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Chunghwa Telecom Up to Hold on Solid Prospects, Risks Stay


On Nov 25, Chunghwa Telecom Co., Ltd. CHT was upgraded by a notch to Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chunghwa is the largest telecom operator in Taiwan. In the future, management expects to enter into the mainland China telecom market where it is likely to face intense competition from China Mobile Ltd. CHL and China Telecom Corp. Ltd. CHA.

Growth Prospects

Chunghwa dominates the telecom market in Taiwan. It holds 80% of the broadband market share along with 96% of local fixed-line and 77% of long distance fixed-line. The company also commands nearly 35% of the Taiwanese wireless market. For full-year 2016, Chunghwa expects total revenue growth of 0.7% year over year to NT$233.49 billion. The company also intends to raise its market share in the 4G market in Taiwan to 40%. Chunghwa expects to add a net of 2 million 4G wireless subscribers in 2016.

Moreover, Chunghwa won a mobile broadband business license last year. The company is gradually expanding its subscriber base on the back of high-speed next-generation FTTx (fiber to the home/building) offerings. The company is investing heavily to build a formidable FTTx network in Taiwan. Also, the company, in collaboration with Nokia Corporation NOK, will bring G.Fast ultra-broadband access technology in Taiwan.

The Risks

The National Communications Commission, the telecom regulatory body of Taiwan, has reduced the mobile interconnection rate effective Jan 5, 2013, for the next four years. Accordingly, Chunghwa has to face stringent pricing pressure. Additionally, a disappointing outlook for 2016 should be a concern for investors.

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