Chunghwa Telecom Co. Ltd. :CHT-US: Earnings Analysis: Q4, 2016 By the Numbers : March 13, 2017

Chunghwa Telecom Co. Ltd. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of Chunghwa Telecom Co. Ltd. – KT Corporation Sponsored ADR, Telstra Corporation Limited Sponsored ADR, BT Group PLC Sponsored ADR, Nippon Telegraph and Telephone Corporation Sponsored ADR and LM Ericsson Telefon AB Sponsored ADR Class B (KT-US, TLSYY-US, BT-US, NTT-US and ERIC-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 1,829.35 million, Net Earnings of USD 243.38 million.
  • Gross margins widened from 31.83% to 32.79% compared to the same period last year, operating (EBITDA) margins now 32.81% from 31.49%.
  • Year-on-year change in operating cash flow of 9.15% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings declined although operating margins improved from 18.26% to 18.86%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 1829.35 1848 1735.88 1730.53 1905.92
Revenue Growth (%YOY) -4.02 6.36 -6.31 -3.76 -0.99
Earnings (mil) 243.38 302.44 341.69 354.58 289.52
Earnings Growth (%YOY) -15.94 -17.14 -5.72 6.89 11.18
Net Margin (%) 13.3 16.37 19.68 20.49 15.19
EPS 0.31 0.39 0.44 0.46 0.37
Return on Equity (%) 8.41 10.7 11.88 12.12 10.32
Return on Assets (%) 7.05 8.6 9.57 10.14 8.59

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Market Share Versus Profits

Revenues History
Earnings History

CHT-US‘s change in revenue this period compared to the same period last year of -4.02% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that CHT-US is holding onto its market share. Also, for comparison purposes, revenues changed by -1.01% and earnings by -19.53% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 31.83% to 32.79%, while operating margins improved from 31.49% to 32.81% over this period. For comparison, gross margins were 33.24% and EBITDA margins 33.48% in the immediate last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

CHT-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 31.17, compared to last year’s level of 26.73 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

CHT-US‘s change in operating cash flow of 9.15% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from 18.26% to 18.86%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from 18.39% to 16.34%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Chunghwa Telecom Co., Ltd. engages in the provision of telecommunication and information related services. It operates through the following business segments: Domestic Fixed Communications, Mobile Communications, Internet, International Fixed Communications, and Others. The company was founded on June 15, 1996 and is headquartered in Taipei, Taiwan.

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