Business Context and Reporting Period
This Form 6-K filing by Chunghwa Telecom Co., Ltd. is dated March 11, 2019. The report covers operating results and specific financial disclosures for February 2019 and the cumulative period of January through February 2019.
Key Financial Metrics
February 2019 Performance
- Consolidated Revenue: NT$16.52 billion.
- Operating Costs and Expenses: NT$12.79 billion.
- Operating Income: NT$3.73 billion.
- Income Before Tax: NT$3.77 billion.
- Net Income (Parent Company): NT$3.02 billion.
- Earnings Per Share (EPS): NT$0.39.
Cumulative January-February 2019 Performance
- Net Sales: NT$34.15 billion.
Other Financial Items
- Funds Lent: No funds lent to other parties by the parent company or subsidiaries.
- Guarantees: Accumulated limited amount for subsidiaries is NT$2,904,039 thousand; parent company has none.
- Financial Derivatives: Outstanding forward contracts totaled NT$225,681 thousand (non-trading, non-hedge) and NT$265,642 thousand (non-trading, hedge accounting).
Material Changes Versus Prior Period
- Revenue: February 2019 revenue decreased 8.0% year-over-year. Cumulative Jan-Feb revenue decreased 5.52% year-over-year.
- Costs: Operating costs and expenses decreased 9.8% year-over-year, driven by lower cost of goods sold and interconnection expenses.
- Profitability: Operating income decreased 1.0% year-over-year. Income before tax decreased 0.4% year-over-year. Net income attributable to stockholders increased 1.2% year-over-year.
- Drivers: The revenue decline was primarily due to reduced mobile service revenue from market competition and lower mobile sales revenue, partially offset by increases in Internet VAS and MOD revenue.
Guidance, Risks, and Contingencies
Management Commentary and Guidance
Management confirmed that operating income, pretax income, and EPS for February 2019 fell within the range of the company's first-quarter guidance.
Risks and Contingencies
- Legal Indictment: On February 18, 2019, the Taichung District Prosecutors Office indicted 25 branch employees regarding fake deals involving loans exceeding NT$800 million.
- Company Response: Chunghwa Telecom stated it will fully support the investigation by judicial authorities. The filing does not quantify potential financial liabilities arising from this indictment.
Investor Verification Checklist
- Verify the potential financial impact of the NT$800 million loan fraud indictment against 25 employees.
- Confirm the sustainability of the 1.2% net income growth despite an 8.0% revenue decline.
- Monitor the trend of mobile service revenue given the cited market competition.
- Review the exposure related to outstanding financial derivative contracts (approx. NT$491 million total contract amount).