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June 26, 2017

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4G services may well depress top 3 telecom operators' bottom lines

TAIPEI -- Taiwan's top three telecom operators' launch of their own fourth-generation (4G) long-term evolution (LTE) networks is expected to depress the three's bottom lines, starting from June, Yuanta Investment Consulting said Saturday.

Chunghwa Telecom Co., the largest telecom services provider in Taiwan, was the first to launch the 4G network on May 29, followed by rival Far EasTone Telecommunications Co. on June 3 and Taiwan Mobile Co. on the following day.

All of the three companies started their 4G operations earlier than they had previously planned, in a bid to lure as many 3G users as possible to shift to the new services after they won a bid to secure 4G licenses last year.

In a research note, Yuanta said that increased operating costs related to the launch of the 4G services could slow down the three companies' profit growth from June. And even worse, they could witness their profit fall this month, the advisory firm added.

In the first five months of this year, the three telecom operators recorded growth in net profit, indicating that they continued to enjoy stable growth in their bottom lines, but the uptrend could be reversed in June, according to Yuanta.

In the first five months of this year, Taiwan Mobile ranked as the top earner among the three in terms of earnings per share by reporting NT$2.56 (US$0.09) in EPS, up from NT$2.42 in ESP recorded over the same period last year.

Chunghwa Telecom came in second after reporting NT$2.2 in EPS in the five-month period, up from NT$2.09 in EPS registered in the same period last year, ahead of Far EasTone with NT$1.67 in EPS, which rose from NT$1.49 seen a year earlier.

In May alone, Taiwan Mobile's EPS stood at NT$0.55, up from NT$0.53 recorded a year earlier, while Chunghwa Telecom posted NT$0.44 percent in EPS that month, compared with NT$0.43 in EPS a year earlier, and Far EasTone reported NT$0.37 in EPS, up NT$0.31 in EPS recorded a year ago.

Yuanta said in recent trading sessions in the local bourse, shares of the three telecom operators have significantly risen amid optimism that new competitors in the local 4G services business are unlikely to impose threats to them.

In addition, the three telecom stocks have been favored by investors as they tended to issue attractive dividends. Taiwan Mobile is expected to issue NT$5.6 in cash dividend for its 2013 earnings, Chunghwa Telecom will give NT$4.52 and Far EasTone will dole out NT$3.75.

However, Yuanta said amid uncertainty over the three telecom operators' profitability in the future due to the launch of the 4G services, the advisory firm has maintained a "neutral" recommendation on the three stocks.

On Friday, Chunghwa Telecom rose 0.10 percent to close at NT$96.20, while Far EasTone fell 0.15 percent to end at NT$68.70 and Taiwan Mobile closed down 0.10 percent at NT$98.70.

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