Business Context and Reporting Period
This Form 6-K filing by Chunghwa Telecom Co., Ltd. is dated November 9, 2018. The report covers corporate announcements, management appointments, and financial results for October 2018, alongside a reconciliation of third-quarter 2018 financial statements under Taiwan-IFRSs versus IFRSs.
Key Financial Metrics
October 2018 Operating Results
- Net Sales: NT$17.77 billion (down 5.4% year-over-year).
- Operating Costs and Expenses: NT$14.44 billion (down 2.1% year-over-year).
- Operating Income: NT$3.33 billion (down 17.5% year-over-year).
- Income Before Tax: NT$3.40 billion (down 16.3% year-over-year).
- Net Income (Parent): NT$2.66 billion (down 19.6% year-over-year).
- Earnings Per Share (EPS): NT$0.34.
Third Quarter 2018 Financial Reconciliation (YTD 9 Months)
- Taiwan-IFRSs: Consolidated Net Income of NT$27.78 billion; Net Income Attributable to Parent of NT$27.09 billion; EPS of NT$3.49.
- IFRSs: Consolidated Net Income of NT$30.31 billion; Net Income Attributable to Parent of NT$29.54 billion; EPS of NT$3.81.
- Total Assets (Sept 30, 2018): NT$456.46 billion (Taiwan-IFRSs) vs. NT$456.25 billion (IFRSs).
- Total Liabilities (Sept 30, 2018): NT$78.07 billion (Taiwan-IFRSs) vs. NT$79.50 billion (IFRSs).
Liquidity and Derivatives
- Funds Lent: No funds lent to parent or subsidiaries in October 2018.
- Guarantees: Accumulated limited amount for subsidiaries is NT$2.84 billion.
- Derivatives: Outstanding forward contracts totaled NT$439 million (non-trading, non-hedge) and NT$70 million (non-trading, hedge). Unrealized losses recognized this year were NT$5.48 million (non-hedge) and realized losses were NT$3.49 million (non-hedge).
Material Changes vs. Prior Period
October 2018 revenue declined 5.4% year-over-year, driven by a decrease in voice revenue due to VoIP substitution, lower mobile service revenue from market competition, and reduced ICT project revenue. These declines were partially offset by increases in device sales, Internet VAS, and MOD revenue. Operating income fell 17.5% and net income dropped 19.6% compared to the prior year.
For the nine months ended September 30, 2018, IFRS reporting showed higher net income and EPS compared to Taiwan-IFRSs. This discrepancy is primarily due to the timing of income tax recognition on unappropriated earnings and the treatment of revenue from fixed-line connection fees and prepaid cards (deferred under IFRSs versus recognized upon sale/service under Taiwan-IFRSs).
Guidance, Outlook, and Risks
Management Commentary and Risks
- Solar Energy Bad Debt Rumors: The company clarified media reports suggesting a potential NT$3 billion bad debt provision in Q3 related to solar energy projects. Management stated this is a rumor; the Q2 provision was NT$768 million, and no significant increase is anticipated for Q3. The company adopted a cautious project selection policy starting Q4 2016.
- Investment Case: The company denied releasing information regarding an "iSing99" investment case reported by Storm Media, stating they have no comment on the report.
- Outlook: Management intends to continue cautious project selection and enhance debt recovery mechanisms to improve profitability.
Corporate Actions
- Management Appointments: On November 6, 2018, the Board approved several senior management changes, including the appointment of Wei-Kuo Hong as President of the Telecommunication Training Institute and Hsueh-Lan Wu as President of the International Group.
- Investor Conference: The company scheduled participation in a JPMorgan investor conference in Hong Kong on November 14-15, 2018.
Investor Verification Checklist
- Verify the actual Q3 2018 provision for doubtful accounts to confirm the company's assertion that it will not significantly increase from the Q2 level of NT$768 million.
- Monitor the trend of voice and mobile service revenue decline due to VoIP substitution and market competition.
- Review the specific impact of the accounting differences between Taiwan-IFRSs and IFRSs on future earnings distribution and equity reporting.
- Track the performance of new senior management appointments in the Telecommunication Training Institute and International Group.
- Assess the exposure to financial derivative losses, noting the unrealized and realized losses reported in October 2018.