Shares of Advanced Semiconductor Engineering Inc (ASE, 日月光半導體), one of Taiwan’s leading integrated-circuit packaging and testing service providers, extended their losses yesterday morning after the company reported worse-than-expected pretax earnings for the fourth quarter of last year, dealers said.
The selling was believed to come from foreign institutional investors who have turned wary of the company’s bottom line due to the earnings report, while its American depositary receipts fell more than 11 percent in New York overnight, they said.
As of 11:27am, shares in ASE fell 2.3 percent to NT$27.55, with 82.86 million shares changing hands after a drop of 7 percent, the maximum daily decline, seen the previous session, while the benchmark weighted index was up 0.14 percent at 7,663.18 points.
“The pretax earnings for the fourth quarter were about 20 percent lower than my earlier estimate,” Grand Cathay Securities (大華證券) analyst Meissen Chang said.
ASE said on Thursday it posted NT$2.95 billion (US$ 99.9 million) in unaudited pretax profit or NT$0.44 per share for the fourth quarter, while its operating income fell below the NT$4 billion level to about NT$3.5 billion.
For the entire year last year, ASE recorded NT$16.997 billion in pretax profit, or about NT$2.55 per share.
“The company had tended to be upbeat about the market outlook, so investors followed its optimism to embrace high expectations. However, it turned out that it was in worse shape, dashing many analysts’ hopes,” Chang said.
“I suspect the selling came from foreign institutional investors who still hold a large chunk of ASE shares,” Chang said. “The institutional selling led to heavy turnover in the stock this morning.”
As of Thursday, foreign institutional investors owned a 70.12 percent stake in ASE, according to the Taiwan Stock Exchange.
Chang said the disappointing earnings in the fourth quarter were largely the result of a slowing global semiconductor business, while ASE assigned large provisions to cover the losses from its investments in unprofitable memory chip production for the period to further impact its profitability.
“In my estimate, ASE’s average capacity utilization fell from 75 to 70 percent last year, compared with full utilization in 2010, due to weakening global demand,” Chang said.
“To win orders, ASE has entered cut-throat price competition and seen its profitability squeezed,” he said.
Chang said as the global integrated circuit sector remains haunted by market uncertainty, it remains to be seen when ASE will see a meaningful improvement in its bottom line.
“It is possible for the stock to suffer an additional drop of between 10 percent and 20 percent in its share price amid cautious sentiment,” he said.