Chunghwa Telecom (CHT) Q1 Earnings Rise, Revenues Lag

Chunghwa Telecom Co. Ltd. (NYSE:CHT) declared mixed financial results in the first quarter of 2016. Quarterly total revenue was at approximately $178 million, down 6.9% year over year. First-quarter net income came in at around $352 million, up 3.2% year over year. Net earnings per American Depository Share (ADS) were 45 cents, up 2.3% year over year.

Operating income was $413.4 million, up 17% year over year. Operating costs dropped 3.4% year over year to $1,294.5 million. Operating margin expanded to 24.2% from 20.9% in the year-ago quarter.

First-quarter 2016 EBITDA was $657.6 million, up 7.8% year over year. Quarterly EBITDA margin came in at 38.5%, up from 36% in the prior-year quarter. During the reported quarter, Chunghwa generated around $194.7 million of cash from operations, down 44.9% year over year. Cash and cash equivalents as of Mar 31, 2016 increased 12.2% to $1,036.2 million as compared to that as of Mar 31, 2015.

Segment Revenues

The Mobile Communications segment accounted for approximately $844.8 million of the total first-quarter 2016 revenues, up 0.6% year over year. The Internet segment contributed around $201 million, up 4.7%. The Domestic Fixed-line Communications segment recorded $534 million in revenues, up 1.5%. The International Fixed-line Communications segment generated $104.7 million, down 10.2%. Other Business registered the remaining $24 million, up 5.6%.

In the first quarter of 2016, Mobile VAS (value-added services) revenues grossed approximately $309.3 million, up 7.6% year over year, wherein mobile Internet VAS (largest contributor) revenues were up 8.7% year over year. Smart device sales revenue decreased 2.1% year-over-year to $236.7 million.

Subscriber Statistics as of Mar 31, 2016

The total broadband subscriber base was nearly 4.5 million, out of which the FTTx subscriber base was around 3.41 million, accounting for 75.8% of the total broadband subscriber base. Over 1.08 million broadband subscribers signed up for 100 Mbps or higher speed connections, up 15.7% year over year. HiNet subscriber base totaled 3.77 million, down 0.5% year over year.

Mobile subscriber base was 11.04 million, down 1.5% year over year. Mobile Internet subscriber base was 6.28 million, up 17.3% year over year. 4G wireless subscribers base stood at 5.21 million. The International /Domestic Fixed-line subscriber base was 11.11 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 #2 (Buy). Other favorably-ranked stocks in the same space are BCE Inc. (TO:BCE) , Nippon Telegraph and Telephone Corp. (NYSE:NTT) and Shenandoah Telecommunications Co. (NASDAQ:SHEN) . While BCE sports a Zacks Rank #1 (Strong Buy), both NTT and Shenandoah carry a Zacks Rank #2 (Buy).