Business Context and Reporting Period
This Form 6-K filing by Chunghwa Telecom Co., Ltd. (CHT) is dated November 10, 2020. The report summarizes corporate events, related party transactions, and financial results for the nine months ended September 30, 2020, and specific operating results for October 2020.
Key Financial Metrics
Consolidated Results (Nine Months Ended Sept 30, 2020)
- Accumulated Operating Revenue: NT$148,129,189 thousand (Taiwan-IFRSs)
- Accumulated Gross Profit: NT$53,431,261 thousand
- Accumulated Net Operating Income: NT$31,863,432 thousand
- Accumulated Profit Before Tax: NT$32,419,909 thousand
- Net Income Attributable to Parent: NT$25,194,210 thousand (Taiwan-IFRSs) / NT$25,628 million (IFRSs)
- Basic EPS: NT$3.25 (Taiwan-IFRSs) / NT$3.31 (IFRSs)
- Total Assets: NT$497,460,270 thousand
- Total Liabilities: NT$117,803,154 thousand
- Equity Attributable to Parent: NT$368,718,424 thousand
October 2020 Operating Results
- Consolidated Revenue: NT$16.71 billion (Decreased 4.74% year-over-year)
- Operating Costs and Expenses: NT$13.18 billion
- Operating Income: NT$3.57 billion
- Income Before Tax: NT$3.58 billion
- Net Income Attributable to Parent: NT$2.77 billion
- EPS: NT$0.36
Liquidity and Derivatives
- Funds Lent to Others: NT$0
- Endorsements and Guarantees: Accumulated limited amount for subsidiaries is NT$2,872,505 thousand.
- Financial Derivatives: Outstanding forward contracts totaled NT$61,426 thousand (non-hedge) and NT$236,121 thousand (hedge accounting). Unrealized losses recognized this year were NT$978 thousand and NT$1,600 thousand respectively.
Material Changes and Drivers
- Revenue Decline: October 2020 revenue decreased primarily due to lower handset sales, reduced international fixed-line voice revenue, and decreased mobile service revenue driven by market competition and lower roaming revenue.
- Offsetting Growth: The revenue decline was partially offset by increases in ICT project revenue, data communications revenue, and domestic leased line revenue.
- Cost Management: Operating costs decreased due to lower cost of goods sold and interconnection expenses, offsetting an increase in amortization costs.
- Accounting Differences: Differences between Taiwan-IFRSs and IFRSs net income are mainly due to the timing of income tax recognition on unappropriated earnings and the treatment of connection fees and prepaid cards (deferred revenue under IFRSs vs. additional paid-in capital under Taiwan-IFRSs).
Guidance, Outlook, and Corporate Events
- Performance vs. Guidance: October 2020 operating income, pretax income, and EPS all exceeded the fourth-quarter guidance previously announced by management.
- Related Party Transactions:
- Approved procurement of MOD UHD IPTV Set-Top Boxes from subsidiary Chunghwa System Integration Co., Ltd. for NT$403,576,000.
- Subsidiary Light Era Development Co., Ltd. acquired a right-of-use asset (office premises) from the parent company for a total transaction amount of NT$168,000.
- Board approved a donation of NT$2.16 million to National Chengchi University for academic rewards.
- Personnel Changes: Kuo-Chiang Chung retired as Corporate Governance Officer; Ya-Chien Hsueh was appointed as the new Corporate Governance Officer, effective January 1, 2021.
Investor Verification Checklist
- Verify the specific impact of market competition on mobile service revenue trends in subsequent quarters.
- Confirm the reconciliation of net income between Taiwan-IFRSs and IFRSs regarding the treatment of unappropriated earnings and prepaid card revenue.
- Monitor the execution of ICT projects and data communications growth to ensure they continue to offset declines in traditional voice and handset sales.
- Review the details of the related party transaction for MOD UHD IPTV Set-Top Boxes to ensure pricing aligns with market rates.
- Check the status of outstanding financial derivative contracts and their fair value adjustments in future filings.