Welcome everyone to Far EasTone's 2026 second quarter earnings conference call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question-and-answer session. Please follow the instructions given at the time if you would like to ask a question. For your information, a webcast replay will be available within one hour after the conference has finished. Please visit www.fareastone.com.tw under the investor relations section. I would like to introduce Mr. Gary Lai, the IR Officer. Thank you. Gary, please begin.
Good afternoon, everyone, welcome to Far EasTone's 2026 second quarter investor conference call. We have with us today our President, Chee, and CFO, Sharon. Both will share updates and performance for the quarter. Before we begin, I would like to remind everyone to pay close attention to the safe harbor statement on the first page of the presentation. Thank you. Let's proceed with Chee's presentation. Thank you.
Thank you, Gary. Good afternoon, everyone. I would like to first look at our second quarter financial performance. As you could tell, we actually have achieved a record-high performance with all KPIs exceeding our guidance. Our total revenue came to TWD 28.66 billion, EBITDA is TWD 10.15 billion. For the revenue, we are looking at a 13.6% increase YoY Just to clarify, because for the base last year, we have not consolidated with our subsidiary FETC. If we restate the base for last year, that is showing in the central column here. The restated 2025 second quarter, our total revenue was TWD 26.11 billion if we include the FETC second quarter revenue. The YoY, this is an apple-for-apple kind of comparison. YoY became 9.8%. Similarly for every other KPIs, you can kind of look at them yourself.
For the net income, we reached TWD 4.01 billion. This is actually a record-high net income performance for the second quarter, and our EPS came to TWD 1.11. For our guidance, you can look at from the far right, it says TWD 0.94. We are certainly exceeded our guidance for now. If we combine the two quarters for the first half, it's also we deliver growth above our guidelines, also from the YoY perspective, it is also looking very good. Our combined revenue came to TWD 56.47 billion, and our EPS came to TWD 2.14. For the net income, it says TWD 7.72 billion. If you look at a YoY, it's even in the double digits for operating income, net income, and also EPS. Compared to our first half guidance, the EPS is TWD 1.89.
That was the target. We now have a 2.14. It's looking pretty good that we exceeded our guidance. We expect to continue to do well for the second half. The investors should be happy with that. Okay. If we look at the trend for the quarterly performance, you can tell, in terms of the total revenue, EBITDA, and net income, also the EPS, each of the performance here has reached the record high. For the second quarter revenue, that's all the second quarter in history, the highest. For EBITDA, as you can see, actually, since starting in the first quarter this year, our EBITDA has kind of climbed up to the TWD 10 billion level. Continue to go up a little bit. We like to stay at this 100 level. Hopefully we'll get better.
This is our highest quarterly performance across all quarters for the history. Okay. In terms of the net income, it is 4.01. It's the highest quarter. Also in terms of the EPS, that's also the highest for the history. Okay. All right. In some financial metrics, our net debt, we have reduced it to TWD 32.8 billion level. The net debt to EBITDA improved to 0.83 multiple. Our year-to-date free cash flow remained really strong at TWD 14.5 billion. Also our CapEx for TWD 3.0 billion. It remains in line with our four-year guidance of TWD 9.6 billion. Okay. All right. For the combined half year kind of trend, this is also record-breaking all in for all areas. For our total revenue and operating income, also EBITDA and the EPS. Okay. All right.
That was also the slide actually I showed to my chairman when he came to the board meeting today. Okay. Okay. In terms of the key drivers for our revenue growth, here is a breakdown. You can see for the red area, that is our combined mobile and essential services, which accounts for 50% of our total revenue, showing a 2.4% growth. Merchandise, percent-wise, still 30%. The YoY is 11%. Actually, our merchandise in this quarter actually performs really well. On the other hand, merchandise margin is a little bit smaller. If you notice in the previous chart, we actually compare the margin.
Our margin rate wise compared to the same quarter last year, not as good. It's just the portfolio changed a little bit. Merchandise has a bigger weight in terms of their growth, it's stronger. Okay. In terms of ICT plus the fixed business, we grow 32.7% there. That includes the FETC's ICT revenue. Overall, that is our portfolio. Some of the drivers in the mobile area, of course, our steady continued 4G to 5G migration. For the monthly fee uplift for those 5G renews, we are looking at 40 point some percent uplift. It's a very good performance, very good quality migration. Also we manage the churn very effectively. Our essential services, although relatively small compared to the mobile service core base, it's showing a good potential and good growth potential.
A lot of them are in double-digit growth, like entertainment, for 29% year-over-year. Our fraud prevention features is showing a 56% increase. Our mobile financial service that has been around for a while, still continues this 8% year-over-year growth. Very steady. Merchandise, we see the upgrades, that definitely is the driver. I think some of the price is increasing, I think that places some uncertainty and gives some pull for the users to want to get the new phone sooner. We also see some of that purchase going on as well. That all helped the merchandise growth here. Merchandise also includes our shopping here. We actually have done some online, offline, online merger with offline. We see that very effective, the two channels combined strategy. It was well executed.
For the ICT and the fixed business area, our ICT revenue increased 23%. This 23% doesn't include FETC area, just pure our own core ICT revenue. This is driven by the cloud. Our subsidiary, Nextlink, they have a very good cloud growth. Due to that, they have a new acquisition of a Vietnam cloud service company. It shows a 30%. That subsidiary also outperforms their own estimate, their BOD target. In these four ICT concentration areas that we particularly see Smart City performs very well, it is YoY, they double the revenue, for the first half of the year. We had some acquisition earlier this year with a subsidiary, we actually seeing the contribution there as well.
FETC, as a new subsidiary to us, they have a very solid business growth for their toll collection, also some derivatives of business such as parking related. For their international expansion with the ICT project based on the toll collection construction, it is also going very well, that contribute to their growth very well. Some highlights for our mobile business. As I mentioned earlier, we're seeing the continued 5G upgrade, we have very strong MNP momentum, Mobile Number Portability, right? Mobile Number Portability, right. In terms of our MNP performance that we actually looked at every month, we are doing very well there. You look at our service revenue, it increased 3%, our ARPU continues to lead our peers.
It comes to TWD 733, although still lower than what we had before the merger with APT, getting close. Still, there's some I think we were at TWD 758. We definitely are climbing back, there's still some distance there. In terms of our post-paid 5G penetration, it is now 49.3%. This is the total base of the post-paid. If we look at only the smartphone users for the 5G penetration, this number would come to 53 or so. We look at the whole base. It is still at 49.3, my team still owes me a little bit more there, we definitely will break the 50% mark this year. The churn rate continues to come down, it is reaching the record low, we will continue to manage it down.
Some highlights for our consumer service. We have launched actually one major application that is called Taste Taiwan. It's a new app. It's a one-stop kind of dining service app. We already have attracted over 250,000 users by now. It is growing as well as we expected. In terms of another app that we didn't launch, but it is a service we put on our FET Mobile Circle, kind of using our digital reach, and partner with adjoe, that's a gaming platform, so our users that can play to earn. This actually is what I see as a very typical and a good example of a platform economy. It's really a platform monetization. This is actually generating revenue every month with a good growth as we speak. Okay.
In terms of the entertainment business, for our friDay Video, our paid subscription base has grown 20% YoY this year. Also revenue-wise, it's at 17%. Okay. We continue to expand our FET's footprint in the entertainment ecosystem and the IP content related. The users or analysts should see more kind of voice of Far EasTone in this area. We have some ID. Music Festival, and that is partnered with Spotify. As I was told, that is a first in how many years that Spotify did that with any of the local companies here. Okay. For the new mobile product, we launched 5G FWA, plus the home entertainment kind of package in April. We are also seeing a very good response from the market, and it is exceeding our target by 23% for this quarter. Okay.
We launched another product that is a mobile product that is different than our typical X99 kind of pricing. This is with a segment focus. This is a young segment. We call it Useful Companion, and it is targeted at Gen Z. 33% of our new subscribers came from this younger segment. Okay. Fraud prevention, I think I mentioned it earlier. The paid subscription grew 44%. Okay. This is with we continue to work with the vendor for the AI-enhanced capability. They continue to improve that, and also that helps the adoption as well. Just for reference, this is no money, but we blocked over 200 million attempted visits at those unsafe websites. What we consider as blacklisted for the subscribers of the service in Q2 alone. It is definitely doing its service. Okay. All right.
In the ICT area, our ICT revenue grew 23% in the first half. In terms of the contract value, we actually grew 103%. It's like a double what we had the last year for the first half. In particular, in the Smart City area, that we see a very strong growth there for 46%, and some big projects that we have gone from several cities, and that definitely helped. Also for Smart Healthcare, although the base is relatively small, but this is definitely one area it is growing slowly but surely. Our telemedicine contracts has grown 76% YoY, also the smart hospital solutions is growing 114% YoY. We also have some big wins, even though Smart Health base is small, it is definitely growing with a very solid, some wins. Okay.
In terms of digital transformation, that mainly is driven by the demand for AI, which then drives the demand for cloud. We have seen that trend since two years ago, and it just continues, even stronger. For the first year in our digital transformation service area, that already we are seeing 50% YoY revenue growth. Also the contract value that we have accumulated in the first half already surpassed the full year 2025 total. A few big wins, in terms of central government, we have one particular central government ministry cloud migration project, also two with the leading global Taiwan-based electronics and cloud infrastructure companies. Those are kind of big wins for us as well. For telecom-based SI, we have several multiple large-scale telecom SI, we have secured them across transportation and smart infrastructure areas.
The major wins including Taiwan Railways and also a leading technology company that is a BOT project, the smart building related. Also there is a government agency training center that's also smart building related that we have got a contract. Some major honors and recognitions for your information only. We have earned the BSI Data Centre Mark of Trust, as we were informed, this is the first IDC operator worldwide that is recognized for excellence in IT service management, so we took pride in that. Also we are Taiwan's Best Customer Service Golden Award, we won it for the 15th consecutive time, and that's the only company in Taiwan to achieve this distinction. Okay. We have some environmental sustainability that is recognized also some corporate governance and leadership-related awards for your information there.
I just won't go over them one by one. Okay. Finally, for our second half priorities, we will continue to accelerate the growth in the consumer essential services. As I say, that's where I see our potential growth is. Also ensure the timely delivery of the smart ICT project. What the numbers may not show, even though we're already seeing ICT with a 23% YoY revenue increase, we do have some projects that didn't complete as per our original schedule. Those revenue will be realized in the next quarter or so. Some of the revenue, otherwise, if they completed as originally estimated, our ICT revenue would be even higher. Okay. Ensure timely delivery of these smart ICT projects will be our priority as well. We have several. The pipeline actually is long.
Those AI projects delivery, as I mentioned, that was really driven by the enterprise interest and demand, which also drives the demand for cloud. Together, our delivery capacity and capability will continue to build up this team in response to this high demand. Okay. We have started our 5G standalone deployment, we'll continue to advance that per our schedule. Also Leo satellite service readiness. We already have the kickoff meeting with Amazon in July, we have formed several work streams, the work continues. Okay. All right. With that, I concluded my presentation, ready for your questions. Thank you.
Yes. Thank you, President Chee, for the presentation. Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question for any of today's speakers, please press star key and number one on your telephone keypad and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it's your turn to speak, you may press star key and number two to cancel the question. Thank you. Our first question will be coming from Ranjan Sharma, JPMorgan. Go ahead, please.
Hi. Good evening, management. Thank you for the presentation and the opportunity.
Thank you.
I have one question. On the advanced 5G standalone deployment, what is the benefit that you're seeing of standalone versus non-standalone 5G? How much capital are you looking to deploy? If there's any numbers you can share on IRR of these investments, it will be very helpful. Thank you.
If I'm not mistaken, I believe you asked the same question last time. Okay. For 5G SA, we look at it as a technology evolution and also a must-do on the way to be ready for 6G. On the other hand, with the 5G deployment, 5G SA, it will unleash some of these unique capabilities for enterprise applications. We are kind of fell short if we don't complete that part. We have looked at several different scenarios in both the consumer and enterprise areas. While my Network team is working hard on the deployment and all that, and my business teams are also working with the Network team to familiarize themselves with these features that are going to be available when, and then so they can design their product or service accordingly.
We definitely see the monetization opportunities there, and also on top of it, right? Part of these capital investment will also help us to further improve the penetration into the home because the 5G alone, with the 5G SA and also what we are doing with the 700 spectrum area. All these are kind of investment together in terms of our Network deployment that is going on right now. In terms of the network Quality network performance, and then also the potential of the future monetization opportunities for both consumer and enterprise. That's why we are doing it. In terms of, I think you asked about the scale, probably. I think we are looking at more than 50% of the coverage that we should be able to complete at by the end of the year in terms of having 5G SA deployed.
Part of that, we need to work with Apple, right? When we say we want to enable the 5G SA, Apple needs to certify, and then you need to show, demonstrate that if now you are just doing a POC and those kind of things. I think more than 50% of coverage is what we are looking at for this year, if I remember it correctly.
Thank you.
Sure.
Next one, Sigrid Qiu , JPMorgan. Go ahead, please.
Hi. Thank you management. Can you hear me? I have about four to five questions. Apologies in advance. Should I ask them all together or should I ask them one by one?
Well, either way. Well, it depends. Let's hear your first question.
That's it. Yeah.
We'll see.
Okay. Sure. Yeah. Maybe let me just take it one by one. My first few questions are about the ICT segment. Firstly, could you just give us a sense of the 103% year-on-year improvement contract value growth? What are the project specifics of these contract values?
Okay. You were asking about the ICT revenue growth and then specifically what kind of project they are and the contract values?
Specifically for the new contracts that we signed in first half and second quarter.
What? Contract value? Yeah.
Yeah
Should we review that? Yeah, we actually look at for the first half, I think more than TWD 8 billion that we have accumulated. We got more in July. Yeah, for cutoff at the end of June, it is more than TWD 8 billion. Okay? For ICT, we have four major concentration areas. The first one is telecom-based SI, the second one is Smart City, the third one is Smart Health, the fourth one is digital transformation service. I think in the Smart City and digital transformation service, in particular, we got quite a few contracts from the government, and those numbers are all big ones.
Okay. Thank you. My second question is about the AI project delivery that you mentioned towards the end of your presentation. Could you let us know how much of our ICT revenue right now comes from AI-related projects? For the AI-related projects, are we seeing any margin difference from the rest of the ICT projects?
Okay. I don't think we have a KPI, or we have specifically do that calculation there. I think I can answer. In terms of AI-related, right? I know a lot of companies talk about AI-related. This statement could have a lot of difference, right? What I am talking about here, I can tell you very specifically as we are the licensed solution provider for Microsoft. On one hand, we sell Microsoft service, the M365, for example, and also Azure. Those have been there, they got even more popular because the GenAI, the OpenAI association with Microsoft, and Microsoft recently has even opened up their AI-related capabilities in terms of the sourcing. We see all that. When we do this digital transformation, it is not just about selling the license.
More importantly is to make the customer see the value of getting these license capabilities. How we help them adopt AI, how we help them with AI tooling or AI capabilities. Now they have their fingers on, to create some application for them in terms of helping them either with productivity improvement or error detection. That is the service, the AI adoption and the AI transformation service we provide on top of the license selling. The total revenue here, because with the license, of course, that is like the base. All that other service, that is what's provided by my engineers. This is also, if you have heard the term FDE. The Forward Deployed Engineering.
This is the professional, understand the tooling and working with the clients, help them using the AI tool to solve their problems. This is what my team does on top of selling the licenses, because licenses themselves don't sell. It's what the capability that they can create, the value they can create for the clients that will sell, and my team sells that. That margin will be relatively high because the cost of the sold is low. It's my human capital and talent.
Sure. Thank you. That's very helpful. The last question regarding ICT is-
I actually can give you another piece of information if I didn't mention it earlier. Just this area, the revenue growth for the first half is 50%. We definitely see the momentum that is going really strong in this AI-driven cloud demand and the AI transformation service. We see ourselves as our clients' AI transformation partners.
Got it. Thank you very much for that. My last question regarding the ICT segment is, could you give us a sense of just the margin of our overall ICT segment? As the ICT contribution percentage to group revenue steadily increases, what's our view on the group EBITDA margin going forward?
You're talking about Smart City, right? You're asking Smart City?
No overall ICT.
No, overall. Oh, okay.
Yeah. Overall ICT.
If it's overall ICT, it is about 20%. I think it's more than 20, between 20 and 25. It depends on the portfolio. Every quarter it changes a little bit.
As ICT revenue contribution as a percentage of group revenue steadily increases, what do we think about the overall group margin going forward?
As you can look at it, the overall is like in 33, 35. Yeah, 35.8. Our EBITDA margin is 35.8% for the first half. Yeah, I actually showed it on the chart. If you look at it later, you can see that.
Okay. My last question is on CapEx. We have plans to build out 5G standalone and also Leo Satellite Services. I think at the start of the year, we also guided for actually higher CapEx for 2026. I think for first half right now, we're spending as the same amount as last year. Can I check what's the reason behind that? Will the bulk of CapEx come in second half?
Well, some of these are like when the POs are placed, also for us to really pay them, we have to complete the testing and all that. The CapEx, the realization will be showing in the second half. You will see more of that. Actually, we had our board meeting today. We just passed another additional TWD 1 billion. Right? Almost. We have additional CapEx requests that were approved this morning by our board. Actually, the CapEx number will be a little bit higher.
Okay. Thank you very much. I'll jump back in the queue.
Thank you. If you would like to ask a question, please press star key and number one on your telephone keypad. Thank you. Ladies and gentlemen, we are now in question-and-answer session. If you would like to ask the question, please press star key and number one on your keypad. Thank you. As a reminder, please press star one on your keypad if you would like to ask the question. Thank you. Okay, we still have it on the next one from Sigrid Qiu, JPMorgan. Thank you. Go ahead, please.
Hi. I'll just follow up with one question. President Chee, could you give us an update on our conversation with Amazon on the Leo Satellite Service? Could you also give us just a sense of how the partnership model would be like and what is the revenue potential for Leo service in Taiwan, please?
Well, first of all, some of the information you asked is really NDA, we have, in terms of a contract agreement, so I won't be able to disclose that. What I can tell you is, in addition to having the kickoff meeting, as I have stated this before in public, to be able to commercial launch the service, there are several gates that we have to pass with our central government ministries, MODA, NCC, and the CIB. We already have passed three of them, three out of the six. That is progressing well. A couple of them needed the support or approval from NCC, and we were able to acquire or secure the approval from the NCC before the commission expired. None of the commissioners are available now, since the new candidates haven't been approved by our Congress.
We are making good progress there, and we already completed three out of the six gates. That is progressing well. In terms of the revenue and all that, all I can say is, if this is not something that we see reasonable profit or we don't see big enough revenue opportunities there, that we won't just dive in necessarily. Those have to be reasonable. That goes without saying. Any more details, that's really within the contract, and I cannot disclose it.
Yeah, no problem. Thank you.
Sure.
Thank you. There are currently no questions. I'll pass the call back to Mr. Gary Lai. Gary, please proceed.
Thank you, everybody, to attend our second quarter 2026 results conference call.
They can always follow up with you if they have more questions afterwards.
Yes, please. Thank you.
Thank you, all.
See you next quarter. Bye-bye.
Thank you. Ladies and gentlemen, we thank you for your participation in Far EasTone's conference. There will be a webcast replay within an hour. Please visit www.fareastone.com.tw under the Investor Relations section. You may now disconnect. Thank you again. Goodbye.