Chunghwa Telecom Co. Ltd. (CHT) declared impressive financial results for the fourth quarter of 2010 with net income increasing 1.6% year over year. This was primarily attributable to massive reduction in income tax rate from 25% in the year-ago quarter to just 17%. Chunghwa is now more confident regarding fiscal 2011 and projected yearly total revenue to rise by approximately 1.94%.
Quarterly, GAAP net income was approximately $354.8 million, up 1.6% year over year. Net earnings per ADR were 38 cents, up 1.6% year over year. Total revenue, in the fourth quarter of 2010, was approximately $1,727.5 million, up 2.4% year over year. This encouraging performance was the combined result of higher broadband access revenue and continuously growing revenue from both mobile value-added services (VAS) and Internet services.
Quarterly operating income was $433.3 million, down 0.3% year over year. Operating margin was 25.1% compared with 25.7% in the year-ago quarter. Fourth-quarter 2010 EBITDA was $708.2 million, down 3% year over year. Quarterly EBITDA margin came in at 41% compared with 43.3% in the prior-year quarter.
During fiscal 2010, Chunghwa generated around $2,791.5 million cash from operation, up 9.5% year over year. Capital expenditure during fiscal 2010 was around $808.5 million, down 3.8% year over year.
At the end of fiscal 2010, Chunghwa had approximately $3,000 million of cash & marketable securities and around $112.7 million of outstanding debt on its balance sheet compared with $2,341.2 million of cash & marketable securities and $33.5 million of outstanding debt at the end of fiscal 2009.
Segment wise Revenue
Mobile Communications segment accounted for $740 million of the total fourth-quarter 2010 revenue, up 2.3% year over year. Internet segment accounted for $203.6 million, up 4.3% year over year. Domestic Fixed-line Communications segment generated $615 million, up 0.6% year over year. International Fixed-line Communications segment accounted for $130.4 million, up 6.1% year over year. Non-telecom Business segment generated the remaining $38.6 million, up 10% year over year.
In fiscal 2010, Broadband access (including ADSL and FTTX) revenue was around $670.6 million, up 2.1% year over year. In the same year, mobile-VAS revenue was $364.6 million, up 30.8% year over year.
Subscriber Statistics as of December 31, 2010
Total Broadband subscriber base was 4.4 million. Out of this, FTTx subscriber base was 2.06 million, which accounted for 46.7% of total broadband subscriber base. HiNet subscriber base was 3.59 million. Mobile subscriber base was 9.68 million, up 4.4% year over year. Out of this 3G wireless subscriber base was 5.43 million, comprising an impressive 56.1% of total mobile subscriber base. International /Domestic Fixed-line subscriber base was 12.31 million.
Recommendation
Chunghwa competes in a tough environment with Taiwan Mobile Company and Far EasTone Telecommunications Co. Ltd. We expect fierce competition going forward as the Chinese giant China Mobile Ltd. (CHL) has purchased a significant stake in Far EasTone Telecommunications.
We, therefore, maintain our long-term Underperform recommendation on Chunghwa. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock. We believe this was mainly attributable to the company’s solid fourth-quarter 2010 financial results.
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