1、January 7, 2010 Taiwan: Telecom Services Goldman Sachs Global Investment Research 1 January 7, 2010 Taiwan: Telecom Services Worst case earnings loss of about 5-10% on final price cap decision NCCs final price cap decision is inline with proposed rates The National Communications Commission (NCC) pu
2、blished its final decision on price cap adjustments for Taiwans telecom industry, effective April 1, 2010 over a 3 year period. The headline figures are unchanged from the proposed rates (as discussed in our Jan. 6 note), but additional details to highlight are: (1) fixed line tariff adjustments are
3、 applicable only to the market leader, i.e., Chunghwa; (2) on the fixed line side, IP peering fee is included in addition to ADSL circuit, domestic long distance and domestic wholesale leased line; and (3) NCC also highlighted that it is reviewing regulation on wholesale mobile tariff pricing (e.g.,
4、 mobile interconnection), though no specific timeline on announcement and implementation was provided. NCC estimates total industry revenue loss of NT$20 bn over 3 years as a result of the cuts which is less than the Taiwan Telecom Industry Development Associations NT$37 bn estimate. Worst case is a
5、bout 2% revenue/5-10% earnings loss per year We refine our estimated impact based on NCCs final decision and our discussion with the telco incumbents (see report exhibits). We have clarified that the CPI change used in the “CPI change X” formula is based on prior full year CPI change rather than las
6、t month, so the effective annual price cut based on 2009 CPI decline of 0.87% is 5.87% for mobile and 5.69% for fixed. We estimate under a worst case scenario (i.e., no mitigating measures to the price cuts), total revenue dent per year would be 2.1% for Far EasTone (FET), 1.6% for Taiwan Mobile (TM
7、C) and 1.6% for Chunghwa (CHT). These estimates tie with FET and TMCs estimates of full year revenue impact of around NT$1.2 bn or 9 month impact of NT$0.9 bn for 2010. Given that this revenue loss will flow through to the bottom-line, we estimate earnings dent is 10% for FET and 5%-6% for CHT and T
8、MC under the worst case scenario. In reality, we believe the earnings impact will be less given these cuts are applied to published tariffs while promotional rates are already lower, the operators may be able to adjust pricing for less popular plans more than more popular plans, competitive pressure
9、s may ease given profitability concerns and operators can resort to cost reductions like cutting handset subsidies and marketing expense. Despite the worse than expected earnings outlook, we see room for the Taiwan telcos to maintain attractive yields via capital management given healthy balance she
10、ets. Furthermore, about 7% yield to be paid in 2010 (from 2009 earnings) remains intact and should provide downside support. COMPARABLE VALUATIONS TMC FET CHTTicker 3045.TW 4904.TW 2412.TWRating Buy Neutral NeutralCurrent price (NT$) $60.60 $37.25 $58.40Target price (NT$) $68.00 $42.00 $62.002009E 2
11、010E 2009E 2010E 2009E 2010ERevenue growth -0.5% 17.1% -3.0% -0.6% -2.5% -0.5%EBITDA growth -2.9% 20.0% -7.9% -1.9% -4.6% 0.5%EBITDA margin (a) 42.3 43.4 44.8 44.3 47.0 47.5Earnings growth -9.7% 27.1% -9.1% 9.5% -4.6% 5.5%Recurring earnings growth (b) -5.6% 28.2% -8.4% 6.0% -8.1% 5.5%DPS (NT$) 4.20
12、4.18 2.55 2.79 3.62 3.82Dividend yield (%) (c) 6.9 6.9 6.8 7.5 6.2 6.5Recurring P/E 15.2 11.9 12.6 11.9 14.5 13.8EV/EBITDA 8.7 7.0 4.6 4.5 5.8 5.8(a) Service EBITDA margin for FET; (b) Recurring net profit adds back disposal gains, asset write-offs and impairments, and other one offs; (c) Our 2009E
13、DPS for TMC reflects its commitment to have treasury shares forgo dividends and buffer with unappropriated earnings. Our 2009E DPS for CHT and FET do not reflect potential incremental capital management. Target prices are all DCF-based and over a 12m horizon. Source: Datastream, Goldman Sachs Resear
14、ch estimates UPCOMING EVENTS 1Q2010: Potential MOEA decision on Carlyles kbro sale to Taiwan Mobile 1H2010: Potential government decision on China Mobiles stake purchase of Far EasTone January 8, 2010: Taiwan telcos Dec KPIs and 4Q2009 preliminary highlights January 21, 2010: CHT capital reduction p
15、ayment January 28, 2010: TMC 4Q2009 results 2H February: FET 4Q2009 results March 30: CHT 4Q2009 results RELATED RESEARCH Jan 6, 2010: Proposed price cap adjustments appear worse than expected Dec 11, 2009: Nov KPIs Easing comps narrow mobile revenue decline; healthy margins Dec 3, 2009: Taiwan Mobi
16、le TMC receives FTC approval of kbro acquisition with stipulations Kathy Chen +852-2978-1291 | Goldman Sachs (Asia) L.L.C. Helen Zhu +852-2978-0048 | Goldman Sachs (Asia) L.L.C. Michelle Sun +852-2978-2679 | Goldman Sachs (Asia) L.L.C. The Goldman Sachs Group, Inc. does and seeks to do business w
17、ith companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certific
18、ation, see the end of the text. Other important disclosures follow the Reg AC certification, or go to Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S. The Goldman Sachs Group, Inc. Global Investment ResearchJanuary 7, 2010 Taiwan: Telec
19、om Services Goldman Sachs Global Investment Research 2 Details on final price cap adjustments announced Exhibit 1: Finalized price cap adjustments also include IP peering fees and fixed line adjustments are applicable only to the market leader, i.e., Chunghwa Telecom NCC announced price cap adjustme
20、nts Target Business operation Applicable services X-factor Years in effect NoteMarket leader Fixed Line 1 IP peering 4.816% 32 Domestic wholesale leased line 4.816% 33 ADSL circuit 4.816% 34 Domestic long distance call 4.816% 3All 2/3G operators Mobile 1 Domestic SMS 5% 3 Applicable from April 1, 20
21、10 to March 31, 2013. 2 Off-net voice tariffs including 5% 3 NCC will modify regulations of wholesale tariffs (1) off-net mobile (ie interconnection) and implement the adjusted (2) mobile-to-fixed calls wholesale rates the year after the modification is3 Mobile voice interconnection 5% - completed.S
22、ource: National Communications Commission. Exhibit 2: The latest round of price cap adjustments is broader-based on both mobile and fixed line services Updated analysis on CPI change X calculations, prior round vs. new round X factor = CPI change - X CommentPRIOR NEW PRIOR NEWMobile services CPI cha
23、nge + 4.88% 5.0% -4.88% CPI change - 5% Detailed implementation unclear, likely to be based on published tariffs. for only pre-paid, for off-net calls (2G stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NAS
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31、obtained from Goldman Sachs (Singapore) Pte. Taiw an Mobile (3045.TW)686158575864636265.7960.5246.05404550556065704,0005,0006,0007,0008,0009,00010,000Goldman Sachs rating and stock price target historyStock Price Currency : Taiw an DollarSource: Goldman Sachs Investment Research for ratings and pric
32、e targets; FactSet closing prices as of 9/30/2009.The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.Rating
33、Price targetPrice target at removalCovered by Kathy Chen,as of Jul 18, 2007Not covered by current analystJan 21, 2008 to N from BSep 22, 2009 to B from NTaiw an SE Weighted In de xIndexPriceStock Price Jul 18 Feb 28 May 25N B B NN D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S20
34、06 2007 2008 2009Far EasTone (4904.TW)4245424045515455.751.98303540455055604,0005,0006,0007,0008,0009,00010,000Goldman Sachs rating and stock price target historyStock Price Currency : Taiw an DollarSource: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of
35、 9/30/2009.The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.RatingPrice targetPrice target at removalCove
36、red by Kathy Chen,as of Jul 19, 2007Not covered by current analystSep 22, 2009 to N from BSam e-day changes Mar 10, 2008 54 from 66.84 from 55.7Taiw an SE Weighted In de xIndexPriceStock Price May 25N BN D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S2006 2007 2008 2009Chunghwa T
37、elecom (2412.TW)6258.1859.0961.8260.9564.2172.9272.8573.7567.4665.360.7163.864045505560657075804,0005,0006,0007,0008,0009,00010,000Goldman Sachs rating and stock price target historyStock Price Currency : Taiw an DollarSource: Goldman Sachs Investment Research for ratings and price targets; FactSet
38、closing prices as of 9/30/2009.The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.RatingPrice targetPrice t
39、arget at removalCovered by Kathy Chen,as of Jul 19, 2007Not covered by current analystJan 20, 2008 to B from NJun 16, 2008 to B from NTaiw an SE Weighted In de xIndexPriceStock Price Jul 18 Feb 28 Aug 18B N NNND J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S2006 2007 2008 2009Chun
40、ghwa Telecom (ADR) (CHT)19.2316.6216.8817.6618.4719.7622.8523.6925.8821.4220.7620.0919.9921.0915.0017.0019.0021.0023.0025.0027.0029.004,0005,0006,0007,0008,0009,00010,000Goldman Sachs rating and stock price target historyStock Pric e Currency : U.S. DollarSource: Goldman Sachs Investment Research fo
41、r ratings and price targets; FactSet closing prices as of 9/30/2009.The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or may not have included price targets, as w ell as developments relating to the company, its industry and financ
42、ial markets.RatingPrice targetPrice target at removalCovered by Kathy Chen,as of Jan 15, 2008Not covered by current analystJan 20, 2008 to B from NJun 16, 2008 to B from NTaiw an SE Weighted In de xIndexPriceStock Price Jul 18 Feb 28 Aug 18B N NNND J F M A M J J A S O N D J F M A M J J A S O N D J F
43、 M A M J J A S2006 2007 2008 2009January 7, 2010 Taiwan: Telecom Services Goldman Sachs Global Investment Research 7 (Company Number: 198602165W). Taiwan: This material is for reference only and must not be reprinted without permission. Investors should carefully consider their own investment risk.
44、Investment results are the responsibility of the individual investor. United Kingdom: Persons who would be categorized as retail clients in the United Kingdom, as such term is defined in the rules of the Financial Services Authority, should read this research in conjunction with prior Goldman Sachs
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46、est. European Union: Disclosure information in relation to Article 4 (1) (d) and Article 6 (2) of the European Commission Directive 2003/126/EC is available at http:/ which states the European Policy for Managing Conflicts of Interest in Connection with Investment Research. Japan: Goldman Sachs Japa
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49、d views and related definitions Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by a stocks return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Revie
