Business Context and Reporting Period
This Form 6-K filing by Chunghwa Telecom Co., Ltd. (CHT) is dated August 10, 2020. The report aggregates various corporate announcements and financial updates covering the period from July 14, 2020, to August 10, 2020. Key events include the release of Q2 2020 financial results, July 2020 operating results, significant related-party transactions, executive leadership changes, and regulatory investigations.
Key Financial Metrics
Q2 2020 Financial Results (Ended June 30, 2020)
The filing provides comparative data under Taiwan-IFRSs and IFRSs. Under IFRSs:
- Consolidated Net Income (3 months): NT$10,196 million
- Consolidated Net Income (6 months): NT$18,296 million
- Net Income Attributable to Parent (3 months): NT$9,881 million
- Net Income Attributable to Parent (6 months): NT$17,731 million
- Basic EPS (3 months): NT$1.28
- Basic EPS (6 months): NT$2.29
- Total Assets: NT$505,797 million
- Total Liabilities: NT$137,121 million
- Total Equity: NT$368,676 million
July 2020 Operating Results
- Consolidated Revenue: NT$16.30 billion (down 2.39% year-over-year)
- Operating Costs and Expenses: NT$12.76 billion
- Operating Income: NT$3.54 billion
- Income Before Tax: NT$3.62 billion
- Net Income Attributable to Parent: NT$2.78 billion
- EPS: NT$0.36
Debt and Liquidity
On May 6, 2020, the Board approved the issuance of NT$20 billion in unsecured corporate bonds to replenish working capital and repay debt. The issuance includes three tranches with coupon rates ranging from 0.50% to 0.59% p.a. and maturities of 5, 7, and 10 years.
Material Changes and Transactions
Revenue Trends
July 2020 revenue decreased year-over-year primarily due to declines in international fixed-line voice revenue, handset sales, and mobile service revenue. These decreases were partially offset by increases in ICT project revenue, data communications, and broadband access revenue.
Related-Party Transactions
- Asset Disposal: CHT approved the disposal of three land sites to affiliate Chunghwa Post Co., Ltd. for a total of approximately NT$385.76 million, resulting in a projected gain of NT$298.13 million.
- System Upgrade: CHT entered a transaction with subsidiary Chunghwa Systems Integration Co., Ltd. for the "Account Integration System" (CCBS 2.0) upgrade totaling NT$397.98 million.
- Right-of-Use Assets: Subsidiaries Honghwa International Corporation and CHT Security Co., Ltd. acquired right-of-use assets (office premises) from CHT for monthly payments totaling approximately NT$310,000 and NT$310,000 respectively, with total transaction values of NT$240,000 and NT$1.55 million.
Executive Changes
On August 5, 2020, CHT announced the appointment of Vincent Y.S. Chen as the new Senior Executive Vice President and Chief Financial Officer, effective September 1, 2020. He replaces Shui-Yi Kuo, who had been acting in the role concurrently with his position as President.
Guidance, Risks, and Contingencies
Guidance and Outlook
Management noted that July 2020 operating income, pretax income, and EPS all exceeded the third-quarter guidance previously announced by the company.
Risks and Investigations
The filing discloses two significant regulatory investigations:
- July 23, 2020: The Chiayi City Station of the Bureau of Investigation executed a search at the Chiayi local business operation center. CHT stated it is cooperating and reported no effect on finances or business.
- August 6, 2020: The Taiwan Shilin District Prosecutors Office directed a raid on staff offices of local business operation centers. CHT stated it is cooperating and reported no effect on finances or business.
Accounting Differences
Differences between Taiwan-IFRSs and IFRSs financial statements are primarily due to the timing of income tax recognition on unappropriated earnings and the treatment of revenue from fixed-line connection services and prepaid phone cards (deferred under IFRSs vs. recognized upon sale/service under Taiwan-IFRSs).
Investor Verification Checklist
- Investigation Impact: Verify the long-term implications of the Bureau of Investigation and Prosecutors Office raids on CHT's operations and reputation, despite current assertions of no financial impact.
- Revenue Composition: Analyze the sustainability of the decline in traditional voice and handset revenue versus the growth in ICT and broadband segments.
- Related-Party Pricing: Review the valuation methodologies for the land disposal to Chunghwa Post and the system upgrade contract with Chunghwa Systems Integration to ensure fair market value.
- Debt Servicing: Monitor the utilization of the NT$20 billion bond proceeds and the impact of the new debt on future interest coverage ratios.
- Executive Transition: Assess the strategic direction under the new CFO, Vincent Y.S. Chen, particularly regarding financial reporting and capital allocation.