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We maintain our long-term Neutral recommendation on Chunghwa Telecom Co. Ltd. (CHT - Analyst Report). The company reported mixed financial results for the third quarter of 2013.

Why the Reiteration?

Chunghwa is the largest integrated telecommunications operator in Taiwan. The company offers a full suite of telecom services through fixed-line, mobile, and data networks throughout Taiwan and to offshore islands. Though the fixed-line service became relatively saturated, we believe Chunghwa’s mobile and Internet/Data operations will drive overall growth over the next several years.

Aggressive rollout of fiber-to-the-home, 3G mobile services and upcoming 4G LTE network have placed the company ahead of its competitors. Chunghwa has also expanded into IPTV and cloud-computing services.

CHT Global, the U.S. subsidiary of Chunghwa, has entered into an agreement with U.S. telecom giant Sprint Corp. (S - Analyst Report) to become a mobile virtual network operator of the latter. The company will provide wireless data services to several enterprises and traveling business professionals using Sprint’s 3G and 4G LTE network.

The Taiwanese telecom market is oversaturated and has become extremely competitive following telecom regulatory changes. The National Communications Commission, the telecom regulatory body of Taiwan, has reduced the mobile interconnection rate effective from Jan 5, 2013, for the next 4 years.

Accordingly, Chunghwa has to reduce its mobile voice tariff. Additionally, from Apr 2013, the company has also reduced tariffs for broadband services, IP peering and domestic leased line wholesale services. All these measures will hurt the company’s revenues for the next 4 years.

Other Stocks to Consider

Chunghwa currently has a Zacks Rank #2 (Buy). Other stocks in the non-U.S. telecom operators industry which are doing very well include Hawaiian Telecom Holdco. Inc. (HCOM - Snapshot Report) and Shenandoah Telecommunications Co. (SHEN - Snapshot Report). Both these stocks carry a Zacks Rank #1 (Strong Buy).

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