CFO, will explain our structural cost optimization in more detail later. Now let's take a closer look at our Telco core business on the next page. Telco core includes our mobile and home businesses. The sustainable growth foundation strategy continues to yield excellent results, reflected in our record low postpaid churn rate of 0.5%, a 9 basis point improvement over the same period last year, and the 3% YoY increase in smartphone ARPU to TWD 689 in Q2.
As a result, our Q2 mobile service revenue grew by 3% YoY, hitting an all-time high. 5G penetration came in at 45%, up 3 percentage points YoY, leaving us ample runway to upsell going forward. For contract renewals, we delivered a 6% overall monthly tariff uplift, driven by a 46% bump up in 4G to 5G upgrades. As a result, 5G revenue grew by 8% YoY, lifting its contribution to mobile service revenue to 69%. This commercial success is firmly backed by our leading network quality. In Opensignal's H1 2026 report, Taiwan Mobile ranks number one across six key categories, taking sole ownership of the top spot and placed in the global top three in both network reliability and consistent quality, while leading in video and voice app experiences. Our unique bundles serve as a strong moat, consistently driving upselling and customer loyalty.
In Q2, we introduced a new high-value multi-platform OTT bundle that combines mobile data with a two-year subscription to Netflix, Prime Video, HBO Max, and our own MyVideo. Similar to our existing double play and OTT bundles, the vast majority of subscribers opted for TWD 999.90 or higher rate plans, driving sustained subscriber and ARPU expansion. Moving to the home business segment, our broadband business recorded a solid 5% YoY growth in Q2. Including double-play users, broadband users, and speeds of 300 Mb or higher surged by 22% YoY, greatly outperforming the incumbent player. Next, let's turn to page 6 for our growth engine number two. In the Telco + segment, we continue to unleash the potential of our give that service model, providing integrated AICT solutions for enterprise, AI data center, and cybersecurity services to our enterprise clients, including high-potential SMEs.
Growth in this segment has been stellar, with revenue surging 19% YoY in Q2. This performance was driven by key government SI projects, steady contributions from our AI data center. Notably, our data center revenue soared 89% YoY in Q2, while our AICT for enterprise business also expanded significantly. As enterprises accelerate their AI-led transformations, Taiwan Mobile is uniquely positioned as the premier partner of choice, backed by our robust infrastructure and telecom-grade reliability. This provides a powerful long-term tailwind to our telecom service revenue. Next, let's turn to our new Telco + and Tech businesses. Our third growth engine, Telco+ Tech businesses, delivered a 4% revenue growth in Q2 while our new Telco + Tech businesses, which excludes momo.com, grew by a robust 18%, driven by strong execution across three key businesses.
First, our direct carrier billing business, or [Foreign language], continue to expand steadily as we broaden our service offerings to drive recurring usage. Leveraging proprietary AI algorithms for precision targeting and risk management, we are seeing accelerated adoption of carrier-based payment across our user base. Second, our e-commerce services for brands, or [Foreign language], grew exponentially with revenue more than doubling YoY. This was driven by strong sales performance from key anchor brand clients such as Royal Canin and Philips, alongside the addition of a new channel partner in Q2. Furthermore, the upcoming launch of Japan's iconic lifestyle brand, 3COINS, across key channels, especially momo.com, will help fuel our top-line momentum as we head into the second half of the year.
Third, our proprietary OTT brand, MyVideo, delivered solid top-line revenue growth through both platform subscriptions and content investments, boosted by the strong box office performance of several key titles. Finally, let's take a look at momo.com. momo.com's GMV growth accelerated to 7% YoY in Q2. Since March, momo.com has delivered four consecutive months of YoY revenue growth, driving a 4% YoY revenue increase in Q2. They raised solid, modest YoY expansion while EBITDA margin maintained resilience despite market competition. Combined with reduced D&A expenses, momo.com's operating income grew by 3% YoY in Q2. On the cash front, its negative cash conversion cycle provided a powerful working capital tailwind, driving an even more pronounced increase in operating cash flow. The key growth initiatives, MoShop Plus and Retail Media Network, or RMN in short, continue to expand rapidly.
Our 3P marketplace, MoShop Plus, now features over 3.7 million SKUs and more than 10,000 selected merchants, delivering double-digit YoY GMV growth in H1. Simultaneously, the RMN initiative gained further traction, with merchant penetration reaching approximately 50% as of quarter end, and revenue surging by double digits YoY. With that overview of our strategic progresses, I'll now turn the floor over to our CFO, George Chang, for a detailed look at our financials.
Thanks, Jamie Lin. Good afternoon. Let's begin with our performance by business segments. In 2Q 2026, our telecom revenue delivered a solid 4% YoY growth, with fixed line business contributing about half of this revenue expansion. Telecom EBIT rose by 25% YoY, representing 77% of our consolidated EBITDA. This massive margin expansion highlights our operating leverage driven by strong growth across all three engines, improving cost disciplines in customer acquisition and retention. Accompanied by a gradual revenue recovery over the past two quarters, momo.com's EBITDA has stabilized YoY, whereas EBIT grew 3% YoY thanks to a decline in D&A as momo.com strategically reduced its reliance on third-party logistics facilities and enhanced fulfillment efficiency. Accounting for our equity stake, momo.com contributed roughly 6% to Taiwan Mobile's net income in the second quarter. Finally, CATV EBIT dipped YoY, but this was mainly due to a high base in the pay TV business.
Broadband profitability remained robust with double-digit YoY growth. To further elaborate on the power for operating leverage in our telecom business, as you can see on page 11, telecom revenue grew by 4% in the second quarter, but telecom EBIT grew by 25% YoY, expanding at more than six times at the rate of the revenue growth. Within this YoY EBIT growth, more than half stemmed from AI-driven structural efficiency gains in subscriber acquisition and retention costs. As mobile CapEx continue to trend down, lower telecom D&A expenses contributed another 16% to the EBIT increase. Let's go to the results summary. Consolidated revenue rose by 4% YoY as Telecom, momo.com, and Cable TV all delivered revenue growth for the two quarters in a row. Operating income went up by 18% YoY, setting a new quarterly high in over two decades.
On the non-operating front, expenses dropped significantly YoY, mainly driven by lower financing costs, higher equity method income led by Systex, mark-to-market gains on our investment holdings, and favorable base effects from second quarter 2025 asset write-offs and FX transaction losses. As a result, 2Q 2026 net income surged 38% YoY to a 20-year high. For the first half of 2026, EPS reached TWD 2.86, the highest among our peers. Let's move on to balance sheet. We continue to drive improvement in our asset efficiency and balance sheet strength. Within current assets, accounts receivable and contract assets grew 11% YoY, in line with top-line expansion across all business. In non-current assets, PP&E declined as capital additions stayed below depreciation with 5G rollout and network consolidation CapEx now behind us.
On the liability and equity side, our disciplined capital management and steady cash flow generation allowed us to reduce gross debt by TWD 8.5 billion quarter-on-quarter, and TWD 10.9 billion year-over-year. During this quarter, we also successfully monetized a portion of our treasury shares, adding about TWD 4 billion to both our cash balances as well as total shareholders' equity. Notably, at the end of second quarter, our legal reserve balance has reached the statutory threshold of our paid-in capital. As a result, we are no longer required to set aside earnings for legal reserve, and that will give us greater flexibility for future profit distribution. Finally, driven by ongoing debt reduction and earnings growth, our net debt to EBITDA ratio dropped to 1.33 x, while ROE expanded to 19%, underscoring our sharp focus and sustained capital efficiency. Lastly, let's look at the cash flow.
Moving to cash flow and capital allocation, in second quarter, we delivered robust operating cash flow growth YoY, driven by expanding telecom EBITDA and favorable working capital dynamics at momo.com. Investing cash flow decreased both sequentially and YoY. The drop reflects a high comparison base from our strategic media investment, Q1, while the YoY decline was primarily driven by reduced CapEx in mobile and momo.com. Backed by strong cash flow generation, we accelerated debt repayment during the quarter, well exceeding both Q1 and prior year levels. Consequently, second quarter pre-IFRS 16 free cash flow surged to TWD 7.45 billion, delivering an annualized free cash flow yield of 8.4%, further strengthening our foundation for sustainable shareholder returns. Let me turn the presentation back to Jamie for event update and key message.
All right. Thank you, George. Let's turn to page 16 for our 2026 guidance update. Our strong performance in the first half, as you can see, driven by greater operating leverage from AI-led structural cost savings, gives us high confidence heading into the second half of the year. As a result, we are raising our full year 2026 profit guidance. We're maintaining our revenue growth target to 5%-7%, while upgrading our outlook for full year telecom operating profit growth from 4%-6% to 13%-15%, and consolidated operating profit from 1%-2% year-over-year to 7%-9% year-over-year. Please note that this guidance is presented on the standalone basis and does not incorporate any financial or operational impact from the proposed tender offer of Systex. Alongside our raised guidance, let's also look at our recent achievements in ESG and corporate recognition.
On the next page, I'm very proud to share that Taiwan Mobile has once again achieved top honors in Extel's All Asia Exec Team Survey. For the fourth consecutive year, we have been named a Most Honored company in the overall Asia region, remaining the only Taiwanese telco to consistently hold this distinction. Furthermore, in the rest of Asia region, we secured number one overall ranking for the fifth year in a row with our CEO, CFO, IR team, board, and ESG all placing in the top three brackets in their respective categories. On behalf of our leadership team and our board, I thank you for your trust, your continued partnership, and your recognition of our team's pursuit of strategic excellence and commitment to world-class execution with strong corporate governance. Speaking of which, we ranked in the top 5% of Taiwan corporate governance evaluation for the 12th consecutive year.
One of only seven companies in Taiwan to achieve this track record. On the environmental leadership, we earned the highest A rating in CDP Supplier Engagement assessment for the fifth straight year, alongside continued inclusion in the DJSI World Index and FTSE4Good TIP Taiwan ESG Index. On the technology front, our next generation non-terrestrial network solutions won the GOA award in the inaugural Satellite Digital Application Innovation Competition organized by the Ministry of Digital Affairs. Furthermore, our in-house developed AI solution, Vortex AI, or [Foreign language] in Mandarin, received the Taiwan AI Award and Silver Award for Product Innovation at the AI Taiwan Future Commerce Expo. This highlights our leadership as one of the few telecom operators in the world who successfully achieved the productization of in-house AI capabilities.
Next, to conclude our Q2 presentation, here's the key message we would like for you to take away with. First, regarding our key growth drivers, we are driving sustained momentum across our mature core telecom operations and momo.com business, while expanding rapidly in our Telco + and new Telco+T ech businesses. Second, on capturing alpha in the agentic era, we are pioneering AI-driven structural cost reductions and productizing the platforms we have built, which in turn accelerates growth of our enterprise business. Finally, for our future outlook, we are fully confident in our ability to meet our updated four-year financial guidelines, and we remain firmly committed to maximizing long-term structural increase in shareholder returns, thereby delivering a golden decade. To further accelerate this next phase of growth, we have also taken a major step forward on the M&A front.
On page 19, as you've seen in our material information announcement from August 12th, we are launching a tender offer through our wholly-owned subsidiary, TCC, or [Foreign language] in Mandarin, to acquire up to 58% additional stake in Systex on top of the 11.86% we have already owned since September of 2024. Here's a summary of our deal terms and timeline. As shown on the slide, the offer features a 50/50 cash and stock split with a cash portion fully supported by TCC's own capital and group borrowings. The transaction is subject to Taiwan Fair Trade Commission approval, with the tender period running from August 18th through October 6th. All detailed figures are on the screen for your reference.
More importantly, let me walk you through the three major synergies of this transaction on the next page, which will allow us to double our enterprise ICT market share and drive bottom-line growth. First, cross-selling and broadened market reach. By combining Taiwan Mobile's CT leadership with Systex IT capabilities, we are aligning our software R&D and salesforce across cloud network software, hardware, and cybersecurity. With nearly 4,500 software engineers and 1,000 sales professionals across two groups, we will offer comprehensive one-stop AI and ICT solutions, unlocking massive cross-selling opportunities across enterprise and government markets. Financially, as Systex is a profitable business, recognizing investment returns alongside these synergies will be immediately accretive to our EPS in year one. Second, AI. To fully capitalize on the enterprise AI transition, we are matching our AI DC infrastructure, already at 25 MW and growing, with Systex AI for IA industry solutions.
This synergy ensures seamless AI application deployment for enterprises powered by our high-performance AI DC and high-speed network assets. Third, regional opportunities. Taiwan Mobile and Systex share highly overlapping regional development strategies in Asia, with both companies already expanding into Japan and greater Southeast Asia.
Through this deep strategic alliance, we will join forces to accelerate our expansions in these regional markets and capture larger international opportunities. In summary, this strategic investment bridges IT and CT, paving the way for sustainable growth and enhanced long-term shareholder value. Finally, on the next page, here is a pro forma net income contribution analysis under different ownership scenarios for your information. With that, let's open the floor up for questions. If you are participating online, you are more than welcome to send your questions via the online chat box. We will begin by addressing the telephone line inquiries before we move on to the web.
Operator, please go ahead.
Thank you, Mr. Lin. Ladies and gentlemen, we will now open for questions. If you would like to register for a question, please press star one on your telephone keypad. Thank you. Our first question comes from Sigrid Qiu with JP Morgan. Please go ahead. Thank you.
Hi, thank you very much. Thank you, Jamie and George, for the presentation, and congratulations for a very strong set of results for second quarter. I do have a long list of a question. Would you prefer for me to ask all of them at once or take it one by one?
Hey, Sigrid. Let's take it one by one. It'll be easier. Thank you.
Okay, sure. Thank you. My first question is on Systex acquisition. You mentioned that after the acquisition, you will double your enterprise ICT market share. Can I just check what's your current ICT market share?
The combined market share between the two groups would be at around 7%, and we're shooting to double that number in the next five to six years.
Understand. For the AI DC opportunity that you mentioned on the synergies slide, will we look to expand more on AI DC revenue opportunities beyond the ones that we have at the moment? I understand that is with the GMI Cloud. If we're going to do that, what is the capital needed to expand that part of the business?
Yes. We are talking to many partners in terms of securing AIDC compute capabilities. As you may know, right now, the bottleneck for enterprises to deploy AI applications is in securing enough data center computing power. Our pipeline of AIDCs that will come online in the next 12 - 24 months will allow Systex to be much more aggressive in securing AI applications business across their customer base. Our strategy here is working with infrastructure developers so that it is more of an asset-light model for us.
Got it. Understand. My next question is on group CapEx. I noticed that group CapEx has been coming down. Would you just remind us what is the main component of our CapEx at the moment? To follow up, our peers are spending more CapEx on network upgrade. Do you see that we have similar needs at Taiwan Mobile side? Maybe you can just give us a sense of how we are going to plan CapEx going forward. That would be great.
Like we said during the presentation, I think 5G rollout is behind us. Going forward, yes, we will use AI-driven sort of strategies to spend CapEx in a wise way to make our network perform better. We do not foresee this to be a huge capital demand going forward.
Understand.
As far as on the cons-
My last question.
Oh, sorry.
Oh, sorry.
Sigrid, I was going to say that, as far as on a consolidated basis, the majority was still telecom-driven in the first half. momo.com was probably less than 10%, or around ±10% .
Okay, great. Thank you. Got it. My last question is on guidance. I am looking at the updated guidance of consolidated operating profit of growing at 7%-9% year-on-year. Our first half growth rate is well exceeding the upgraded guidance. May I understand, are we baking in some form of conservatism for the second half, or I just want to understand why the guidance is much lower than the first half growth rate.
Yes, I think you were pretty accurate in sort of anticipating our stance. We didn't want to give a guidance that we don't have 100% confidence in achieving.
Can I just follow up on what's the reason for the conservatism?
Well, if you look at the second half, let's not forget that it's usually the seasonal factor from an Apple launch, for instance. Whether that will have any impact on the retention acquisition cost is a little bit less certain versus first half. As we explained earlier, if you look at the operating leverage, try to break it down. The D&A was actually a big portion, and you can pretty much assume that that's going to be sustained in the second half at least. Yes, to simply answer your question, I would say the guidance implied for the second half definitely is on the conservative side.
Okay, thank you. I'll jump back in the queue.
Thank you so much.
Thank you. Our next question comes from Charlie Bai with HSBC. Please go ahead. Thank you.
Thank you. Thank you for the opportunity to ask a question. Congratulations on the strong result. I have two follow-up questions regarding the proposed tender offer for Systex. The first one, as you just mentioned, you are targeting to expand the software IT service market share from 10% to 14%. May I know what's the action path to achieve that? Is that organic or self? That's my first question.
Thank you. Thank you for the kind words. Yes, like we mentioned during our presentation, the three main strategies are, number one, cross-selling, number two, AI-driven growth, and number three, regional expansion acceleration. We plan to execute those three strategies really diligently so that the combined group can be growing at a much faster pace after the tender offer's success.
Got you. Thank you. My next question, also a follow-up question on the AIDC. After your merger, may I know what your combined total current AIDC capacity, assuming you acquire Systex, and how much is your future plan AIDC capacity? I know that your peer, Chunghwa Telecom, just announced a big AIDC kickoff recently. How do you see the competitive dynamics in Taiwan regarding AIDC market?
Right. Thanks for the question. Any sort of AI-grade DC properties. For us, if you combine our more traditional DC and AI DC, we are standing at a little bit above 30 megawatts. We are looking to grow this portfolio quite proactively in the next 12 - 24 months. Like we expressed earlier, we will be growing this mostly through an asset-light model.
Got you. Can I consider that you will first secure clients and then kick off the projects? What is the dynamic? Lin, what are your anchor clients in your mind? Global CSPs or local Taiwan tech companies? Any color would be really appreciated.
Right now we have a pipeline of projects that we are evaluating together with our developer partners, multiple developer partners in multiple locations, both in Taiwan and outside of Taiwan regionally. In terms of customer base, right now we are receiving very strong demand from corporates and also neoclouds. We will be under indexing the three hyperscalers as the business model there is less attractive.
Got you. Thank you very much.
Thank you.
Thank you.
Thank you once again, ladies and gentlemen. If you would like to register for question, please press star one on your telephone keypad. Thank you. Once again, ladies and gentlemen, that is star one for questions.
Operator, if there is no more questions from the telephone line, we would like to move to the online chat box question.
Yeah. Sorry, no questions. Thank you.
Okay, great. Thank you, [Debbie Tan] from Shin Kong Life Insurance. Your question is, President Lin, could you share your strategic intent behind acquiring Systex? Beyond the profit contribution that can be recognized from the acquisition, are there any qualitative figures that have translated into actual profit that lift? Debbie, I understand that you asked this question before we gave the presentation on our thinking behind the tender offer. If I may, I would reiterate our three core synergy driver would be cross-selling, AI-driven enterprise business growth, and also regional expansion opportunities. We see all three being major growth accelerator that the two groups can come together and execute and really grow our market share in the next five, six years from 7% to 14%. We see a huge synergy to be generated as the two groups work together.
Hope that answers your question. If you have additional questions, please do leave your follow-up questions in the chat box. Next, I would like to address another question from Kirk Boodry from Bloomberg Intelligence. The question goes, "Hi, how often does it take to deploy data center capacity from contract signing to opening? Also, you mentioned neoclouds. What is the relationship you have with companies like this?" All right. Thank you, Kirk. We're taking an asset-light approach. We're mainly working with newly built greenfields or brownfields that can be quickly deployed into AI DC, usually within 6 - 18 months. That's why I say that in our pipeline, we have multiple locations that we're looking to light up in the next 12 - 24 months.
We communicated before in our press releases, our TAIDC 01, we're working with one of the neoclouds called GMI Cloud, and we have a very close relationship with them. We are actively engaged in discussions with a few other neoclouds. It's been a win-win partnership for us and GMI Cloud, and we like to replicate this type of partnership with both GMI Cloud and other neocloud providers. Hopefully that answers your question. Operator, we can check if there's more questions from telephone line.
Sure. Once again, ladies and gentlemen, if you'd like to register for question, please press star 1 on your telephone keypad. Thank you. We have a follow-up question from Sigrid Qiu with JP Morgan. Please go ahead. Thank you.
Hi. Thank you. Thank you for taking my question again. I just have a follow-up on the neocloud question. You mentioned hyperscaler and business model is a lot attractive as compared to neocloud. Could you elaborate more on what makes hyperscale business model less attractive as compared to neocloud? Thank you.
As you can observe from NVIDIA's latest reporting structural change, they are breaking out public cloud business and other cloud business. The reason why they are doing that is the three hyperscalers are getting so big, they have a lot of leverage against their suppliers. Doing business with them at this point is not as attractive as if you were to do business with emerging players at neocloud and also corporate customers. Granted, with corporate customers, their per order demand is a bit less. It will take us and Systex to work together to secure several orders in order to fill a data center. That is also why we see the synergy as being win-win for both sides. Hopefully that answers your question. Good.
Thank you. Once again, ladies and gentlemen, if you would like to register for questions, please press star one on your telephone keypad. Thank you. Once again, ladies and gentlemen, that is star one for questions. This is Wayne. This is the line. There seems to be no further question at this point in time. Thank you.
All right. Thank you, operator. I want to thank everyone again for your support, and we will look forward to seeing you again at our next earnings call. Bye now.
Thank you. Thank you for participation. This concludes our conference. Thank you. Goodbye.