UBS Securities yesterday cut its target price for Hon Hai Precision Industry Co (鴻海精密), the world’s largest contract electronics maker, amid concern over slowing global demand and the potential impact of Hewlett-Packard’s (HP) spin-off of its PC unit.
In a research note, the brokerage said it had lowered its target price to NT$60 from NT$85.50, while maintaining a “sell” recommendation on the stock.
Hon Hai yesterday closed up 3.88 percent at NT$64.20 on a technical rebound, following a steep decline in the previous session.
UBS said with the global economy weakening, several of Hon Hai’s major clients — including HP, Sony, Dell and Cisco — had turned cautious about the outlook for the market.
Hon Hai cannot isolate itself from the impact of such a downward cycle, the brokerage said.
HP is studying the feasibility of spinning off its PC division, which has added uncertainty to Hon Hai’s earnings, it said.
According to UBS, orders placed by HP account for 15 to 20 percent of Hon Hai’s total revenue.
The brokerage also expressed concern that Hon Hai would face pressure from rising labor costs in China, its major production base.
Last year, the annual compound growth in China’s labor population stood at 1.1 percent, down from 2 percent in 2000, indicating that China’s labor market has become tighter than ever, UBS said.
Moreover, Hon Hai’s plan to increase the number of robots installed at its Chinese plants to 1 million over three years, up from the roughly 10,000 currently in operation, is expected to boost the company’s operating costs, it said.
UBS lowered its forecasts for Hon Hai’s earnings per share this year, next year and in 2013 to NT$5.56, NT$6.30 and NT$6.7 respectively, from its previous estimates of NT$6.23, NT$6.66 and NT$7.17.