Chunghwa Telecom (CHT) Q2 Earnings, Revenues Drop Y/Y

Chunghwa Telecom Co. Ltd. (NYSE:CHT) declared weak financial results in the second quarter of 2016. Quarterly total revenue was at approximately $1,734 million, down 6% year over year. Second-quarter net income came in at around $341 million, down 5.5% year over year. Net earnings per American Depositary Share (ADS) were 44 cents, down 6.4% year over year.

Operating income was $397 million, down 2.4% year over year. Operating costs edged down 0.9% year over year to $1,335.1 million. Operating margin declined to 22.9% from 23.1% in the year-ago quarter.

Second-quarter 2016 EBITDA was $647 million, down 2.8% year over year. Quarterly EBITDA margin came in at 37.4%, down from 37.9% in the prior-year quarter. During the reported quarter, Chunghwa generated around $413.4 million of cash from operations, down 26% year over year. Cash and cash equivalents as of Jun 30, 2016 increased 30.2% to $1,376.1 million as compared to that as of Jun 30, 2015.

Segment-wise Revenues

The Mobile Communications segment accounted for approximately $816.3 million of the total second-quarter 2016 revenues, down 7.1% year over year. The Internet segment contributed around $210.5 million, up 5.5%. The Domestic Fixed-line Communications segment recorded $567.5 million in revenues, up 3.7%. The International Fixed-line Communications segment generated $109.4 million, up 0.9%. Other Business registered the remaining $28.7 million, up 4.1%.

In the second quarter of 2016, Mobile VAS (value added services) revenues grossed approximately $319 million, up 5% year over year, wherein mobile Internet VAS (largest contributor) revenues were up 6.6% year over year.

Subscriber Statistics as of Jun 30, 2016

The total broadband subscriber base was over 4.49 million, out of which the FTTx subscriber base was around 3.44 million, accounting for 76.6% of the total broadband subscriber base. Over 1.12 million broadband subscribers signed up for 100 Mbps or higher speed connections, up 13.8% year over year. HiNet subscriber base totaled 3.76 million.

Mobile subscriber base was 10.87 million, down 2.5% year over year. Mobile Internet subscriber base was 6.43 million, up 16.1% year over year. 4G wireless subscribers base stood at 5.70 million. The International /Domestic Fixed-line subscriber base was 11.06 million.

Guidance

For 2016, Chunghwa expects total revenue to increase 0.7% year over year to NT$233.49 billion. Operating costs are expected to increase 2.3% to NT$185.53. Income from operations is expected to be NT$47.75 billion, down 5.2% year over year. Non-operating income is estimated at NT$1.09 billion, reflecting a substantial 32.3% decline from 2015. Income before income tax and net income are expected to be NT$48.84 billion (down 6.1%) and NT$39.98 billion (down 6.6%), respectively.

Earnings per share are expected to be NT$5.15. EBITDA is projected at NT$ 82.24 billion, down 1.9%. Capital expenditure is expected to decline 12.7% year over year to NT$30.63. Chunghwa expects to add a net of 2 million 4G wireless subscribers in 2016.

Zacks Rank & Stocks to Consider

Currently, Chunghwa carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are NTT DOCOMO Inc. (NYSE:DCM) , Nippon Telegraph and Telephone Corp. (NYSE:NTT) and Telefônica Brasil S.A. (NYSE:VIV) . While both Nippon and NTT DOOCMO sport a Zacks Rank #1 (Strong Buy), Telefonica (MC:TEF) Brasil carries a Zacks Rank #2 (Buy).