Business Context and Reporting Period
This Form 6-K filing by Chunghwa Telecom Co., Ltd. covers material events and financial updates occurring between October 15, 2010, and November 15, 2010. The company is a major telecommunications operator in Taiwan. Key activities during this period included a significant capital reduction, strategic partnerships for next-generation network technologies, and the release of unaudited financial results for October 2010 and the first ten months of the fiscal year.
Key Financial Metrics
Revenue and Profit (Unaudited):
- October 2010: Net sales were NT$ 15.78 billion (up 1.2% YoY). Operating income was NT$ 4.31 billion, with net income of NT$ 3.69 billion and EPS of NT$ 0.38.
- January–October 2010: Net sales totaled NT$ 154.38 billion (up 1.4% YoY). Operating income was NT$ 47.42 billion, net income was NT$ 40.63 billion, and EPS was NT$ 4.19.
GAAP Differences (First Three Quarters 2010):
- ROC GAAP: Consolidated net income of NT$ 37.66 billion; EPS NT$ 3.81; Shareholders' equity NT$ 376.65 billion.
- US GAAP: Consolidated net income of NT$ 38.90 billion; EPS NT$ 3.94; Shareholders' equity NT$ 305.41 billion.
- Reason for Variance: Differences primarily stem from depreciation expenses and the provision for 10% undistributed retained earnings tax.
Investment and Liquidity:
- Operating Capital: Reported at NT$ 36.50 billion (as of Q3) and NT$ 50.74 billion (as of November).
- Securities Investments: The company actively traded corporate bonds (Nan Ya Plastics, Formosa Plastics, CPC) and convertible funds (Parvest, JPMorgan). Short-term investment ratios ranged between 5.73% and 5.91% of total assets.
- Investment Gains/Losses: Realized losses on the disposal of Parvest European Convertible Bond (NT$ 25.3 million) and JPMorgan Global Convertibles Fund (NT$ 39.2 million).
Material Changes and Corporate Actions
Capital Reduction:
- The Board approved a 20% capital reduction, reducing share count from approximately 9.70 billion to 7.76 billion shares.
- Total capital reduction amount: NT$ 19.39 billion.
- Record date for capital reduction: October 26, 2010. New shares expected to list on January 25, 2011.
Strategic Partnerships and Procurement:
- Network Infrastructure: Procured Next Generation Network Core and Access Gateway materials for NT$ 517.19 million from Taiwan International Standard Electronics Ltd. (Alcatel-Lucent).
- LTE Development: Signed a Memorandum of Understanding (MOU) with Alcatel-Lucent to jointly establish an LTE trial network.
- Cloud and IPTV: Signed an MOU with Intel Corporation to promote cloud computing technologies and explore IPTV service development.
Management Changes:
- Wei Yi-jui (Executive VP & President of Telecommunication Training Institute) retired on December 1, 2010.
- Hung Feng-Yue appointed as successor.
- Change in representative juristic-person director from the Ministry of Transportation and Communications.
Guidance, Outlook, and Risks
Guidance: The company announced a voluntary financial forecast for the fourth quarter of 2010, noting that projections are subject to significant uncertainties and contingencies. Specific numerical guidance for Q4 2010 and 2011 was not detailed in this filing but was expected to be released upon Board approval.
Product Launches: The company clarified reports regarding the iPad launch in Taiwan. While negotiations with Apple were ongoing, no specific launch date was confirmed at the time of filing.
Risks and Contingencies:
- Financial forecasts are inherently subject to uncertainties.
- Capital reduction involves complex administrative procedures and shareholder coordination regarding fractional shares.
Key Facts for Investor Verification
- Capital Reduction Impact: Verify the final listing date of new shares (Jan 25, 2011) and the treatment of fractional shares (cash payment at closing price).
- Revenue Growth: Confirm the sustainability of the 1.4% year-over-year revenue growth in the first ten months of 2010.
- Investment Portfolio: Monitor the performance of corporate bond holdings and the impact of realized losses on convertible fund disposals.
- Strategic Execution: Track the progress of the LTE trial network with Alcatel-Lucent and the cloud/IPTV initiatives with Intel.
- iPad Distribution: Await official confirmation on the launch date for iPad sales in Taiwan.