CHT Chunghwa Telecom Co Ltd

We reaffirm our Neutral recommendation on Chunghwa Telecom Co. Ltd. (CHT) following its solid performance in the first quarter of 2011. The company is the largest integrated telecommunications service provider of Taiwan. The company offers a full suite of telecom services through fixed-line, mobile, and data networks throughout Taiwan and in offshore islands.Although fixed-line offerings become relatively saturated, we believe Chunghwa’s mobile and Internet/Data operations will drive overall growth over the next several years.

Aggressive roll-out of fiber-to-the-home and 3G mobile services have placed the company ahead of its competitors. Chunghwa is now more confident regarding fiscal 2011 and has projected yearly total revenue to rise by approximately 1.94%. Chunghwa is investing heavily to build a formidable FTTx (fiber-to-the-home/premises) network in Taiwan. Chunghwa is the largest broadband service provider in Taiwan with 84% market share.

Chunghwa is all set to enter the Chinese wireless value-added services market in 2011. The company will establish two joint ventures. The first one will be with Spring House Entertainment Tech, a Taiwan-based record level and animated cartoon producer, and the second one with local Chinese partners for offering mobile value-added services. Chunghwa is also negotiating with China Telecom Corp. Ltd. (CHA)  to enter into the Chinese market. The company is also eyeing the lucrative $33.3 billion Chinese cloud computing market.

We believe Chunghwa is presently fairly valued since the stock price has moved up by more than 76% last year and is currently at its 52-week high range. Chunghwa is trading at significantly high multiples compared with the S&P 500 average and the industry average with respect to several valuation metrics. We believe at this stage, Chunghwa does not provide any above market potential.

 
CHINA TELCM-ADR (CHA): Free Stock Analysis Report
 
CHUNGHWA TELECM (CHT): Free Stock Analysis Report
 
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