Zacks senior telecom analyst David Weissman, CFA has maintained his Buy rating for the ADSs of the largest integrated telecom operator in Taiwan, Chunghwa Telecom Co., Ltd. (CHT). Here are some of the reasons why:
'We maintain our Buy rating and the same valuation target for Chunghwa Telecom, the largest integrated telecom operator in Taiwan, following mixed financial results for third quarter 2007. Robust growth of Internet & Data and mobile value-added services boosted the company's revenue, but net income was below our expectation due to a sharp increase in operating costs of its SENAO subsidiary and an increase in income tax expenditure.
'We believe the gradual migration to 3G wireless technology is likely to benefit the company's financials in 2008 and beyond. Since the telecom subscriber base of Taiwan is near saturation, Chunghwa has undertaken initiatives, in synergy with its strong balance sheet, to implement a next-generation converged-IP network as it expands coverage outside Asia. Currently, the stock is trading at an attractive price multiple.
'Chunghwa Telecom is trading at 13.2x our estimate for 2008 earnings, which represents a discount to both the S&P 500 average and the peer group (which includes other Asian telecom carriers). However, with respect to other selected valuation metrics, the stock is trading at a premium over its peer group median. We believe this valuation premium reflects the company's leading position in the broadband market and continued growth in mobile services and high-speed FTTB services.
'The company has a strong balance sheet and we are highly optimistic regarding Chunghwa's future growth prospects, as the company is rebuilding its infrastructure into a converged IP-based next-generation network. According to our assessment, the stock is modeled to trade near the S&P 500 average since growth rates in Asia continue to remain well above the worldwide averages. We maintain our $22 price target which is based on 14.7x our forward fiscal 2008 earnings estimate.'
Read the full analyst report on CHT.
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