ICT Infrastructure Investments Will Forge A Connected Future

Key Takeaways

• Expansion in ICT, cloud, and 5G private networks drives high-margin growth and diversifies revenue streams through digital transformation and enterprise solutions.
  
• Strategic investments in infrastructure, cybersecurity, and bundled services strengthen customer loyalty, improve margins, and support long-term growth and returns.
  
• Limited domestic growth, declining international performance, and rising infrastructure investments increase financial pressure and expose the company to heightened risks and margin challenges.

Catalysts

Operates as an integrated telecommunications service provider in Taiwan and internationally.

• Significant expansion in the enterprise ICT segment, especially growth in AIoT, cloud, data center, and 5G private network solutions, positions Chunghwa Telecom to benefit from proliferating connected devices and increased demand for digital transformation, driving accelerated revenue and high-margin earnings growth.
  
• Further investments in undersea cables, international data hubs, and multi-orbit satellite services support increasing bandwidth needs for remote work, cloud, and AI applications, expanding the company's addressable market and underpinning future top-line growth.
  
• Rising ARPU from sustained 5G migration and premium fixed broadband uptake, as well as effective cross-product bundling (mobile, broadband, streaming, and cybersecurity), reinforce net margin expansion and create long-term customer stickiness.
  
• Growing contribution from consumer and enterprise cybersecurity solutions, driven by heightened demand for robust online security, supports high-margin incremental recurring revenue and helps protect margins from sector-wide price pressures.
  
• Prudent capital allocation and continued operational efficiencies, along with stable EBITDA margins and strong free cash flow, enhance Chunghwa's capacity to invest for future growth while supporting ongoing EPS and potential dividend increases.

Chunghwa Telecom Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Chunghwa Telecom's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.3% today to 17.5% in 3 years time.
• Analysts expect earnings to reach NT$43.0 billion (and earnings per share of NT$5.49) by about August 2028, up from NT$38.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.8x on those 2028 earnings, up from 27.1x today. This future PE is greater than the current PE for the US Telecom industry at 25.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.17%, as per the Simply Wall St company report.

Chunghwa Telecom Future Earnings Per Share Growth

Risks

• Market saturation in Taiwan, with already high mobile and internet penetration rates, limits organic growth opportunities for Chunghwa Telecom's core business units and may cap future revenue expansion.
  
• Revenue from international subsidiaries declined by 41% year-over-year in the second quarter, reflecting ongoing challenges in global diversification and exposure to project-based volatility, which may constrain sustained long-term earnings growth.
  
• The company's cash flow from operating activities decreased by 0.2% year-over-year, and free cash flow declined by 6.8% due to higher CapEx and settlement of accounts payable, which could put pressure on liquidity and future net margins, especially with increasing investments in 5G and network infrastructure.
  
• The drop in revenue and income before tax in the International Business Group (IBG), driven by softening demand for international fixed voice and roaming services, highlights risks from commoditization and digital disintermediation, potentially eroding high-margin legacy revenue streams.
  
• Ongoing global uncertainties around tariffs, exchange rates, and cautious market sentiment, as well as increased capital expenditure for new cable and satellite projects, introduce potential volatility and risks to both revenue forecasts and earnings consistency.

Valuation

• The analysts have a consensus price target of NT$132.143 for Chunghwa Telecom based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NT$152.0, and the most bearish reporting a price target of just NT$117.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NT$245.9 billion, earnings will come to NT$43.0 billion, and it would be trading on a PE ratio of 27.8x, assuming you use a discount rate of 5.2%.
  
• Given the current share price of NT$132.5, the analyst price target of NT$132.14 is 0.3% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.