Executive Summary / Key Takeaways

• ICT-Led Growth Engine: Chunghwa Telecom (CHT) is strategically transforming beyond traditional telecom, with its Enterprise ICT business emerging as a primary growth driver, achieving record revenues and robust expansion in IDC, AIoT, Cloud, and Cybersecurity services, underpinned by significant contract wins and a focus on recurring revenue.
• Market Leadership and Network Resilience: CHT maintains a dominant position in Taiwan's mobile and fixed broadband markets, consistently outperforming peers in subscriber and revenue share, while aggressively expanding its "Sea, Land, and Sky" network strategy with investments in submarine cables and multi-orbit satellite services to enhance global connectivity and resilience.
• Technological Differentiation and AI Readiness: The company is leveraging cutting-edge technologies like IOWN all-photonic networks, 5G private networks, and AI-ready data centers, actively transitioning to liquid-cooled solutions for Nvidia AI servers and developing AI-powered solutions for various sectors, positioning itself for the AI-driven future.
• Solid Financial Performance and Prudent Capital Allocation: CHT delivered exceptional financial results in Q2 2025, with revenue, operating income, net income, and EPS exceeding forecasts, supported by disciplined capital management, declining mobile CapEx, and strategic increases in non-mobile CapEx for high-growth ICT areas.
• Favorable Outlook with Strategic Investments: Management forecasts continued revenue growth for 2025 (1.2% to 1.6%) and stable EPS (NT$4.62 to NT$4.82), driven by core business momentum and ICT expansion, viewing increased operating costs (manpower, electricity, content rights) as strategic investments for long-term value creation.

Chunghwa Telecom's Strategic Foundation: Connecting Taiwan and Beyond

Chunghwa Telecom Co., Ltd. (CHT), incorporated in 1996 and headquartered in Taipei City, Taiwan, stands as a pivotal integrated telecommunications service provider within the region and increasingly, on the global stage. The company's core business encompasses mobile, fixed-line, and a rapidly expanding Information and Communication Technology (ICT) segment. CHT's strategic evolution, particularly its organizational transformation to a customer-centric structure before 2022, has been instrumental in driving its current market position and robust ICT performance. The company's overarching "Sea, Land, and Sky" strategy underscores its commitment to enhancing network resilience and seizing future opportunities across diverse connectivity platforms.

The full year 2024 marked a period of significant achievement for CHT, with full-year revenue reaching a seven-year high and EPS of NT$4.8 also hitting a seven-year high, extending a streak of five consecutive years of annual growth. This strong performance was fueled by robust growth across all business sectors, demonstrating effective execution and strategic direction. CHT maintained its leadership in Taiwan's mobile market, capturing a 40% revenue share and a 38.8% 5G subscriber market share, alongside substantial growth in 5G postpaid subscriptions. Its fixed broadband business also saw considerable success, with over 70% of adopters choosing speeds of 300Mbps and above, and 1Gbps subscriber net-adds doubling. These foundational strengths provide a robust platform for CHT's continued expansion into high-growth areas.

Technological Edge: Fueling Future Growth

Chunghwa Telecom's strategic narrative is deeply intertwined with its commitment to technological differentiation and innovation, which forms a critical competitive moat. The company is not merely a traditional telecom provider but a forward-looking digital infrastructure and solutions enabler.

A cornerstone of CHT's technological prowess is its IOWN (Innovative Optical and Wireless Network) all-photonic network. In collaboration with NTT Corporation (NTT), CHT successfully launched the world's first IOWN all-photonic communication link between Taiwan and Japan in Q3 2024. This technology delivers high-speed connectivity with ultra-low latency and power consumption, making it perfectly suited for the demands of the AI-driven future. The tangible benefit for customers and the company lies in its ability to support bandwidth-intensive applications like AI and cloud computing with superior performance, potentially leading to higher service adoption and premium pricing for specialized enterprise solutions.

In the realm of 5G and satellite communications, CHT is making significant strides. As the exclusive OneWeb low-earth-orbit (LEO) satellite service provider in Taiwan, the company achieved 90% coverage in Q3 2024, with 100% expected by Q4 2024. This expansion enhances network resilience, particularly in remote areas, and contributes to related revenue streams. In Q2 2025, CHT further secured a new exclusive commercial license for OneWeb LEO services, extending satellite applications to in-flight WiFi for the aviation industry and maritime services. Furthermore, in Q1 2025, CHT integrated ST-2 high-orbit satellites with 5G base stations, enabling world-leading end-to-end two-way video calls based on the 3GPP 5G New Radio for Non-Terrestrial Network standard. This multi-orbit satellite architecture, complemented by a strategic partnership with Astranis for a dedicated MicroGEO satellite, positions CHT at the forefront of advanced connectivity solutions.

Data Centers and AI Infrastructure represent another critical area of technological focus. CHT earned the prestigious 2025 Taiwan Data Center Services Competitive Strategy Leadership Award from Frost & Sullivan, recognizing its AI-ready data center capability. The company is actively transitioning its air-cooled solutions to liquid-cooled solutions to support Nvidia (NVDA) AI servers, which will significantly enhance IDCs’ power usage effectiveness (PUE) and contribute to the offering of GPU-as-a-service. This move is crucial for meeting the escalating demands of AI workloads and positions CHT as a key enabler for high-tech firms. In Q2 2025, new contract awards for AIDC AI data center construction expertise exceeded TWD 1 billion, highlighting strong market demand and CHT's proven capabilities. The company is also targeting overseas AIDC-related construction projects for Taiwan-based high-tech firms, leveraging its expertise in both air-cooling and liquid-cooling solutions.

CHT's AIoT and Cybersecurity offerings are also technologically advanced. The company successfully developed Taiwan's first 5G unmanned vehicle solution for smart harbor inspection in Q4 2024, capable of operating across land, sea, and sky. This solution is expected to extend to other sectors like firefighting and coastal patrolling, demonstrating the versatility and impact of its AIoT capabilities. CHT is leveraging generative AI technology to deliver projects in smart government and healthcare, enhancing efficiency and reducing manpower costs through applications like troubleshooting chatbots and AI medical assistance for generating summaries. The company's commitment to Open RAN cooperation further highlights its cutting-edge technological capability and unique position in accelerating the commercialization of Open RAN within value chains, having successfully supported Taiwanese vendors in securing U.S. government funding for Open RAN development.

For investors, these technological differentiators translate into several key benefits. The advanced network infrastructure and AI-ready data centers create a strong competitive moat, enabling CHT to capture high-growth opportunities in AI, cloud computing, and digital transformation. The focus on ultra-low latency and high-bandwidth solutions positions CHT to serve demanding enterprise clients, potentially leading to higher average revenue per user (ARPU) and improved margins. The strategic investments in R&D and new technologies are designed to secure long-term revenue streams and reinforce CHT's market leadership in an increasingly digital world.

Competitive Arena: Leading in Taiwan, Expanding Globally

Chunghwa Telecom operates within a dynamic telecommunications landscape, maintaining a dominant position in Taiwan while strategically expanding its international footprint. The company's competitive standing is characterized by its extensive infrastructure, regulatory advantages, and a comprehensive service portfolio that differentiates it from key rivals.

In Taiwan's mobile market, CHT consistently demonstrates leadership. As of June 2025, its mobile market share rose to a new high of 40.7%, with a subscriber share of 39.1%, driven by continuous growth in postpaid subscribers. The company's 5G market share reached 38.7%, solidifying its leading position in this crucial segment, supported by robust network quality and ongoing 5G migration. This performance consistently outperforms domestic peers like Taiwan Mobile (TWM) and Far EasTone Telecommunications (FET), which also compete fiercely in mobile and fixed-line services. While Taiwan Mobile may exhibit agility in targeted marketing, CHT's integrated ecosystem across fixed and mobile segments provides a seamless connectivity experience, potentially offering greater efficiency in service integration due to its scale. Against Far EasTone, CHT's broader geographic reach and regulatory advantages in fixed-line and international services provide a more robust platform for global connectivity.

CHT's Enterprise Business Group (EBG) further strengthens its competitive edge, particularly in the burgeoning ICT sector. The company maintains a stable, consolidated IDC market share in Taiwan at more than 50%, a significant lead over competitors. CHT is also recognized as the first telecom in Taiwan to be honored as an AWS (AMZN) Premier Tier Service Partner, holding the most AWS certificates and demonstrating its leading cloud technology within the industry. This expertise allows CHT to offer notably greater integration for enterprise clients, fostering stronger customer loyalty in business segments. While international players like SK Telecom (SKM), a South Korean telecom giant, demonstrate superior technological capabilities in advanced AI applications, CHT's strategy emphasizes stability, regulatory compliance, and end-to-end solutions, including hardware and software integration, which is a unique value proposition for complex projects.

CHT's competitive advantages, or "moats," are substantial. Its extensive network infrastructure provides reliable connectivity and integrated services, leading to efficient operations and recurring revenue. This helps CHT counter competitors' marketing agility by ensuring stable service delivery, enhancing pricing power, and improving gross margins. Furthermore, CHT's regulatory licenses translate into exclusive access to spectrum and other operational benefits, fostering stronger customer loyalty and supporting robust growth in regulated areas. These barriers to entry, coupled with high capital requirements for new entrants, help CHT defend its market position and maintain financial stability.

However, CHT also faces competitive vulnerabilities. Potential technological gaps in certain cutting-edge areas, particularly against innovation-driven players like SK Telecom, could lead to slower innovation cycles and impact R&D effectiveness. Additionally, while not explicitly detailed as a disadvantage, high customer concentration in specific enterprise segments could expose CHT to risks if key clients shift their business. CHT addresses these by focusing on high-margin products, operational streamlining, and strategic partnerships, such as joining the IoT World Alliance to explore opportunities in the internet of vehicles and transnational IoT projects.

Recent industry trends, such as the rapid growth of AI and data centers, are creating significant demand for telecom infrastructure. CHT's proactive investments in AI-ready data centers and submarine cables position it favorably to capitalize on these trends, potentially improving revenue opportunities compared to competitors with less integrated infrastructure. The company's overseas subsidiaries are also experiencing double-digit revenue growth in Southeast Asia, driven by providing ICT services for Taiwanese enterprises building new factories, demonstrating CHT's ability to leverage global supply chain shifts for international expansion.

Financial Performance: A Decade of Strength and Strategic Investment

Chunghwa Telecom has consistently demonstrated robust financial performance, reflecting its strategic initiatives and operational effectiveness. The company's recent results highlight a strong trajectory, particularly in its high-growth ICT segment.

For the second quarter of 2025, CHT reported exceptional financial results, with revenue, operating income, net income, and EPS all exceeding the upper end of its forecast. Second-quarter revenue reached a 10-year high for the same period, driven by solid growth in core business and an expanding ICT segment. Notably, ICT revenue also set a new record for any second quarter since 2021. For the first half of 2025, revenue grew by 3.2% year-over-year, with income from operations and net income rising by 5.1% and 3.9%, respectively. Earnings per share for the first half totaled TWD 2.57, while EBITDA increased by 3.4% year-over-year to TWD 45.11 billion, maintaining a stable EBITDA margin of 40.09%.

The Consumer Business Group (CBG) delivered a solid 4.8% year-over-year increase in income before tax in Q2 2025. This was primarily driven by steady growth in both Mobile and Fixed Broadband ARPU. Mobile service revenue grew approximately 2% year-over-year, with the average monthly fee from 5G migration increasing by 38%, helping stabilize mobile ARPU. Fixed Broadband revenue increased 1.8% year-over-year, and ARPU rose approximately 2% year-over-year, representing an increase of TWD 14 per month. The success of multiple packaging, integrating mobile, fixed broadband, and WiFi services, achieved an impressive 26% year-over-year growth, marking its 14th consecutive quarter of expansion.

The Enterprise Business Group (EBG) was a standout performer, exceeding expectations with strong ICT performance. Total revenue rose 12% year-over-year in Q2 2025, while ICT revenue grew even more significantly, up 37% year-over-year. As a result, EBG reported a robust 5.4% increase in income before tax. Group enterprise ICT revenue increased by 27% year-over-year, with recurring ICT revenue also rising 25%. Core service pillars like IDC and Cloud delivered robust year-over-year growth of 71%, while AIoT grew 40%. Cybersecurity and 5G private networks also reported healthy growth of 11% and 150%, respectively. IDC notably accounted for the largest share of absolute revenue growth in Q2 2025 and demonstrated strong future growth potential, driven by demand from the financial and high-tech sectors.

The International Business Group (IBG) faced some headwinds in Q2 2025, with revenue declining by 41% year-over-year. This was primarily due to project-based fluctuations from one-time revenue recognition from U.S. and Japan subsidiaries in the prior year. However, excluding this higher base factor, performance exceeded internal expectations. The Southeast Asia market delivered double-digit revenue growth, driven by continued demand for ICT services from high-tech companies.

CHT's liquidity and capital structure remain solid. As of June 30, 2025, total assets increased by 1.9% compared to year-end 2024, primarily due to an increase in other current monetary assets, strengthening liquidity. The current ratio remained above 100%, highlighting healthy short-term liquidity and financial flexibility. The reported debt ratio stood at 30.28%, but excluding dividend payable, the adjusted debt ratio would be 23.15%, a slight decrease from year-end 2024. Net debt-to-EBITDA remained at 0, underscoring a prudent capital structure.

While cash flow from operating activities saw a slight decrease in Q2 2025 due to higher settlement of accounts payable, the company maintains a strong cash position and stable operating inflows. Capital expenditures increased by 11.9% year-over-year in Q2 2025, primarily due to front-loaded deployment of 5G/4G equipment, though full-year mobile-related CapEx is expected to be lower than in 2024. Management views increased operating costs, such as higher manpower expenses, electricity costs (due to Taiwan government's rate adjustments), and broadcast rights fees for events like the Paris Olympic Games, as strategic investments for future growth rather than mere expenses.

Outlook and Guidance: Charting a Course for Sustained Expansion

Chunghwa Telecom's outlook for 2025 reflects a confident strategic direction, building on its strong performance in 2024 and the first half of 2025. The company anticipates total revenue for 2025 to grow by 1.2% to 1.6% compared to 2024. This growth is expected to be driven by the strong momentum in its core mobile and fixed broadband businesses, supported by the continued success of 5G services and broadband speed upgrade promotions that boost subscriber numbers and ARPU. Crucially, the ICT business is also projected to be a significant contributor to revenue growth, capitalizing on ongoing digital transformation opportunities in the market.

Operating costs and expenses are projected to rise by 2.4% in 2025. This increase is primarily attributed to continued investment in talent, including enhanced employee benefits, and the expansion of infrastructure necessary to support future business development in both core and emerging segments. Additionally, higher electricity costs stemming from rate adjustments are expected to contribute to increased operation and maintenance expenses. Despite these rising costs, CHT expects its EPS to be in the range of NT$4.62 to NT$4.82 for 2025, reflecting effective cost control and enhanced profitability in its ICT segment.

Capital expenditures for 2025 are budgeted at NT$32.36 billion. A notable trend is the expected 13.3% year-over-year decline in mobile-related CapEx, continuing a four-year consecutive downtrend since 2021, indicating a mature phase of mobile network deployment. In contrast, non-mobile-related capital expenditures are projected to increase significantly by 25.2% year-over-year. This strategic allocation is directed towards investments in AI, Internet Data Centers (IDCs), and the construction of submarine cables, which management identifies as key growth engines. The company's capital expenditure strategy prioritizes maintaining a competitive edge, enhancing network resilience and security, and advancing ESG commitments by eliminating energy-intensive equipment. Management also emphasized applying an "80/20 rule" to prioritize the most impactful projects, suggesting a disciplined approach to capital allocation that could lead to optimized actual spending.

For the ICT business, the outlook is particularly strong. Building on its 2024 performance, where ICT revenue exceeded full-year guidance, CHT will continue to focus on major pillars such as IDC, cloud, cybersecurity, and 5G private networks. A key strategic assumption is the focus on improving ICT project margins and increasing the percentage of recurring revenue, which is expected to stabilize ICT revenues and enhance overall ICT margins in 2025.

Regarding shareholder returns, CHT reiterates that maximizing shareholder returns is a key objective, with a focus on sustainability and a consistent dividend policy. As EPS continues to increase, shareholders can expect a continuous increase in dividends, aligning with the company's established approach.

Risks and Challenges

While Chunghwa Telecom presents a compelling investment thesis, several risks and challenges warrant consideration. Global market sentiment remains cautious amid ongoing uncertainty around tariffs and exchange rates, which could impact international business performance. The International Business Group (IBG) has already experienced revenue fluctuations due to project-based revenue recognition and softening demand for international fixed voice and roaming services.

Domestically, the company faces rising operating costs. Higher manpower costs, stemming from strategic investments in talent and employee benefits, will impact profitability across all segments. Additionally, increased electricity costs, driven by government rate adjustments, will elevate operation and maintenance expenses, particularly for energy-intensive operations like data centers. While management views these as strategic investments for long-term growth, they exert near-term pressure on income. The decline in traditional fixed voice and mobile voice revenues also poses a challenge, requiring CHT to effectively offset these declines with growth in data and ICT services.

Conclusion

Chunghwa Telecom stands at a pivotal juncture, successfully transforming from a traditional telecom operator into a dynamic digital services and infrastructure leader. The core investment thesis hinges on its ability to leverage a dominant position in Taiwan's mobile and fixed broadband markets as a stable foundation, while aggressively expanding its high-growth ICT segment. The company's "Sea, Land, and Sky" strategy, coupled with substantial investments in cutting-edge technologies like IOWN all-photonic networks, multi-orbit satellites, and AI-ready data centers, positions it favorably for the AI-driven future.

CHT's consistent financial outperformance against guidance, robust cash flow generation, and prudent capital allocation underscore its operational efficiency and strategic foresight. Despite facing challenges from global macroeconomic uncertainties and rising operational costs, management's proactive approach to strategic investments in talent, infrastructure, and high-margin ICT projects is designed to ensure long-term value creation. The company's technological leadership and integrated service offerings provide a strong competitive moat against domestic rivals and enable its expansion into international markets. For discerning investors, Chunghwa Telecom offers a compelling blend of stability from its core business and significant growth potential from its strategic pivot towards digital transformation and advanced technological solutions.