Hon Hai Precision Industry Co (鴻海精密), the world’s biggest contract electronics maker, will have its fair price riased at Citigroup on potential profit margin recovery, even though its sales last month fell short of market expectations.
“Growth will be driven, in our view, by an increasing outsourcing pie, market-share gains and cost reductions,” Citigroup Global Markets analyst Kevin Chang (張凱偉) wrote in a client note.
The US brokerage raised its target price for Hon Hai to NT$153, a 27.5 percent increase from its previous target price of NT$120 and a 42.3 percent increase over Hon Hai’s closing price of NT$107.5 on Friday.
But other analysts, including Morgan Stanley’s Jasmine Lu (呂智穎), cast doubt on further share-price gains, saying there were downside risks such as the company’s market share loss at its handset-making subsidiary, Foxconn International Holdings (富士康).
Hon Hai shares have risen by 67.45 percent since the beginning of the year, compared with a rise of 46.79 percent on the electronics sub-index and an increase of 41.34 percent on the benchmark TAIEX over the same period, data compiled by Taiwan Stock Exchange showed.
But compared with its share prices a year ago, Hon Hai shares have fallen 40.93 percent, bigger than falls in the electronics sub-index of 26.44 percent and the TAIEX’s 29.45 percent, stock exchange data showed.
Hon Hai on Monday last week reported NT$94.41 billion (US$2.87 billion) in unconsolidated revenues last month, down 8.23 percent from the previous month and 8.22 percent from a year ago, because of slowing consumer electronics demand.
In the first four months of the year, revenues dropped 7.98 percent year-on-year to NT$372.41 billion, a company statement said.
But Citigroup said Hon Hai was expected to show strong earnings growth recovery because the company’s operating margin of 3.7 percent in the first quarter was in line with the brokerage’s estimate of 3.5 percent to 4 percent, and its gross margin of 9.5 percent in the quarter was also higher than levels in both the previous quarter and a year ago.
Because Hon Hai is expected to continue cost reductions to achieve savings of between NT$11 billion and NT$12 billion in the quarters ahead, along with its plan to add more component businesses next year to improve its product mix, the Tucheng (土城), Taipei County-based company is likely to see operating margin improve to 4.5 percent by the end of next year, Chang said.
Earnings per share, meanwhile, will increase by 19 percent year-on-year to NT$8.3 this year and by 21 percent to NT$10.2 next year, he said.
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