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Chunghwa Soars in 4Q, Outlook Weak

Zacks Equity Research

Chunghwa Telecom Co. Ltd. (CHT) declared solid financial results for the fourth quarter of 2011. Quarterly total revenue was approximately $1,796 million, up 5% year over year. This improved performance was the combined result of increasing smartphone sales with continuously growing revenue from both mobile and Internet value-added services (:VAS).

Fourth-quarter GAAP net income was approximately $336.3 million, down 5.7% year over year.  However, net earnings per ADR were 44 cents, up 15% year over year. The increase was primarily attributable to higher net income and the capital reduction in January 2011, which reduced the total number of outstanding shares by 20%.

Quarterly operating income was $385 million, down 10.4% year over year. Operating margin was 21.4% compared with 25.1% in the year-ago quarter. Fourth-quarter 2011 EBITDA was $651.8 million, down 7.2% year over year. Quarterly EBITDA margin came in at 36.3% compared with 41.1% in the prior-year quarter.

During the fourth quarter of 2011, Chunghwa generated around $957.7 million cash from operations, down 9.4% year over year. Capital expenditure during the reported quarter was around $336.2 million, up 12.7% year over year. At the end of 2011, Chunghwa had approximately $3,501.3 million of cash & cash equivalents and around $60 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 2010.

Segment wise Revenue

Mobile Communications segment accounted for $786.8 million of the total fourth-quarter 2011 revenue, up 7.3% year over year. Internet segment accounted for $198.2 million, down 1.7% year over year. Domestic Fixed-line Communications segment generated $649.2 million, up 6.5% year over year. International Fixed-line Communications segment accounted for $124 million, down 1.1% year over year. Other Business segment generated the remaining $37.5 million, down 7.7% year over year.

In the fourth quarter, Broadband access (including ADSL and FTTx) revenue was $167 million, down 1.9% year over year. Mobile VAS revenue was $130.8 million, up 30.7% year over year. Internet VAS revenue was $19.6 million, up 14.5% year over year.

Subscriber Statistics as of December 31, 2011

Total Broadband subscriber base was approximately 4.498 million and out of this, FTTx subscriber base was around 2.4 million, accounting for 53.3% of total broadband subscriber base. HiNet subscriber base was 3.7 million, up 3% year over year. Mobile subscriber base was 10.072 million, up 4.1% year over year and out of this, 3G subscriber base was 6.047 million. Mobile Internet subscriber base was 1.5 million, up 85.4% year over year. Management is expecting its mobile Internet subscriber base to reach 2.2 million by the end of 2012. International /Domestic Fixed-line subscriber base was 12.1 million. Multimedia-on-demand (MOD) subscriber base was 1.07 million.

2012 Outlook

Chunghwa provided weak financial outlook for fiscal 2012. Total revenue is estimated around $6,177 million, down 1.9% year over year. Operating costs and expenses will be approximately $4,702 million, up 1.8% year over year. Income from operations is estimated to be approximately $1,475 million, down 11.9% year over year. Net income will be around $1,282 million, down 16.8% year over year. EBITDA will be approximately $2,521 million, down 7.3% year over year. EBITDA margin will be 40.8% compared with 43.2% in fiscal 2011.


Chunghwa faces fierce competition from Taiwan Mobile Company and Far EasTone Telecommunications Co. Ltd. The company entered into agreements with China Telecom Corp. Ltd. (CHA) and China Unicom Ltd. (CHU) to access software from their application stores for providing premium services to its subscribers. We 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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