Mon, Jan 25, 2010 - Page 12 News List

Citigroup keeps notebook makers on top-pick list

By Kevin Chen  /  STAFF REPORTER

Amid solid demand and lean inventories, notebook computer-related stocks remained on Citigroup’s top-pick list despite a recent pullback in hardware shares and after the benchmark TAIEX posted five consecutive days of declines last week.

“For end demand, we believe the Christmas sell-through was quite strong and we fully expect an above-seasonal first-quarter [performance], driven by both robust end-demand and restocking,” Citigroup Global Markets analysts Kevin Chang (張凱偉) and Eve Jung (戎宜蘋) said in a client note on Friday.

In business terms, sell-through refers to the number of notebooks consumers purchase from retail stores.

Market researcher IDC on Jan. 13 said that global PC shipments rose 15.2 percent in the fourth quarter from a year earlier, while Gartner Inc said worldwide shipments increased 22.1 percent for the quarter, the strongest in the past seven years. Chang and Jung said most high-tech companies appeared reluctant to aggressively replenish inventory before Christmas given uncertainty over the global economic recovery.

But after the holiday season, “we believe many global handset and notebook OEM [original equipment manufacturing] companies are restocking [sales] channels,” they said.

Taiwan’s export orders surged a record 52.63 percent year-on-year to US$31.73 billion last month, as local manufacturers increased production capacity to meet market demand, especially from China, figures from the Ministry of Economic Affairs showed on Wednesday.

Among various export items, orders for information technology and communications products took the lead with a surge of 61.52 percent year-on-year to US$8.2 billion, followed by a 53.09 percent rise in electronics items to US$7.55 billion, ministry data showed.

Citigroup placed “buy” ratings on notebook brands such as Acer Inc (宏碁), Asustek Computer Inc (華碩) and Lenovo Group Ltd (聯想). The brokerage also recommended notebook contract makers like Compal Electronics Inc (仁寶) and Quanta Computer Inc (廣達), as well as notebook component suppliers including Ju Teng International Holdings Ltd (巨騰), Chicony Electronics Co (群光) and Simplo Technology Co (新普).

Compal Electronics, the world’s largest notebook contract maker, was also on BNP Paribas analyst Patty Liu’s (劉安蓓) list of favored stocks, citing the firm’s better first-quarter shipment guidance and potential new order for its LCD TV panels.

Daiwa-Cathay Capital Markets analyst Calvin Huang (黃文堯) on Friday maintained a “buy” rating for Hon Hai Precision Industry Co (鴻海), saying the firm was less likely than its peers to suffer from components and labor shortages thanks to Hon Hai’s vertical integration model.

Daiwa’s view on Hon Hai contrasted with Citigroup’s, which downgraded the stock to “hold” from “buy” on concerns that the world’s largest contract maker of electronics could miss its earning projections this year because of falling operating margins at some of its new businesses.

Still, Citi’s Chang and Jung said in the note that their downgrading of Hon Hai “has nothing to do with end-demand or valuation concerns.”

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