We reaffirm our Neutral recommendation on Chunghwa Telecom Co. Ltd. following its solid performance in the second quarter of 2011. Chunghwa is the dominant telecom operator in Taiwan. It holds 80% of broadband market share, coupled with 96% of local fixed-line and 77% of long-distance fixed-line market share.
The company also commands 34% of the Taiwanese wireless market share. A recent ruling of the Taiwanese government has changed the pricing right of a landline-to-mobile call in favor of the fixed-line operator from mobile operator. This shift in government policy boosted Chunghwa’s revenue. Management sets a yearly revenue target of approximately $7.6 billion by 2015, which will be an improvement of 16% from 2010.
Chunghwa is trying hard to enter into the Chinese telecom market. The company is also eyeing the lucrative $33.3 billion Chinese cloud computing market. Chunghwa has agreements with China Telecom Corp. Ltd. (CHA - Free Report) and China Unicom Ltd. (CHU - Free Report) to access software from their application stores to provide premium services to subscribers.
Chunghwa is gradually expanding its subscribers’ base for high-speed next-generation FTTx (fiber to the home/building/curb) offerings. Chunghwa is investing heavily to build a formidable FTTx (fiber-to-the-home/premises) network in Taiwan. At the end of the second quarter of 2011, broadband subscriber base was 4.44 million. Out of this, FTTx subscriber base was 2.24 million, which accounted for 49.7% of total broadband subscriber base.
HiNet subscriber base was 3.63 million. In the previous quarter, Broadband access (including ADSL and FTTx) revenue was around $177.8 million, up 3% year over year. The company is building large-scale fiber-to-the-home (FTTH) and fiber-to-the-building (FTTB) access infrastructure and is aiming to provide both these facilities to 75% of Taiwan’s population by the end of 2011.