Business Context and Reporting Period
This Form 6-K filing by Chunghwa Telecom Co., Ltd. covers events and financial results through April 10, 2019. The filing includes announcements regarding regulatory inquiries, corporate governance changes, accounting standard updates (IFRS 16), and operating results for March 2019 and the first quarter of 2019.
Key Financial Metrics
Revenue and Profit (March 2019)
- Consolidated Revenue: NT$17.18 billion.
- Operating Costs and Expenses: NT$14.07 billion.
- Operating Income: NT$3.11 billion.
- Income Before Tax: NT$3.2 billion.
- Net Income (Parent Company): NT$2.53 billion.
- Earnings Per Share (EPS): NT$0.33.
Revenue and Profit (First Quarter 2019)
- Net Sales (Jan-Mar): NT$51.33 billion.
- Year-over-Year Change: Decrease of NT$2.30 billion (-4.29%).
- Quarter-over-Quarter Change (vs. Q4 2018): Operating income increased 1.7%; pretax income and net income remained flat.
Dividends
- Cash Dividend Proposal: NT$4.479 per share.
- Total Cash Distribution: NT$34,745,603,075.
- Stock Dividend: None.
Accounting Adjustments (IFRS 16)
- Right-of-Use Assets: Increased by NT$12.16 billion.
- Lease Liabilities: Increased by NT$10.34 billion.
- Total Equity: Decreased by NT$0.07 billion.
Financial Derivatives
- Outstanding Forward Contracts (Non-trading): Total contract amount NT$212.8 million (unhedged) and NT$252.7 million (hedge accounting).
- Unrealized Losses (YTD): NT$1.3 million (unhedged) and NT$3.8 million (hedge accounting).
Material Changes and Operational Drivers
- Revenue Decline: Mobile service revenue declined due to market competition, and mobile sales revenue decreased due to a lengthier handset replacement cycle.
- Revenue Growth Areas: ICT project revenue, Internet VAS revenue, government service revenue, and MOD revenue all increased.
- Related Party Transaction: Subsidiary CHT Security Co., Ltd. acquired a right-of-use asset from the Southern Taiwan Business Group (parent company) for NT$38,095 per month.
Guidance, Risks, and Contingencies
Guidance and Outlook
Management confirmed that operating income, pretax income, and EPS for the first quarter of 2019 fell within the company's previously issued first-quarter guidance.
Risks and Contingencies
- Regulatory Raids: On March 14, 2019, the Agency against Corruption, Ministry of Justice, raided the Hsinchu Branch office of a staff member. The company stated the effect on finances and business is "None" and pledged full support for the investigation.
- Prosecutorial Inquiry: On March 20, 2019, the Taiwan Taichung District Prosecutors Office requested information regarding a 2017 investment by a subsidiary. The company stated the effect on finances and business is "None" and will cooperate.
Corporate Governance
- Annual General Meeting: Scheduled for June 21, 2019, to ratify 2018 financial statements and elect the 9th term directors.
- Personnel Change: Kuo-Chiang, Chung appointed as Company Secretary on March 19, 2019.
Investor Verification Checklist
- Verify the impact of the Ministry of Justice raid and Taichung Prosecutors Office inquiry on future operations, despite current "None" impact statements.
- Confirm the sustainability of revenue growth in ICT, Internet VAS, and government services to offset mobile service declines.
- Review the full Q1 2019 conference call presentation (scheduled for April 29, 2019) for detailed margin analysis.
- Monitor the ratification of the NT$4.479 per share cash dividend at the June 21, 2019, shareholder meeting.
- Assess the long-term balance sheet impact of the IFRS 16 adoption, specifically the increase in lease liabilities.