In this briefing:
1. Chunghwa Telecom’s 2019 Guidance Looks Optimistic After Missing 2018 Guidance.
Chunghwa Telecom (2412 TT) recently announced very ambitious FY19 guidance targets. While the market may view management’s optimism poistively, we expect this to be very short-lived for two reasons (i) Chunghwa’s 2018 guidance proved to be hopelessly optimistic, eventually missing revenue and EBITDA by a wide margin, and (ii) Chunghwa starts 2019 with a -6% revenue growth. It will be tough to get to the guided 2.4-3.5% growth in 2019. Management seem to be assuming the competitive environment will ease, but the comparables will be very tough in 1H19, and we will not see a repeat of the one-off cancellation fees received in May 2018. The dividend looks to be at risk, and if that is a key concern, we would prefer to own Far Eastone (4904 TT) or Taiwan Mobile (3045 TT) which should keep dividends stable. We to reiterate our Reduce recommendation and slightly lower the target price to NT$86.
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