Business Context and Reporting Period
This Form 6-K filing by Chunghwa Telecom Co., Ltd. is dated May 11, 2020. The report summarizes corporate events, financial reconciliations, and operating results for the period ending April 2020, including the first quarter of 2020 and the full year 2019.
Key Financial Metrics
Operating Results (April 2020)
- Net Sales: NT$15.72 billion (down 4.91% year-over-year).
- Operating Costs and Expenses: NT$12.17 billion.
- Operating Income: NT$3.55 billion.
- Income Before Tax: NT$3.58 billion.
- Net Income Attributable to Parent: NT$2.79 billion.
- Earnings Per Share (EPS): NT$0.36.
First Quarter 2020 Financial Position
The filing provides reconciled figures for the three months ended March 31, 2020:
- Under Taiwan-IFRSs: Net income of NT$8.55 billion; EPS of NT$1.07; Total assets of NT$499.90 billion; Total equity of NT$393.60 billion.
- Under IFRSs: Net income of NT$8.10 billion; EPS of NT$1.01; Total assets of NT$499.68 billion; Total equity of NT$391.15 billion.
Full Year 2019 Financial Position
- Under Taiwan-IFRSs: Net income of NT$33.76 billion; EPS of NT$4.23; Total assets of NT$477.46 billion.
- Under IFRSs: Net income of NT$33.92 billion; EPS of NT$4.25; Total assets of NT$477.13 billion.
Debt and Liquidity
- Bond Issuance: The Board approved the issuance of unsecured corporate bonds up to NT$30 billion for equipment construction, M&A, working capital, and debt repayment.
- Guarantees: Accumulated guarantees for subsidiaries totaled NT$2.97 billion as of April 2020.
- Derivatives: Outstanding forward contracts totaled NT$473.45 million (combined non-trading positions) with a negative fair value impact.
Material Changes vs. Prior Period
- Revenue Decline: April 2020 sales decreased by NT$812.4 million compared to April 2019. The decline was driven by lower handset sales, international fixed-line voice revenues, mobile service revenue, and ICT project revenue.
- Revenue Growth Areas: The decline was partially offset by increases in Internet Value-Added Services (VAS) and MOD (Media on Demand) revenue.
- Cost Reduction: Operating costs decreased year-over-year due to declines in cost of goods sold and interconnection expenses.
- Performance vs. Guidance: April 2020 operating income, pretax income, and EPS all exceeded previously announced guidance.
Guidance, Outlook, and Corporate Actions
Management Commentary and Risks
Management noted that despite revenue headwinds in handset and voice segments, cost controls and growth in digital services (Internet VAS and MOD) allowed the company to exceed financial guidance for April 2020. The primary accounting risk highlighted is the timing difference in income tax recognition on unappropriated earnings between Taiwan-IFRSs and IFRSs.
Corporate Actions and Transactions
- Executive Appointments: The Board approved several senior management changes effective June 30, 2020, including the appointment of Wei-Kuo Hong as Administration Senior Executive Vice President and Ivan Lin as President of Data Communications Business Group.
- Related Party Transactions:
- Subsidiary Honghwa International acquired a right-of-use asset (office premises) from Chunghwa Telecom for NT$12.24 million.
- Approved procurement of MOD UHD IPTV Set-Top Boxes from subsidiary Chunghwa System Integration Co., Ltd.
- Approved procurement of Broadband Aggregation Network MSER equipment from affiliate Taiwan International Standard Electronics Ltd. for NT$419.61 million.
- Government Agreement: A supplementary agreement with the Ministry of Transportation and Communication involves a tentative payment of NT$1.06 billion to acquire land ownership for office premises.
Investor Verification Checklist
- Verify the sustainability of the revenue decline in handset sales and international voice services versus the growth in Internet VAS and MOD.
- Confirm the final terms and pricing of the proposed NT$30 billion unsecured corporate bond issuance.
- Review the impact of the NT$419.61 million related-party equipment purchase on future capital expenditure budgets.
- Monitor the effective date (June 30, 2020) and integration of the new senior management appointments.
- Assess the exposure to unrealized losses on financial derivative contracts (approx. NT$8 million negative fair value).