CHT Chunghwa Telecom Co Ltd

Chunghwa Telecom Co. Ltd. (CHT) declared solid financial results for the second quarter of 2011. Quarterly, GAAP net income was approximately $460.2 million, up 2.8% year over year.  However, net earnings per ADR were 83 cents, up 27.6% year over year. The increase was primarily attributable to the higher net income and the capital reduction in January 2011, which reduced the total number of outstanding shares by 20%.

Total revenue, in the second quarter of 2011, was approximately $1,882.9 million, up 9.6% year over year. This encouraging performance was the combined result of handset sales with continuously growing revenue from both mobile value-added services (VAS) and Internet services.

Quarterly operating income was $533.2 million, up 3.4% year over year. However, operating margin was 28.3% compared with 30% in the year-ago quarter. Second-quarter 2011 EBITDA was $810.3 million, which remains flat year over year. Quarterly EBITDA margin came in at 43% compared with 47.3% in the prior-year quarter.

During the second quarter of 2011, Chunghwa generated around $563.3 million cash from operations, down 5.6% year over year. Capital expenditure during the reported quarter was around $191.7 million, up 7.6% year over year.  

At the end of the second quarter of 2011, Chunghwa had approximately $2,818.6 million of cash & cash equivalents and around $83.3 million of outstanding debt on its balance sheet compared with $3,000 million of cash & cash equivalents and $112.7 million of outstanding debt at the end of fiscal 2010.

Segment wise Revenue

Mobile Communications segment accounted for $773.3 million of the total second-quarter 2011 revenue, up 1.1% year over year. Internet segment accounted for $216.3 million, up 3.4% year over year. Domestic Fixed-line Communications segment generated $684.4 million, up 14.1% year over year. International Fixed-line Communications segment accounted for $133.6 million, up 3.9% year over year. Other Business segment generated the remaining $75.4 million, up 369.3% year over year.

In the reported quarter, Broadband access (including ADSL and FTTX) revenue was $177.8 million, up 3% year over year. Mobile VAS revenue was $130.5 million, up 42% year over year. Internet VAS revenue was $23.2 million, up 13.9% year over year.

Subscriber Statistics as of June 30, 2011

Total Broadband subscriber base was approximately 4.44 million. Out of this, FTTx subscriber base was around 2.24 million, accounting for 49.7% of total broadband subscriber base. HiNet subscriber base was 3.63 million, up 2.2% year over year. Mobile subscriber base was 9.86 million, up 4.4% year over year. Out of this, 3G subscribers base was more than 5.77 million. Mobile Internet subscriber base was 1.15 million. International /Domestic Fixed-line subscriber base was 12.27 million. Multimedia-on-demand (MOD) subscriber base was more than 930,000.

Recommendation

Chunghwa competes in a tough environment with Taiwan Mobile Company and Far EasTone Telecommunications Co. Ltd. We expect fierce competition going forward as the Chinese giant China Mobile Ltd. (CHL) has purchased a significant stake in Far EasTone Telecommunications. We, therefore, maintain our long-term Neutral recommendation on Chunghwa. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.

 
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