Barclays has raised its target price on shares of Foxconn Technology Co Ltd (FTC, 鴻準), one of Taiwan’s leading metal casing suppliers, on expectations that the launch of new Apple products will boost the Taiwanese firm’s sales in the second half of this year.
In a recent research note, Barclays analyst Jerry Wu said he had upgraded the target price on FTC shares to NT$138 from NT$123 and raised his recommendation to “overweight” from “equal weight.”
Shares of FTC closed up 3.86 percent at NT$107.50 on Friday on the Taiwan Stock Exchange, while the broader market was boosted by improved sentiment toward the debt situation in the eurozone. The weighted index ended up 1.76 percent at the day’s high of 7,296.28 points.
As part of the Hon Hai Group (鴻海集團), FTC is expected to benefit from the group’s dominance as a contract supplier of metal casings to Apple, Wu said.
With Apple expected to unveil new devices in the second half, including the iPad Mini and iPhone 5, its shipments will increase accordingly, the analyst said. FTC is expected to generate 23 percent of its total sales for this year from Apple’s orders and 29 percent for next year, up from 13 percent last year, Wu said.
In addition, the rising popularity of Ultrabook computers is likely to further boost demand for metal casings, pushing FTC’s sales higher, the analyst said.
The demand from Apple will result in a drop in FTC’s idle capacity to 17 percent this year and 7 percent next year, from an estimated 25 percent last year, he said.
The launch of iPhone 5 is expected to lift FTC’s average selling price by between 20 and 30 percent, while its gross margin for this year and next year will rise to 12.7 percent and 12.8 percent, respectively, from 9 percent last year, Wu said.
He said FTC was expected to emerge from the lackluster performance seen in the first half, rising on the back of strong demand for Apple’s new devices. The metal casing supplier is expected to post earnings per share of NT$6.67 and NT$9.87 for this year and next year respectively, compared with NT$6.84 last year, he said.
Wu forecast that FTC would incur a loss per share of NT$0.2 for the second quarter of this year after the first quarter’s earnings per share of NT$2.16, adding that its bottom line for the first half was affected by its product transition and a potential investment write-down.
The weakness in the first half has given investors an opportunity to pick up the stock in anticipation that the company will make a comeback in the second half, he said.