Business Context and Reporting Period
This Form 6-K filing by Chunghwa Telecom Co., Ltd. (CHT) is dated February 14, 2011. The document summarizes a series of corporate announcements made between January 13 and February 10, 2011, covering financial clarifications, strategic partnerships, capital expenditures, and unaudited operating results for January 2011.
Key Financial Metrics
January 2011 Operating Results (Unaudited)
- Net Sales: NT$16.21 billion (Increase of 3.9% year-over-year).
- Operating Income: NT$4.51 billion (Decrease of 16.2% year-over-year).
- Net Income: NT$3.88 billion (Decrease of 12.5% year-over-year).
- Earnings Per Share (EPS): NT$0.48 (Increase of 4.3% year-over-year, driven by capital reduction).
Capital Expenditures and Investments
- Network Equipment Procurement: NT$530 million for NG SDH+OXC network equipment (Related party transaction with Taiwan International Standard Electronics Ltd.).
- Securities Acquisition: NT$302.35 million in Taiwan Power Company corporate bonds.
- Investment Ratio: Long and short-term securities investments represent 5.76% of total assets and 6.52% of total shareholder's equity.
Material Changes and Operational Drivers
Revenue growth in January 2011 was driven by mobile value-added services, broadband access, smartphone handset sales, and HiNet services. A one-time revenue recognition increase occurred due to aligning billing periods for monthly fees with communication charges.
Operating income declined primarily due to a one-time increase in interconnection costs resulting from a regulatory shift in pricing rights for fixed-to-mobile calls. Excluding one-time revenue and cost adjustments, operating income decreased 6.8% year-over-year due to higher cost of goods sold and marketing expenses associated with smartphone adoption.
Guidance, Outlook, and Strategic Developments
Revenue Targets
Management clarified conflicting media reports regarding 2011 revenue targets. While media cited figures of NT$190 billion and NT$190.4 billion, the Chairman stated at the Chinese New Year celebration that the internal target is NT$200 billion. The company also aims for long-term non-voice service revenue to reach 50% of segment revenue. The company noted that official forecasts will be announced upon Board approval.
Strategic Partnerships and M&A
- China Unicom: Signed a construction and maintenance agreement for the Taiwan Strait Express-1 (TSE-1) submarine cable; construction pending NCC approval.
- HTC Corporation: Signed an MOU to integrate terminal products with HSPA+ network services.
- Subsidiary Merger: Approved the merger of InfoExplorer Co., Ltd. with e-ToYou International Inc. and International Integrated Systems Inc., effective April 1, 2011, to strengthen competitiveness.
Risks and Contingencies
The company addressed media reports regarding difficulties in offsetting tariff reduction losses with value-added services (VAS) revenue, stating it does not have exact figures for 2010 losses due to mandated tariff reductions and has not disclosed related figures.
Investor Verification Checklist
- Verify the official Board-approved revenue target for 2011, as the NT$200 billion figure cited by the Chairman is currently an internal target pending formal announcement.
- Monitor the impact of the regulatory shift in fixed-to-mobile call pricing on interconnection costs, which is expected to fully reflect in results starting February 2011.
- Confirm the status of the National Communications Commission (NCC) approval for the TSE-1 submarine cable construction.
- Review the final financial impact of the InfoExplorer merger scheduled for April 1, 2011.
- Assess the sustainability of the 3.9% revenue growth given the one-time billing period adjustment in January.