We maintain our Neutral recommendation on
Chunghwa Telecom Co. Ltd.
) based on its mixed financial results for the first quarter of
2013. Chunghwa is the largest integrated telecommunications
service provider in Taiwan offering a full suite of telecom
services through fixed-line, mobile and data networks throughout
Taiwan and to offshore islands.
Why Kept at Neutral?
Chunghwa is investing heavily in building a formidable FTTx
(fiber-to-the-home/premise) network in Taiwan. At the end of
first quarter, the total broadband subscriber base was 4.559
million. Of this, the FTTx subscriber base was 2.79 million or
61.2% of the total. HiNet subscriber base was 3.78 million.
Broadband subscribers using 50 Mbps connections were over
964,000. Chunghwa expects to cover 1.5 million broadband
subscribers using 50 Mbps connections by the end of this
Chunghwa has witnessed significant subscriber growth for its
mobile Internet services on growing demand for 3G mobile
broadband and smartphones in Taiwan. Mobile subscriber base at
the end of the first quarter was 10.35 million, up 2.6% year over
year. Mobile VAS revenues were $219.4 million, up 42.2% year over
year. The Mobile Internet subscriber base was 2.87 million. The
company expects its Mobile Internet subscriber base to reach 3.5
million by the end of 2013.
However, Chunghwa had to reduce its mobile voice tariff
following a cut in the mobile interconnection rate by the
National Communications Commission, the telecom regulatory body
of Taiwan, effective Jan 5, 2013. Additionally, the company
reduced tariffs for broadband services, IP peering and domestic
leased line wholesale services in April. These cuts could take a
toll on Chunghwa's revenues over the next 4 years.
Moreover, the Taiwanese telecom market is oversaturated and
turned extremely competitive following telecom regulatory
changes. Chunghwa competes with two other major service
providers, Taiwan Mobile Company and Far EasTone
Telecommunications Co. Ltd.
Other Stocks to Consider
Chunghwa currently has a Zacks Rank #4 (Sell). However, there
are other telecom stocks in the Asian Telecom Operator segment
that are performing well. These include
Nippon Telegraph & Telephone Corp.
Shenandoah Telecommunications Co.
China Mobile Ltd.
). While both Nippon and Shenandoah currently carry a Zacks Rank
#1 (Strong Buy), China Mobile has a Zacks Rank #2
CHINA MOBLE-ADR (CHL): Free Stock Analysis
CHUNGHWA TELECM (CHT): Free Stock Analysis
NIPPON TELE-ADR (NTT): Free Stock Analysis
SHENANDOAH TELE (SHEN): Free Stock Analysis
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