Business Context and Reporting Period
This Form 6-K filing, dated January 21, 2020, contains a press release from Chunghwa Telecom Co., Ltd. (NYSE: CHT) providing financial guidance for the full year 2020. The company, Taiwan's largest integrated telecommunications provider, operates in mobile, broadband, IPTV, and Information and Communication Technology (ICT) sectors. The guidance is prepared in accordance with Taiwan-International Financial Reporting Standards (T-IFRSs).
Key Financial Metrics and Guidance
The following table summarizes the 2020 forecast compared to the un-audited 2019 results (in NT$ billions, except EPS):
| Metric | 2020 Forecast | 2019 Actual | Change (YoY) |
|---|---|---|---|
| Total Revenue | 214.10 ~ 215.29 | 207.52 | +3.2% ~ +3.7% |
| Operating Costs & Expenses | 175.51 ~ 175.83 | 166.74 | +5.3% ~ +5.5% |
| Income from Operations | 38.54 ~ 40.25 | 40.70 | -5.3% ~ -1.1% |
| Net Income (Parent) | 30.91 ~ 32.47 | 32.81 | -5.8% ~ -1.1% |
| Earnings Per Share (NT$) | 3.99 ~ 4.19 | 4.23 | -5.8% ~ -1.1% |
| EBITDA | 74.91 ~ 76.53 | 75.87 | -1.3% ~ +0.9% |
| EBITDA Margin | 35.0% ~ 35.6% | 36.6% | -1.6% ~ -1.0% |
| Acquisition of Material Assets | 81.26 | 28.72 | +183.0% |
Material Changes and Drivers
- Revenue Growth: Driven by increases in ICT project revenues, Application VAS, handset sales, and MOD revenues. These gains are expected to offset declines in voice revenue due to VoIP substitution and mobile service revenue due to market competition.
- Cost Increases: Operating costs are projected to rise primarily due to higher ICT project costs, cost of goods sold, and amortization expenses related to 5G concessions and network deployment.
- Profitability Pressure: Despite revenue growth, operating income and net income are forecast to decline slightly due to the disproportionate rise in operating costs and amortization.
- Capital Expenditure Surge: Acquisition of material assets is expected to jump by NT$52.54 billion (183% increase), driven by 5G license acquisitions, network expansion, and strategic investments in IP-based networks.
Outlook, Strategy, and Risks
Management Commentary: Chairman and CEO Chi-Mau Sheih highlighted the company's strong market position in mobile services as a foundation for 5G deployment, with services planned for the third quarter of 2020. The broadband strategy focuses on migrating customers to higher-speed services to increase ARPU. IPTV growth is expected to be supported by popular sports events like the Tokyo Olympics and rising advertisement revenue. The ICT segment remains a key growth driver through in-house developed services.
Risks and Contingencies: The filing includes standard forward-looking statement disclaimers, noting that actual results may differ due to inherent risks and uncertainties. Specific risks include market competition, the impact of VoIP substitution on voice revenue, and the execution of 5G deployment. The company also notes that non-GAAP measures (EBITDA) should not be viewed as a substitute for T-IFRS financial measures.
Key Facts for Investor Verification
- Verify the timeline and cost implications of the 5G spectrum auction and subsequent network rollout scheduled for Q3 2020.
- Monitor the actual migration rate of broadband customers to higher-speed services to confirm ARPU growth assumptions.
- Track the performance of the ICT segment to ensure it delivers the projected revenue offset against declining voice and mobile service revenues.
- Assess the impact of the significant increase in capital expenditures (NT$81.26 billion) on future cash flow and debt levels.
- Confirm the realization of IPTV revenue growth tied to specific events like the Tokyo Olympics and advertising market trends.