Business Context and Reporting Period
This Form 6-K filing by Chunghwa Telecom Co., Ltd. is dated August 10, 2018. The report summarizes corporate events, management changes, and financial results for the period ending July 2018, including the second quarter (ended June 30, 2018) and the month of July 2018.
Key Financial Metrics
Second Quarter 2018 (Ended June 30, 2018)
Financial results differ based on the accounting standard applied (Taiwan-IFRSs vs. IFRSs):
- Under IFRSs: Consolidated net income for the quarter was NT$13,513 million; net income attributable to parent stockholders was NT$13,204 million. Basic EPS was NT$1.70. For the six-month period, consolidated net income was NT$22,036 million with EPS of NT$2.77.
- Under Taiwan-IFRSs: Consolidated net income for the quarter was NT$10,063 million; net income attributable to parent stockholders was NT$9,861 million. Basic EPS was NT$1.27. For the six-month period, consolidated net income was NT$19,091 million with EPS of NT$2.40.
- Balance Sheet (IFRSs as of June 30, 2018): Total assets were NT$480,073 million; total liabilities were NT$111,900 million; total equity was NT$368,173 million.
July 2018 Operating Results
- Net Sales: NT$17.14 billion, a decrease of 8.0% year-over-year.
- Operating Costs and Expenses: NT$13.64 billion, a decrease of 4.3% year-over-year.
- Operating Income: NT$3.5 billion, a decrease of 19.7% year-over-year.
- Net Income (Parent): NT$2.8 billion, a decrease of 21.3% year-over-year.
- Earnings Per Share (EPS): NT$0.36.
Liquidity and Investments
- Securities Disposal: The company disposed of 430,000 shares of Chunghwa Precision Test Tech. Co., Ltd. (CHPT) for a total of NT$326.7 million to supplement working capital. The subsidiary retains a 34.70% stake in CHPT.
- Operational Capital: Reported as NT$4.83 billion in the context of the CHPT transaction.
- Derivatives: As of July 2018, outstanding forward contracts for non-trading purposes totaled NT$453.8 million (non-hedge) and NT$128.2 million (hedge accounting).
Material Changes and Operational Drivers
The decline in July 2018 revenue and profitability was primarily driven by:
- Voice Revenue: Decreased due to continuing substitution by Voice over IP (VoIP).
- Mobile Service Revenue: Declined due to market competition.
- Offsetting Factors: Increases in Multimedia on Demand (MOD) revenue and ICT project revenue partially mitigated the declines.
- Cost Reduction: Operating costs decreased 4.3% year-over-year, mainly due to a reduction in the cost of goods sold.
Guidance, Risks, and Corporate Events
Guidance and Outlook
The company clarified media reports stating it is "striving for 2018 EPS of NT$5." Management confirmed that the 2018 consolidated financial forecast has been released on the MOPS website for public reference.
Risks and Contingencies
- Legal Investigation: The former President of an overseas subsidiary is being interrogated by the Taipei District Prosecutor. The company stated it will fully support the investigation.
- Accounting Differences: Significant variances exist between Taiwan-IFRSs and IFRSs regarding the timing of income tax recognition on unappropriated earnings and the treatment of connection fees and prepaid cards (deferred revenue vs. immediate recognition).
Management and Governance Changes
- Executive Appointments: Hong-Chan Ma was appointed Business Senior Executive Vice President and Acting Spokesperson. Hsiu-Gu Huang was appointed President of the Enterprise Business Group.
- Board Representation: The Ministry of Transportation and Communications appointed a new representative director.
- Donations: The Board approved a donation of NT$3 million to the Sports Administration, Ministry of Education.
Investor Verification Checklist
- EPS Target: Verify the official 2018 consolidated financial forecast on the MOPS website regarding the NT$5 EPS target.
- Accounting Standards: Confirm which accounting standard (Taiwan-IFRSs vs. IFRSs) is being used for specific performance comparisons, as net income and EPS figures differ significantly between the two.
- Legal Exposure: Monitor the status of the investigation into the former President of the overseas subsidiary for potential financial or reputational impact.
- Revenue Trends: Assess the sustainability of the revenue decline in voice and mobile segments against the growth in MOD and ICT projects.
- Derivative Exposure: Review the fair value and unrealized gains/losses on outstanding forward contracts for potential volatility in future earnings.