Chunghwa Meets Zacks Estimates

Chunghwa Telecom Co. Ltd. (CHT - Analyst Report) declared third quarter 2009 financial results. Quarterly revenue of $1,525 million decreased by 1.7% year-over-year but this was slightly better than the Zacks Consensus Estimate of $1,502 million. Despite facing increased competition and an extremely challenging economic environment, the company was able to raise its subscriber base for both high-speed broadband and mobile businesses. Quarterly net income was $314 million or 30 cents per share compared to $404 million or 42 cents per share in the prior-year quarter. However, third quarter EPS was in line with the Zacks Consensus Estimate of 30 cents.

Cost of sales, in the reported quarter was $874 million compared to $887 million in the prior-year quarter and quarterly operating expenses were $219 million compared to $232 million in the year-ago quarter. During the same quarter, Chunghwa generated $464 million of cash from operation compared to $403 million in the prior-year quarter. Quarterly free cash flow (cash flow from operation less capital expenditure) was $273 million compared to $178 million in the year-ago quarter. At the end of the third quarter, the company had $2,548 million of cash & marketable securities and $32 million of outstanding debt on its balance sheet compared to $3,207 million of cash & marketable securities and $9 million of outstanding debt at the end of the prior-year quarter.

Mobile Communications Segment
Quarterly revenue of $672.5 million was down 2.5% year-over-year. At the end of Sep 30, total mobile (including 2G, 3G, and PHS) subscriber was 9.18 million, up 1.6% sequentially. Chunghwa commands 34.5% of total mobile market share in Taiwan . During the third quarter, the company added 384,000 3G subscribers, reaching a total 3G subscribers base of 4.49 million, up 9.4% sequentially. Mobile value-added services (VAS) revenue also increased 18.8% year-over-year.

Domestic Fixed-line (including Broadband) Communications Segment
Quarterly revenue of $539.9 million was down 2.6% year-over-year. This was primarily due to a reduction in local and domestic long-distance call revenue due to wireless and VoIP substitution. Broadband also declined due to ADSL tariff reduction and competition from cable operators. At the end of the reported quarter, total broadband subscriber base was 4.31 million, down 0.4% year-over-year. However, Chunghwa witnessed strong growth in FTTx subscription. As on Sep 30, the company had 1.51 million FTTx subscribers, up 12.7% sequentially.

Internet Segment
Third quarter revenue of $176.9 million was down 0.1% year-over-year. Revenue from Internet VAS businesses such as on-line music and games and internet pornography gatekeeper increased 17.5% year-over-year. However, the strong VAS results were more than offset by the HiNet tariff reduction implementation, which began in Nov 2008. At the end of the third quarter, HiNet subscriber base was 4.07 million, which was stable sequentially.

International Fixed-line Communications Segment
Third quarter revenue of $125 million was up 4% year-over-year. This was mainly due to a growth in international leased line revenue partially offset by a decline in international long-distance call revenue. Non-telecom Business Segment Quarterly total revenue was $10.7 million, remaining flat sequentially.

Future Financial Outlook
Management has given a guidance that the company’s fourth quarter 2009 revenue will be approximately $1,424 million, EBITDA will be around $637 million, Operating profit will be around $348 million, and net income will be approximately $259 million.