(CHT) Chunghwa Telecom Eyes Chinese Expansion

Taipei-based Chunghwa Telecom Co. Ltd., (CHT) recently announced its plans to enter into an agreement with Chinese telecom operators in order to provide value-added services and other application support to the Chinese subscribers. The agreement will allow the company to seize the $33.3 billion opportunity in the lucrative Chinese cloud computing market.

The company had a pact with China Telecom Corp. and China Unicom (Hong Kong) Ltd. (CHU) to access software from its application stores as well as provide premium services to thesubscribers.

The Taiwanese telecom market is rapidly approaching maturity and has become extremely competitive due to the telecom regulatory changes and smaller market size with approximately 23 million potential customers. Recently, Chunghwa Telecom is also exploring other markets particularly Southeast Asia and China.

Chunghwa Telecom is the largest telecom service provider in Taiwan mainly dominating the fixed-line service of the country. It is also the leading wireless and Internet/Data service provider in Taiwan.

Currently, Chunghwa has witnessed significant subscriber growth for its mobile Internet services due to a rising demand for 3G mobile broadband and smart-phones in Taiwan. Itis also conducting live trial runs of Long Term Evolution (LTE) networks using Nokia Siemens Network solutions. The company seeks to develop a super-fast next-generation mobile broadband network that will act as a natural upgrade for its existing WCDMA networks. Chunghwa decided to implement LTE in 2011 in Taiwan. Moreover, aggressive rollout of FTTx (fiber to the home/building/curb) has positioned the company ahead of its competitors.

Despite such positive traits, the company is losing revenue in its Fixed-line Services (both domestic and international) segment. Moreover, saturated domestic telecom market coupled with regulatory changes may act as headwinds for the company going forward.

We, thus, maintain our long-term Neutral recommendation forChunghwa Telecom. Currently, Chunghwa Telecom has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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