With shares of several Taiwanese technology heavyweights appearing oversold amid a recent market plunge, Citigroup yesterday maintained a "buy" recommendation on MediaTek Inc (聯發科) shares, while Lehman Brothers suggested Acer Inc and High Tech Computer Corp (宏達電) stocks as its top picks.
In a note to its clients, Citigroup Global Market's equity research team reiterated a buy rating on MediaTek, with a 12-month target price of NT$675 (US$20.72).
Because of pull-in production by customers, MediaTek is likely to post a bigger-than-expected 20 percent to 21 percent quarterly decline in fourth-quarter sales, Citigroup analyst Andrew Lu (陸行之) wrote in the note.
This Hsinchu-based integrated circuit designer for compact disc players and mobile phones forecast last month that it might see a 10 percent to 12 percent decline in fourth-quarter sales from the previous quarter.
However, hinting that investors should look beyond the inventory adjustment quarters for this and next, Lu said MediaTek's gross margin would stabilize at 55 percent to 56 percent this quarter as a result of "product mix shifting to higher-margin handset IC sales."
Shares of MediaTek rose 6.05 percent to close at NT$403 on the Taiwan Stock Exchange. This compared to a 2.65 percent rise in the benchmark TAIEX.
Lehman Brothers also said investors should start searching for value among tech heavyweights following recent weak share performance.
"Technically, share prices already reflect weak guidance, downside risks from the US market and Taiwan politics," Lehman Brother's Taiwan tech team wrote in a report issued on Monday.
"With low inventory levels, we think risks of significant downside surprise in the first half of next year are limited," the Lehman team said.
According to the Lehman report, Taiwan Semiconductor Manufacturing Co (台積電), Hon Hai Precision Industry Co (鴻海精密), Acer and MediaTek now look attractive at current levels. Shares of Hon Hai surged 6 percent to NT$189, Acer rose 2.6 percent to NT$60, and TSMC edged up 0.6 percent to NT$59.2
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