Business Context and Reporting Period
Chunghwa Telecom Co., Ltd. (NYSE: CHT) reported un-audited consolidated operating results for the second quarter of 2020, ending June 30, 2020. The company is Taiwan's largest integrated telecommunications provider, offering fixed-line, mobile, broadband, and internet services. Financial figures are prepared in accordance with Taiwan-International Financial Reporting Standards (T-IFRSs).
Key Financial Metrics
| Metric | Q2 2020 | YoY Change |
|---|---|---|
| Total Revenue | NT$ 47.81 billion | -4.6% |
| Operating Costs & Expenses | NT$ 37.19 billion | -6.6% |
| Operating Income | NT$ 10.61 billion | +3.0% |
| Operating Margin | 22.2% | +160 bps |
| Net Income (Parent) | NT$ 8.57 billion | Flat |
| Basic EPS | NT$ 1.10 | N/A |
| EBITDA | NT$ 19.37 billion | +1.4% |
| EBITDA Margin | 40.52% | +239 bps |
| Cash Flow from Operations | NT$ 13.17 billion | -17.5% |
| Cash & Equivalents (End of Period) | NT$ 19.17 billion | -47.6% |
Revenue Breakdown
- Mobile Communications: NT$ 21.10 billion (-7.8%)
- Internet: NT$ 7.43 billion (+1.0%)
- Domestic Fixed: NT$ 15.69 billion (-1.2%)
- International Fixed: NT$ 2.18 billion (-28.6%)
Material Changes vs. Prior Period
While total revenue declined 4.6% due to reduced handset sales, mobile service competition, VoIP substitution, and COVID-19 impacts on roaming, operating income improved by 3.0%. This divergence was driven by a 6.6% reduction in operating costs, specifically lower interconnection costs and cost of goods sold. Consequently, the operating margin expanded from 20.6% to 22.2%.
Cash and cash equivalents dropped significantly by 47.6% to NT$ 19.17 billion. This decrease was primarily attributable to the payment of concession fees for the 5G frequency spectrum auction, partially offset by an increase in short-term bills payable. Operating cash flow decreased 17.5% due to an increase in accounts receivable.
Guidance, Outlook, and Management Commentary
Management highlighted the successful launch of 5G services on June 30, 2020, with a target to acquire over one million subscribers within the next year. The company remains optimistic about 5G driving future growth and enabling value-added services for individual and enterprise customers.
Operational highlights include:
- Broadband: FTTx subscribers reached 3.62 million (82.8% of total broadband users). Subscriptions for 300 Mbps services increased 81.4% year-over-year, and Home Wi-Fi subscriptions rose 120%.
- Mobile: Subscriber base grew 4.6% year-over-year to 11.09 million.
- Fixed Line: Maintained market leadership with 10.03 million subscribers.
- MOD: Remained the market leader with the largest subscriber base in Taiwan.
Management expressed confidence in navigating the pandemic and macro headwinds, citing a strong balance sheet and leading market position.
Investor Verification Checklist
- Verify the impact of the 5G spectrum auction payment on future liquidity and capital expenditure plans.
- Monitor the actual 5G subscriber acquisition rate against the management target of one million subscribers in the next year.
- Assess the sustainability of cost reductions in interconnection and cost of goods sold to maintain operating margins.
- Review the trend in accounts receivable to understand the pressure on operating cash flow.
- Track the continued decline in international fixed communications revenue (-28.6%) and its drivers.