Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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This Monopolistic Firm is Now Trading 25% Below its Fair Value |
Published: April 19,
2007
Chunghwa Telecom ADR (NYSE: CHT) is a former
state-owned provider of telecommunications services in Taiwan. Thanks to
sweeping regulatory changes enacted a decade ago, privatization has
allowed individual investors a piece of this highly profitable business
-- which conveniently trades as an
American Depositary
Receipt (ADR) on the New York Stock Exchange.
Here in the U.S., the telecom industry is often marked by brutal
competition. While Taiwan also has its share of competition, virtually
no other player comes close to matching up with Chunghwa. The firm is
Taiwan's only integrated operator; it controls a dominant 95%-plus share
of the nation's fixed-line phone business with an established base of
around 13 million traditional phone customers.
As is the case with nearly all telecom companies, the fixed-line segment
is somewhat stagnant. Fortunately, though, the Taiwanese are quite fond
of their cell phones, and the country has a 90% penetration rate in the
wireless market -- among the highest in the world. As the nation's
leading provider of wireless services (with a roughly 40% market share),
Chunghwa rakes in a steady stream of cash flows from its 9 million
users. Many of them have signed up for third-generation (3G) mobile
service -- which is about 30% higher in terms of average revenues per
user.
Finally, the company is also the undisputed leader of broadband Internet
and high-speed data services. This is actually Chunghwa's
fastest-growing segment, and the firm has enrolled more than 350,000 new
broadband Internet subscribers over the past twelve months alone.
From the old to the new, Chunghwa is the clear market leader in all
three telecom service areas: fixed line, wireless, and Internet. Not
only does that lend itself to considerable economies of scale, but as
the nation's only integrated provider, the company has a natural
competitive advantage when it comes to bundling services.
All told, those services generate a steady stream of high-margin
revenues that churn out roughly $2 billion per year in annual free cash
flows. And with relatively light spending needs (capex spending
represented less than 15% of revenues last year), the company is
typically able to return around 90% of its net income to shareholders --
as evidenced by a robust 6.3% dividend yield.
Given the high saturation of the Taiwanese market, Chunghwa is unlikely
to post stellar growth rates. However, revenues still advanced modestly
last year, and operating cash flow climbed a healthy +16%.
The stock is currently trading at a sharp discount to its $27 fair value
estimate, less than two times its book value, and has a rich cash flow
yield in excess of 15%. By comparison, a domestic counterpart like
Verizon also trades around two times book value, but with lower market
share and more competition. It's also worth noting that Chunghwa
maintains a pristine balance sheet for a telecom company -- with more
than $2 billion in cash and almost zero debt.
Thanks for reading!
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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