Encouraged by its strong growth prospects, Deutsche Bank AG yesterday raised its earnings forecasts and share price targets for MediaTek Inc (聯發科), the nation’s biggest handset chip designer.
A report by the bank revised upward MediaTek’s earnings estimates by 4.5 percent this year and 6.7 percent for next year, given the company’s stronger-than-expected revenue in the second quarter and a likely 9 percent sequential sales growth this quarter, along with continued improvement in gross margin.
“Our checks suggest that MediaTek’s business has begun to pick up lately and thus its third-quarter sales outlook may be stronger than its previously cautious view of an implicit 5 percent quarter-on-quarter growth,” Deutsche Bank analyst Jessica Chang (張幸宜) wrote in the report.
The bank forecast MediaTek would see revenue increase to NT$36.26 billion (US$1.21 billion) this quarter from NT$33.27 billion last quarter, with full-year revenue reaching NT$125.61 billion this year, compared with NT$99.26 billion last year.
The company is likely to report a net profit of NT$24.46 billion, or NT$18.13 per share, this year and NT$29.19 billion, or NT$21.63 per share, next year, versus NT$15.69 billion, or NT$12.79 per share, last year, the bank said.
Deutsche Bank raised the firm’s target share price from NT$457 to NT$474, while retaining its “buy” rating on the stock.
That represents a 33.52 percent upside from the company’s closing share price of NT$355 yesterday on the Taiwan Stock Exchange.
Meanwhile, CLSA Asia-Pacific Markets believes MediaTek’s strong fundamentals will remain intact, because the company is one of the few chipmakers set to benefit from the fast increase in low-cost smartphone sales last year and this year.
The brokerage’s bullish view also indicates that it is less worried about the recent inventory correction in the industry that last week prompted Taiwan Semiconductor Manufacturing Co (台積電) to offer a muted growth outlook for the second half of the year.
“With a low penetration rate in China and other emerging countries, we remain confident that low-cost smartphones will grow by 96 percent in 2013 and 47 percent in 2014,” CLSA analyst Cheng Chao-kang (鄭兆剛) wrote in a note on Monday.
As for the inventory correction, it is also unlikely to exceed three months, because of the financial weakness in many Chinese handset supply chain companies, he said.
“Weak balance sheets of micro-component or devices makers mean they are unlikely to build inventory for more than three months,” Cheng wrote, adding that he expected new orders to come in before the middle of next month in preparation for the China’s October holiday season.
CLSA maintained its “buy” rating on MediaTek shares, with a target price of NT$465.
MediaTek is a fabless integrated circuit designer, which provides system-on-chip solutions for wireless communications, high-definition TV, optical storage and Blu-ray digital video disk.
On Wednesday, the company announced the plan for the world’s first octa-core chip, a move that analysts said would help it to focus on high-end and developed markets, while putting it ahead of Qualcomm Inc on the smartphone roadmap for the first time.
“The new octa-core chip shows the company is no longer satisfied with staying in the low to medium-end markets, but wants to move on to the high-end market,” Yuanta Investment Consulting Co (元大投顧) analyst Chen Chuan-chuan (陳娟娟) said.