The Long Case for Chunghwa Telecom

According to its website, Chunghwa Telecom (CHT)

chiefly provides telecommunication and information-related services. Its scope of business covers city call, long distance calls, international calls, GSM, data communication, Internet services, broadband networking, satellite communication, intelligent network, mobile data and multimedia broadband.

Furthermore, the company boasts the following in regards to its subscriber base, range of services, and cooperation with international partners:

CHT is the largest telecommunication operator in Taiwan with a subscriber base of over 20 million.

CHT has the largest range of services of any telecommunications operator in Taiwan with operations consisting of fixed line networks, GSM, and data networks throughout Taiwan and offshore islands.

Of all the telecommunication companies operating in Taiwan, CHT has the closest cooperation with other international telecoms with circuits to over 200 other countries.

Corporate Governance is also sound as CHT recently was awarded the coveted Best Financial Disclosure Procedures in the Asia/Pacific Region by Technical Criteria in 2007. Just as important is the fact that CHT trades at significant discounts in terms of Price/Earnings and Price/Sales relative to its peers despite offering superior margins and comparable growth rates. Moreover, the company boasts a hefty dividend of 4.6%. The advent of 3rd Generation Cellular Technology should also be a strong catalyst for future earnings for CHT.

For these reasons, it is my belief that this company is a strong buy for long term investors. For purposes of disclosure, I have recently obtained shares in this company.

Disclosure: Author owns a position in CHT

CHT 1-yr chart

Comments

[jyung]

The problem is that Chunghwa is still basically control by the government even though their shareholding dropped to 35.41%. I remember one time when the company announced the change in tarfffs it was announced by the Premier of Taiwan not the company. The Taiwan government tends to use their influence in companies like Chunghwa to win support from the people. As far as I know Chunghwa haven't adjusted their tariff for fix line upward in 30 years to be in line with inflation so there is no money for infrastructure investment. Taiwan has one of the worst telecomunication in the developed world. There is still alot of places in Taipei that doesn't have fiber optic network. Chunghwa has used it position as the dominate provider to access to the outside world during last year earthquake which cut the undersea cable to shut out the Tier 2 Telecom companies which uses their line to provide IDD and direct all the traffic to themselves. There was nothing these Tier 2 company can do. One of the major revenue for Chunghwa is mobile phone where the tariffs are high especially calls between mobile and fix line. Since the fix line is control by Chunghwa they get a piece of the renenue from all Mobile survice providers. There is alot of demand for them to cut the tariff and with two major election coming up there is a chance that this source revenue will be cut.