We maintain our Buy rating and the same valuation target for Chunghwa Telecom (CHT), the largest integrated telecom operator in Taiwan, following a respectable ending to 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. This new endeavor enables the company to provide services in different regions of Europe and the U.S.A.
Currently, the stock is trading at an attractive price multiple. 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 increase the valuation target to $27 based on a 18x our forward fiscal 2008 earnings estimate.
Nalak Das contributed to this report.
Read the full analyst report on CHT.
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