Business Context and Reporting Period
This Form 6-K filing by Chunghwa Telecom Co., Ltd. is dated July 10, 2018. The report summarizes corporate governance resolutions from the 2018 Annual General Meeting held on June 15, 2018, and provides operating results for the month of June 2018 and the first half of the year (January through June 2018).
Key Financial Metrics
Revenue and Profitability (June 2018)
- Consolidated Revenue: NT$16.85 billion (down 9.9% year-over-year).
- Operating Costs and Expenses: NT$13.39 billion (down 9.0% year-over-year).
- Operating Income: NT$3.45 billion (down 13.1% year-over-year).
- Net Income (Parent Company): NT$3.05 billion (down 14.7% year-over-year).
- Earnings Per Share (EPS): NT$0.39.
Revenue and Profitability (January - June 2018)
- Net Sales: NT$107.29 billion (down 2.64% year-over-year).
Liquidity and Investments
- Operational Capital: NT$4.83 billion.
- Securities Investment Ratio: 0.63% of total assets; 0.70% of total shareholder's equity.
- Guarantees: Accumulated limited amount for subsidiaries is NT$3.04 billion.
- Financial Derivatives: Outstanding forward contracts totaled NT$336.47 million (non-trading, non-hedge) and NT$372.82 million (non-trading, hedge accounting).
Material Changes Versus Prior Period
Operating results for June 2018 showed declines across revenue, operating income, and net income compared to the prior year. The filing attributes the decrease in operating revenue and costs to market competition, VoIP substitution, and a reduction in the number of completed ICT projects. Conversely, Ministry of Defense (MOD) revenue increased year-over-year. For the first half of the year, net sales declined by 2.64%.
Guidance, Outlook, and Corporate Actions
Dividend Distribution
The 2018 Annual General Meeting ratified a cash dividend of NT$4.796 per share for 2017 profits. The ex-dividend trading date is July 23, 2018, with distribution expected on August 24, 2018.
Board and Committee Changes
Chung-Chin Lu, a Professor at National Tsing Hua University, was elected as a new independent director and appointed to the Audit Committee, effective June 15, 2018.
Asset Disposal
Chunghwa Investment Co., a subsidiary, disposed of 350,000 shares of Chunghwa Precision Test Tech. Co., Ltd. (CHPT) for a total of NT$300.07 million to supplement working capital. The transaction is accounted for as an equity transaction under IFRS, with the difference recorded as an increase in additional paid-in capital.
Investment Clarification
The company clarified media reports regarding a potential NT$12 billion investment in a joint venture with the Taoyuan Municipal Government, stating that all investment projects undergo internal evaluation and official announcements will be made only after procedures are completed.
Guidance
Management noted that June operating income and EPS fell within the range of the second-quarter guidance previously announced.
Investor Verification Checklist
- Verify the impact of VoIP substitution and ICT project delays on future revenue streams.
- Confirm the timeline and execution of the NT$12 billion joint venture investment with the Taoyuan Municipal Government.
- Monitor the trend of operating margins given the 13.1% decline in operating income versus a 9.9% decline in revenue.
- Review the status of the subsidiary's remaining 36.01% stake in Chunghwa Precision Test Tech. Co., Ltd.
- Assess the exposure to financial derivative risks, noting the unrealized losses in non-hedge forward contracts.