Welcome, everyone, to Far EasTone's 2026 third 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 that time if you would like to ask a question. For your information, a webcast replay will be available within an hour after the conference is finished. Please visit www.fareastone.com.tw under the Investor Relations section. Now, I would like to introduce Mr. Gary Lai, the IR officer. Gary, please begin.
Good afternoon, everyone, and welcome to Far EasTone third quarter 2026 investor conference call. Joining us today are our President Chee and CFO Sharon. They will both join us for the Q&A session after the presentation. Before we begin, I would like to remind everyone to please review the safe harbor statement on the first page of the presentation. Thank you, and now let me hand it over to President Chee.
Okay, thank you, Gary. Good afternoon, everyone. Thank you for joining. Far EasTone had a good third quarter. As you can see, all key financial metrics have exceeded our BOD guidance for the third quarter and also grew YoY positively. The total revenue comes to TWD 29.76 billion for the third quarter, and the EBITDA has exceeded TWD 10 billion. Margin-wise, it's 33.9% compared to our guidance. It's a little bit less, and this is due to we have done really, really well in the merchandise sales, so that kind of dilutes the margin a little bit. But it's just for the mix of the revenue. Our operating income does stand out. If you look at it's TWD 4.95 billion, and the margin is 16.6%. It's an improvement from the third quarter of last year, and also the YoY is 18.3%.
The net income is TWD 3.67 billion, and our EPS for this quarter comes to 1.02 versus our guidance for 0.97. If we look at the YoY growth on the right, there are two columns for your reference. The first part is just the pure YoY, and last year, as you know, we did not have merged FETC yet. But then starting this year, FETC becomes part of our subsidiaries. On the right-hand side, the restated column is actually to include FETC's revenue information in the comparison for the base. As a result, our YoY after the restated is 8.8%. It is still better than our original target of 3.5. The net income, there's no impact there, so it is still a 6.6% year-over-year growth. Okay. All right, for the next slide, you can see this is a sustained growth momentum there.
For the TWD 29.76 billion for the revenue, that is a record for the third quarter, record high for the third quarter in our history. It is also the 24th consecutive quarter of the year that we have shown the YoY growth. Of course, the drivers are the typical. We continue to do the upgrades, 5G upgrades very well. In fact, in September, it is on the iPhone launch date, we actually have exceeded 50% of the penetration for our postpaid customers. Also the handset and merchandise, as I mentioned earlier, and also our ICT project delivery all drove growth together. For the EBITDA, it is TWD 10.09 billion. It is also a record high for the third quarter. The third quarter operating income rose 18.3%.
That is also very good, and we continue to improve our margin across all business segments, including the back office as well, our efficiency and all that. In terms of the net income, it is a 21-year third quarter high, and the EPS is TWD 1.02. It is also the 16th consecutive quarter of the year-over-year growth. For the cumulative for year-to-date, for the three quarters combined together, as you see, it is a very solid result. Our total revenue already is TWD 86.23 billion versus our full-year guidance that is TWD 117.48. Our EBITDA comes to TWD 30.32, and our EPS is TWD 3.16. So we are confident that we should meet our guidance this year as the strong results so far. Some financial metrics for your information.
The net debt has declined or continued to decline, and our net debt to EBITDA continued to improve. It is now down to 1.05x. The free cash flow remains very healthy. As of third quarter 2026, it is TWD 20.65 billion. As for the cash-based CapEx, we are now at a TWD 5.44. We expect to fall slightly below our annual guidance, which is a TWD 9.6 billion. This has to do with the network assessments and then testing and all that. We are trying everything we could, but then we probably will still fall a little bit just below the guidance. As I mentioned earlier, our revenue growth is really broad-based, so in several major areas.
First of all, for the mobile and essential service, this continued 4G to 5G migration has been very smooth, and so we didn't really do any, like spend extra money to promote or push, but then this has been a very steady migration or uplift for us. The enterprise customer expansion in the mobile area also has done very well recently. We continue to manage our churn. It is now down to the 0.7%. Also we have been working on our various digital services, including in the entertainment area, and it is a 26% YoY improvement. Also for our fraud prevention service, and it has also grown 48% YoY. Our insurance agency service continue to expand, and then it is looking at a double digit. So this is already beyond the device insurance. It is more than that.
This continuous growth in this insurance agency area as well. Our merchandise, in addition to the sustained 5G upgrades and the premium device, there is a strong demand. Although iPhone only happens, I think mid-September, we already see some of the demand coming. For the third quarter, it only captures a little bit of that. Overall, we did see a very good demand and also the sales in the merchandise area actually is better than our guidance, and that is also why margin-wise, it actually comes down a little bit than our expected from the BOD guidance. We also have done online merge offline some of these new innovation implementation, and that has done very well, and then that also helped this merchandise sales as well. For ICT, overall, our revenue grew 21%. This continues to be FET's growth engine.
This is driven by cloud business, and it is up by 37%. Smart City and the IoT area also see a lot of demands and a lot of on-time deliveries, and it is a 41% growth YoY. Our subsidiaries, including the ones we acquired recently, they also increase the contribution as well. Some highlights for our mobile business. Overall, the mobile service alone, the revenue growth is 3.0% YoY. The postpaid 5G penetration, as I mentioned, it already surpassed 50%. The mobile postpaid, our ARPU has come to 736, still leading the industry, leading our peers. For the postpaid churn rate, it continues to hit our record low for us. Overall, this says a lot about our service quality and our ability to retain customers and create values. That is driving our growth here.
Some business highlights are combined in one kind of slide for you. In addition to our mobile leadership, that is in terms of 5G penetration and all that, and also the best-in-class economics in terms of our ARPU, we also see that the segment-oriented plans that we started kind of deploying is definitely gaining traction. The Golden Time subscription has jumped 85% more quarter- over- quarter, and the Useful Companions, compared to the month before, has increased 44%. Our fraud protection area, we continue want to stress on the network need to be reliable and dependable. We taking the fraud protection business very seriously.
In addition to our own Guardian Network revenue that has grown 48%, we have just installed a risk call alert feature that for all of our 8 million users for free. Since we turned this feature on just about a month ago, has been already 4 million alerts sent out in the first month. This is to protect our users from accidentally accept or answer a call that is actually a fraudulent call. This is to protect them. In the digital engagement area, it is continuing to grow. Our Mobile Circle, it is our digital platform, digital reach platform, already is generating 10 million referrals every month, and that is like a 34% growth year- over- year. friDay Video, for the paid users, that also has shown a double-digit growth. That is 14%.
The Taste Taiwan application we deployed in the May timeframe has already reached almost 500,000 registered users. That is within five months of its launch. On the enterprise and government side, we show the strong ICT growth momentum, and for the first three quarters project delivery, revenue is at 21% YoY. But then also the new contract wins that we have got is a 71% growth compared to the same period last year. We are very busy in the smart city area, very busy rollouts in these areas for the smart infrastructure deployed and with the AI-enabled systems, management systems, and for several local governments. Also the digital transformation that is really boosted or reinforced by this interest and desire or demand for AI adoption.
We are seeing this growth across government and high-tech companies that is helping us drive the recurring service revenue in this area. Our smart healthcare expansion, this is more than our telemedicine platform. We have also continued to deepen our penetration in the medical centers. Also the Cloud HIS that we actually developed in-house and already has reached 200 clinics. For the telecom-based SI, there has been a high demand driven by this demand for resilient infrastructure and from both enterprise and the public sector clients. These are giving us a lot of demand there. Also, we see this trend continues at this moment. We received some major honors that we can share with you.
The first one on the list is the MSCI ESG giving us a AAA rating, and this is the second year for us, and this is really reinforcing our commitment to sustainability and also our leadership in this area. Also for the 2026 Taiwan, the FINI 100, foreign investors' top pick. That is for us also second time in a row. We also received for the FET Cloud, although it is just kind of deploying, and as I mentioned, to 200 clinics already, but we are very proud to already receive a bronze medal in the smart healthcare at the 2026 National Healthcare Quality Award. This means a lot to us because this is a totally homegrown development work, and I am very happy for my team.
Also we won the best collaboration brand and creator at this 2026 YouTube Works Awards. This is for the three videos that we actually work with opinion leaders or influencers on kind of demonstrate our FET network quality and performance. The background are all those beautiful railroad routes. They got a lot of attention. Some of the users called in, and they thought we are promoting for Taiwan Railway. But it was a very good series. There are three of them, so we won this award for that. Our friDay Video continue to win this 2026 Best Reviewed Online Award. I think this is the fourth time in the row now. Also FET as a service company, we already won this Taiwan Service Industry Survey Gold Award for the 15th consecutive year, and this is the only one company.
The record is unbreakable so far, so we have to kind of halt for a while and hopefully encourage more service companies, and this is like for them. This is definitely an honor for us. This is almost the end of the year now, so we will continue to focus to scale our growth in the consumer essential service area, the digital services, and also for those ICT projects. We want to deliver them on time and with quality. Also for the AI service delivery that we see, we already have a long pipeline, but then we want to expand our capacity, and then so we can monetize and convert those quickly. We will finish this year strong. With that, I conclude my presentation and ready for your questions. Thank you.
Yes. Thank you, President Chee. 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, please press star key and two to cancel the question. Thank you. First question we'll have Ranjan Sharma of JP Morgan. Go ahead, please.
Hi. Good evening, management. Thank you for the call.
Sure.
Two questions from my side, please. First is, if I look at the third quarter numbers, the net income growth of 7% is slower than the growth in revenues or operating income. Can you help us understand why that's the case? The second question is, of course, you've seen pretty strong growth in the top line. Are there any lumpy project-based revenues in there, or it's all recurring revenues? Thank you.
I'm sorry. I was checking your number for the first question, so I missed your second question. Would you repeat that, please, for me? The second question.
Yeah. Second question is, you have pretty strong growth in your revenues at 13%. Is it all recurring revenues, or do you also have lumpy project revenues which might be non-recurring?
Okay. The 13%, where was that? Where were you referring to that you see the 13%? I was trying to just match up your numbers here. You are talking about the YoY?
Slide three.
Oh, okay.
Yes.
Sure. While we are on it, let me answer that first. Yes. For overall, like our portfolio, more than half of it is like a recurring revenue, because most of that is like our mobile service, and that, by nature, it is a subscription-based. Even our digital services, most of them, if not all of them, are also subscription-based. That already tells you at least 50, more than 50% is like that. Okay? For the ICT, although they are all kind of like a project-based, for every ICT project that is completed, some of them there will be like a maintenance after a year of a warranty, and then there are the maintenance, so those will become like a recurring. Those are also the kind of a buffer we are trying to build with all these ICT deployed.
Every time we deploy a project and with the common solutions that we have built internally, we at the same time are creating these cushions from the ongoing maintenance that will be required after each project. There is that. Also our fixed service, our fixed network, those are also subscription-based. Really, it's the merchandise, about 30%, and some of the ICT as the first time, one time only, and then those are like a one time only. I'll say probably more than 60%, more than 60% easily, 60, 65% at least, those are recurring. Okay? Did I answer your question, the second question, right?
Yes. Okay.
Okay. I think your first question was comparing the YoY between the revenue and my operating income?
Oh, yes. I was asking you, your net income growth is lower than operating profit growth or the revenues growth. If you could help us understand why that is?
Oh, okay. That reflects some of the asset of our core business, right? Some of the investment, yeah? How they show operating income.
[inaudible] net income.
The net income. In terms of YoY, yeah. Yeah, non-operating factors, and some of them reflect the investment and also, yeah.
Some investment.
Right. So purely investment-related. And also the base-
Okay. Got it.
no, the smaller, so the fluctuation in terms of percentage, the sensitivity is different.
Okay. Maybe if I can have a quick follow-up.
Sure.
The free cash flow profile of the business, how does the first nine months compare versus the previous nine months? Is it fair to look at like 20.65 versus 19.16?
Right. That means our ability to generate cash is even stronger than last year.
Yes, absolutely. Your ability to pay dividends as well.
Yeah. Yes.
Yes. Okay. Thank you.
Okay. Sure.
If you would like to ask a question, please press star key and number one on your keypad. Thank you.
While we are waiting, I can take some of the questions from the web. The first one was asking, the strong momentum in the first three quarters, would I expect the same thing in fourth quarter? Yes. I expect quite a bit of the ICT projects that will be delivered before the end of fourth quarter. I actually expect quite a bit. Yes. The second question is about AIDC. We are evaluating it, but it is not because my peers are doing it. I am evaluating it from where I see the demand may be. Our group, conglomerate, Far Eastern Group, there are also some of these related, or I say, there are some synergies that we are looking at, and that is also a factor for us to consider.
Even we have not really had anything formally as an AIDC per se that we kicked off, but for our existing, the newest IDC building in Banqiao, we are actually already expanding two more floors. One of them is going to be for the high-performance computing related. Whether or not we will invest in the brand new AIDC, that is something we are evaluating.
As a reminder for dial-in participants, if you would like to ask a question, please press star key and number one on your keypad. Thank you.
I think the third question, we kind of answered it previously, is talking about asking about the ICT revenue, how much is recurring and how much is the project base, and how about the gross margin percentage, roughly?
Right. We were talking about the balance sheet. Do we usually do that, or we just didn't do it this time? I forgot.
I think for the YoY for the ICT profit, for the ICT, it's about 104% growth. Just to check.
Okay.
Yeah, majority just come from the ICT project. Yeah.
Okay. All right. No more questions from the web? And from the folks on the phone?
Ladies and gentlemen, we are now in question and answer session. If you would like to ask a question, please press star one on your keypad. Thank you.
Yeah, there were like six questions already that we answered. But then if you have, even after the call, you can always contact Gary and Amy for more insight that you may want to get. That's okay, and we welcome that.
If there are no more questions at the moment, I'll pass the call back to Mr. Gary Lai. And Gary, please proceed. Thank you.
Okay. Thank you, everyone, to attend our third quarter result conference. See you next quarter. Thank you very much.
Thank you.
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.