Lango - The S&P rating, below, is what decided me. I should add that CHT is in that portion of my portfolio which I hold for dividend income, and not for capital gains, although there have been some nice suprises there lately - ASO, HUBB, LYG, UU, POM. Us old folks have a somewhat different perspective.
S&P says affirms ratings on Chunghwa Telecom
Reuters, 12.15.03, 2:26 AM ET
(News release provided by the ratings agency)
HONG KONG, Dec 15 - Standard & Poor's Ratings Services said on Monday it had affirmed its 'AA-' long-term corporate credit rating on Chunghwa Telecom Co. Ltd. <2412.TW> (CHT). The outlook on the corporate credit rating is stable.
"The rating reflects the company's superior market position in the Taiwanese telecommunications industry and its very strong financial profile. These factors are partially offset by increasing competition. As the Ministry of Transportation and Communications, which currently owns 63.8% of CHT, plans to reduce its shareholding to less than 50% by the end of 2004, no government support is assumed in the rating", said credit analyst Jonathan Lee.
CHT, the former monopoly operator in Taiwan's telecommunications sector, still enjoys a dominant market position despite industry liberalization over the past few years.
Competition began in early 1998 when several new mobile phone operators entered the wireless telecommunications market, causing CHT's share of the mobile phone market to fall to 35% to date from 100% in 1997.
However, robust demand, stimulated by falling tariffs and handset prices, has helped mitigate the effects of competition and has allowed the company's subscriber base and mobile phone revenue to grow.
Following the granting of new licenses by the Taiwan government to three fixed-line start-ups, which launched commercial services in August 2001, competition from these new entrants has led to heightened pressure on tariffs, especially within the international direct call market.
Accordingly, Standard and Poor's expects CHT's revenue and earnings mix to change gradually. Contributions from CHT's fixed-line business are expected to decrease, while wireless and data-related services are likely to take on a more important role.
Also, despite the competition in the industry, Standard and Poor's expects CHT to retain its dominant market position, supported by its well-established customer base, strong brand franchise, and high-quality network, which offers direct connections to most households in Taiwan.
CHT has maintained a very strong financial profile. Its total revenue in the first three quarters of 2003 grew to Taiwan dollar (NT$) 134 billion from NT$132 billion during the same period a year earlier.
The company's operating margin (before depreciation and amortization) increased to 58% in the first nine months of 2003 from 55% in full year 2002, mainly because of lower personnel costs.
CHT has also used minimal debt, as its strong operating cash flow has been able to cover most of its capital expenditures and cash dividend payouts. Consequently, CHT's total debt to capital was only 3.5% at the end of September 2003, while its EBITDA interest coverage was more than 1,000x.
As Taiwan's telecommunications market has become saturated, the company faces the challenge of maintaining its revenue and earnings growth rates. Nevertheless, Standard and Poor's expects the company to preserve its very strong financial profile.
Copyright 2003, Reuters News Service
