Chunghwa stands by its buyback plan

STRONG OPPOSITION: Chunghwa Telecom reaffirmed its dedication to reacquiring 10 percent of its outstanding shares, despite concerns raised by its Workers' Union

By Annabel Lue  /  STAFF REPORTER

Thu, Aug 21, 2003 - Page 10

Chunghwa Telecom Co (中華電信), the nation's largest telephone company, yesterday reiterated its plan to buy back a portion of its outstanding shares by the end of the year amid opposition from the company's workers' union.

"The share-buyback plan will continue," Chunghwa chairman Hochen Tan (賀陳旦) said yesterday at an investors conference.

"We will try our best to communicate with employees so that they understand the benefit of the plan," he added.

The share buyback aims to lift shareholder's earnings by reducing issued capital and to strengthen the efficiency of capital usage, Hochen explained.

In mid-June, the telecom giant announced plans to buy back 10 percent of its outstanding shares from the state-run company's major shareholder, the Ministry of Transportation and Telecommunications, for the first time.

In order to fulfill the plan, Chunghwa plans to borrow around NT$32.5 billion from banks based on current market price.

The proposal, however, irritated Chunghwa Telecom employees, saying the move was to help finance President Chen Shui-bian's (陳水扁) re-election campaign next year.

To hinder the plan, Chunghwa Telecom Workers' Union, with three representatives on the company's 15-member board, blocked access to a board meeting held to approve the buyback plan early last month.

Objections from the union also forced the company not to discuss the buyback plan at its latest shareholder meeting on Tuesday.

But an analyst praised the buyback plan yesterday.

"From a financial management point of view, the buyback plan won't result in any burden for Chunghwa," said Dmitri Hu (胡殿謙), a researcher at Hong Kong-based CLSA Ltd in Taipei. "It is also expected to benefit shareholders as a whole."

Despite the buyback plan, Chunghwa's limited debt and strong cash flow allows the company to assert more leverage.

According to Lu Shyue-Ching (呂學錦), Chunghwa's chief executive officer, the company's current total debt amounts to 6 percent of its capital, and "our credit rating is not expected to change unless the amount reaches 20 percent."

If the market reaction to the buyback plan is encouraging, Chunghwa may consider conducting several rounds of buybacks in the near future, Lu said on the sidelines of the investor conference.

Chunghwa is confident of meeting, or even exceeding, its sales and profits forecasts for this year after a solid first-half showing. The company yesterday said its net income for the second quarter increased by 25 percent to NT$13.3 billion, resulting in a net profit margin of 29.2 percept for the period.

All of the company's various business units reported sales increases in the second quarter, with its fixed-line, wireless and Internet services divisions growing by 1.9 percent, 2.9 percent and 4.1 percent, respectively.

The SARS outbreak benefited Chunghwa's Internet-services division, the company said. As of June 30, the company's high-speed Internet-user numbers totaled 2.04 million, a nearly 10 percent jump from the previous quarter's 1.86 million users.

For the first-half of the year, Chunghwa reported net profits dropped 5 percent to NT$23.9 billion from the same period last year's NT$25.1 billion. Earnings-per-share in the first six months stood at NT$2.48 and the company said the number is expected to reach NT$4.44 this year, Lu said.

Shares of the company rose NT$0.6, or 1.3 percent, to close at NT$48.1 on the TAIEX yesterday.