Although shares of Hon Hai Precision Industry Co (鴻海精密), the world’s biggest contract electronics maker, have faced heavy selling from foreign institutional investors recently, most foreign brokerages maintained their “buy” ratings on the stock as they are upbeat about the company’s revenue growth.
As the pay hikes in its Chinese facilities are expected to erode the company’s profits, however, most brokerages have lowered the stock’s target price, with Citigroup Global Markets cutting its 12-month target to NT$114.
Hon Hai’s shares yesterday climbed NT$2, or 1.79 percent, to close at NT$113.5.
Wang Wanli (王萬里), head of Taiwan Research at HSBC Securities, said he rated Hon Hai “overweight” because its share prices have plunged about 20 percent in the past month.
Wang added that Hon Hai’s revenue this year is expected to rise 32 percent from last year — benefiting from the growth of orders in flat panel TVs, iPads, iPhones and notebook computers.
Wang cut the stock’s target price from NT$179 to NT$170, however, saying the pay hikes are expected to increase Hon Hai’s cost by NT$24 billion (US$739.8 million) a year, which he said would reduce its operating profit by 20 percent.
Daiwa Securities analyst Calvin Huang (黃文堯) was also worried that the increase in labor cost would hurt the company’s ability to boost its market share. He maintained an “underperform” rating for Hon Hai.
JPMorgan Chase cut Hon Hai’s target price from NT$175 to NT$148, and Merrill Lynch decreased it from NT$190 to NT$159. However, both brokerages kept their buy rating on the stock, according to media reports.
Meanwhile, Morgan Stanley said it expected Hon Hai to stage a rebound in the next two months and set a target price at NT$150, saying the worst was over after the company’s share prices fell 20 percent in the past month, the reports said.
The highest target price for Hon Hai — NT$173 — came from Credit Suisse, which reiterated its “outperform” rating for the stock, saying the impact from the pay hikes would be less than expected and the overall labor cost would decrease once the company hires more quality workers, a media report said.
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