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Chunghwa Telecom (CHT) Q3 Earnings Down Y/Y, Revenues Up

Zacks Equity Research

Chunghwa Telecom Co. Ltd. CHT declared mixed financial results in the third quarter of 2016. Quarterly total revenue was approximately $1,845 million, up 5.2% year over year. Third-quarter net income came in at around $303 million, down 17.9% year over year.  Net earnings per American Depository Share (ADS) were 39 cents, down 17% year over year.

Operating income was $362.3 million, down 18.1% year over year. Operating costs increased 11.7% year over year to $1,482.5 million. Operating margin declined to 19.6% from 25% in the year-ago quarter.

Third-quarter 2016 EBITDA was $617.7 million, down 12.2% year over year. Quarterly EBITDA margin came in at 33.5%, down from 39.7% in the prior-year quarter. During the reported quarter, Chunghwa generated around $421.9 million of cash from operations, down 23.2% year over year. Cash and cash equivalents as of Sep 30, 2016 decreased 47.4% to $341.8 million as compared to that as of Sep 30, 2015.

Chunghwa is the largest telecom operator in Taiwan. In future, management expects to enter into the mainland China telecom market where it will face intense competition from China Mobile Ltd. CHL, China Unicom (Hong Kong) Ltd. CHU and China Telecom Corp. Ltd. CHA. Chunghwa Telecom currently carries a Zacks Rank #4 (Sell).

Segment-wise Revenues

The Mobile Communications segment accounted for approximately $876.5 million of the total third-quarter 2016 revenues, inching up 1.9% year over year. The Internet segment contributed around $219.5 million, surging 6.3%. The Domestic Fixed-line Communications segment recorded $593.1 million in revenues, climbing 5%. The International Fixed-line Communications segment generated $124.5 million, up 7.4%. Other Business registered the remaining $0.03 million, falling 98.2%.

In the third quarter of 2016, Mobile VAS (value added services) revenues grossed approximately $327 million, up 3.4% year over year, wherein mobile Internet VAS (largest contributor) revenues were up 4.9% year over year.  

Subscriber Statistics as of Sep 30, 2016

The total broadband subscriber base was over 4.49 million, out of which the FTTx subscriber base was around 3.47 million, accounting for 77.3% of the total broadband subscriber base. Over 1.14 million broadband subscribers signed up for 100 Mbps or higher speed connections, up 12.1% year over year.  HiNet subscriber base totaled 3.77 million.

Mobile subscriber base was 10.82 million, down 3.8% year over year. Mobile Internet subscriber base was 6.66 million, up 16.3% year over year. 4G wireless subscribers base stands at 6.23 million. The International /Domestic Fixed-line subscriber base was 11 million.

Guidance

For 2016, Chunghwa expects total revenue to increase 0.7% year over year to NT$233.49 billion. Operating costs are expected to increase 2.3% to NT$185.53. Income from operations is expected to be NT$47.75 billion, down 5.2% year over year. Non-operating income is estimated to be NT$1.09 billion, reflecting a substantial 32.3% decline from 2015. Income before income tax and net income are expected to be NT$48.84 billion (down 6.1%) and NT$39.98 billion (down 6.6%), respectively.

Earnings per share are expected to be NT$5.15. EBITDA is projected at NT$ 82.24 billion, down 1.9%. Capital expenditure is expected to decline 12.7% year over year to NT$30.63. Chunghwa expects to add a net of 2 million 4G wireless subscribers in 2016.

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