Chunghwa Telecom's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Chunghwa Telecom Co., Ltd ( CHT)

Q4 2011 Earnings Call

February 22, 2012 4:00 am ET

Executives

Fu-fu Shen – Director, Investor Relations

Shyue-Ching Lu – Chief Executive Officer

Shaio-Tung Chang – President

Shu Yeh – Chief Financial Officer

Analysts

Danny Chu – Nomura

Chate Benchavitvilai – Credit Suisse (Hong Kong) Limited

Joseph Quinn – Mcquarie Securities

May Lin – Yuanta

Steven Liu – Standard Chartered Bank (Hong Kong)

Gary Yu – Morgan Stanley

Sydney Zhang – Bank of America/Merrill Lynch

Piyush Mubayi – Goldman Sachs

Presentation

Operator

Good evening, ladies and gentlemen. Welcome to the Chunghwa Telecom Co., Teleconference Call for the Company’s 2011 Operating Results. During the presentation, all lines will be in listen-only mode. When the briefing the finished, directions for submitting your question will be in the question-and-answer session.

For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within an hour after the conference is finished. Please visit www.cht.com.tw/ir under the In Focus section.

Now, I would like to turn it over to Fufu Shen, the Director of Investor Relations. Thank you. Ms. Shen, please go ahead

Fu-fu Shen

Thank you. This is Fu-fu Shen, Investor Relations Director of Chunghwa Telecom. Welcome to our full year 2011 results conference call. Joining me on the call today are Dr. Lu, Chairman and CEO, Mr. Chang, President, and Dr. Yeh, CFO.

During today’s call, management will discuss business, operational and financial highlights. This will be followed by Q&A. Before we continue, please note our Safe Harbor Statement on slide 2. Now, I would like to turn the call over to Chairman, Lu.

Shyue-Ching Lu

Thank you, Fu-fu. Hello, everyone. This is Shyue-Ching Lu, Chairman of Chunghwa Telecom. Thank you all for joining our full year 2011 earnings results conference call.

On slide no. 3, our total consolidated revenue for the full year 2011 amounted to NT$217.5 billion, with the increase mainly due to higher fixed line revenue resulting from the pricing right shift for fixed to mobile calls, as well as the increase in mobile VAS revenue and handset sales. Higher construction revenue from our property development subsidiary also contributed to the revenue growth.

Moving onto slide no. 4, we have maintained a 90% payout ratio for past few years, and this is expected to continue. On January 4, the amended Company Act was announced. In accordance with the amendment, a company that is profitable is allowed to directly distribute cash to shareholders from its capital surplus or legal reserves. Our capital surplus and legal reserves as the end of 2011 totaled NT$169.5 billion and NT$66.1 billion respectively.

As we understand the importance of stable dividends to some investors, the management team will decide whether to take advantage of this amendment and distribute this special dividend based on operational results. Relevant proposals require board and AGM approval prior to implementation.

We recently participated in China Airlines’ secondary offering and signed an MOU with the airline to form a strategic alliance. The board approved the project on January 16 after an extensive discussion by board members, which included the effectiveness of a strategic alliance, the execution of co-operation, and whether the possible risks could be acceptable. Prior to receiving boards approval, the issue was also discussed by the board’s strategy committee back in August 2011.

Now, I would like to hand over to President Chang to present our business overview.

Shaio-Tung Chang

Thank you Dr. Lu. In order to make a proper comparison with the peers, we would like to normalize the effect of pricing right shift for fixed to mobile calls. After normalization, the pro forma mobile service revenue represented a growth rate of 3.9%, the highest among the three major operators.

Furthermore, our market share of mobile service revenue remained flat, evidencing our success at maintaining our market prominence.

On slide 7, you can see mobile VAS revenue growth rate after normalizing the effect of a temporary price discount, demonstrating our success at maintaining our growth momentum and competitiveness. This temporary discount, which involves subscribers whose mobile data usage per month is less than or equal than 1 gigabyte being given a 20% discount, will last until December of this year.

Mobile data network quality remains our focus. We would like to ensure we maintain our leading edge in terms of network quality. Our construction and capacity expansion of base station is on track. By the end of this year, we plan to have 4,000 HSPA+ base stations to provide more capacity in hot spots in order to effectively relieve traffic congestion. In addition, we are continuing to install Wi-Fi APs to offload the traffic from mobile networks, and we expect to accumulate 30,000 public Wi-Fi APs by the end of this year.

Moving to slide 8, let’s return to mobile business. As mobile competition is becoming increasingly fierce, we plan to supplement existing strategies by offering popular high-end smartphones as well as mid-and low-tier models in response to customer demand and to provide attractive value added services. Please see the next slide for the various models we offer.

On slide 9, due to the continued popularity of smartphones, mobile Internet and the mobile data usage continue to increase. At the end of last year, we had 1.5 million mobile Internet subscribers, representing strong growth momentum of 85.4% year-over-year. We expect to add 700,000 mobile Internet subscribers by the end of this year, representing 46.6% year-over-year growth. Our smartphone penetration rate had reached 23% in terms of our postpaid customer base at the end of 2011.

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