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Chunghwa Telecom Co. Ltd. declared mixed financial results for the third quarter of 2013. Quarterly total revenue was approximately $1,906 million, recording a 2.6% year-over-year rise. The third-quarter 2013 net income was around $357.8 million, down 0.5% year over year.  Net earnings per ADR were 42 cents, down 6.7% year over year.

Quarterly operating income was $423 million, down 0.4% year over year. Quarterly operating costs were $1,482.4 million, up 3.5% year over year. Operating margin was 22.2% compared with 22.9% in the year-ago quarter.

The third-quarter 2013 EBITDA was $694 million, down 0.4% year over year. Quarterly EBITDA margin came in at 36.4% against 37.5% in the prior-year quarter. During the reported quarter, Chunghwa generated around $557.6 million of cash from operations, up 13.4% year over year. Capital expenditure during the reported quarter was around $259.4 million, down 7.3% year over year.

Segment wise Revenue

The Mobile Communications segment accounted for approximately $925 million of the total third-quarter 2013 revenue, up 10.6% year over year. The Internet segment accounted for $226 million, up 11.2% year over year. The Domestic Fixed-line Communications segment recorded $604 million in revenues, down 5.7% year over year. The International Fixed-line Communications segment generated $133.4 million, up 2.8% year over year. Other Business segment generated the remaining $17.5 million, down 22% year over year.

In the third quarter of 2013, Broadband access (including ADSL and FTTx) revenues were around $160.3 million, down 0.8% year over year. Mobile VAS revenues were nearly $247.6 million, up 37.4% from the year-ago quarter. Handset sales revenues were $260.1 million, up 24.8% year over year.

Subscriber Statistics as of Sep 30, 2013

The total Broadband subscriber base was nearly 4.553 million, out of which the FTTx subscriber base was around 2.90 million, accounting for 63.7% of the total broadband subscriber base. 1.09 million Broadband subscribers signed up for 60 Mbps or higher speed connections, up 32.7% year over year.  HiNet subscriber base was 3.78 million, up 0.4% year over year.

Mobile subscriber base stood at 10.55 million, up 3.4% year over year. Mobile Internet subscriber base was 3.57 million, up by a significant 60.7% year over year. Chunghwa currently commands 34.1% of the mobile Internet market share in Taiwan. In the reported quarter, the company added a net of 1.35 million mobile Internet subscribers. The International /Domestic Fixed-line subscriber base stood at 11.62 million.

Recommendation

Currently, Chunghwa holds a Zacks Rank #2 (Buy). The company faces stiff competition from Taiwan Mobile Company and Far EasTone Telecommunications Co. Ltd. Chunghwa entered into agreements with China Telecom Corp. Ltd. and China Unicom Ltd. to access software from their application stores for providing premium services to its subscribers.

Further, CHT Global, the U.S. subsidiary of Chunghwa, has entered into an agreement with the third-largest U.S. telecom carrier Sprint Corp. . Per the deal, CHT Global will become a mobile virtual network operator of Sprint. The company will provide wireless data services to several enterprises and traveling business professionals using Sprint’s 3G and 4G LTE network.

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