Compal Electronics Inc (仁寶), the world’s No. 2 contract notebook maker, is targeting Apple Inc orders for iPhones and iPads next year after it completes its merger with subsidiary Compal Communications Inc (CCI, 華寶), analysts said.
Compal Electronics announced on Monday a cash tender offer to acquire outstanding shares of handset contract maker CCI at NT$50.8 (US$1.72) per share, and said the merger is expected to be completed no later than April next year.
Compal Electronics said it aims to lower its notebook sales from 84 percent of total sales this year to 60 percent in the years after the acquisition, while its smart device sales are expected to grow from the current 7 percent to 30 percent.
Shares of Compal Electronics, which owned a 47.78 percent stake in CCI, rose 3.47 percent to close at NT$22.35 on hopes that the deal will boost its handheld device sales and offset falling shipments in notebook computers. Meanwhile, CCI gained 7 percent, the maximum daily increase, to close at NT$46.50.
“We believe CCI is not only targeting an expansion in its current shares from existing smartphone customers [Nokia, Sony Mobile, and Lenovo], but also wants to penetrate the tablet business,” Daniel Chang (張博淇), an analyst at Macquarie Capital Securities Ltd’s Taiwan branch, said in a research note.
“With a combined strong balance sheet and R&D resources, we believe Compal is very likely to target larger-scale customers, such as Apple, which has been considering more suppliers for its iPhone and iPad [Mini],” he wrote.
For example, if Compal ships 20 million iPhones next year with an estimated 1 percent operating margin, its earnings next year would grow by 9 percent from Macquarie’s current forecast, Chang said.
Similarly, if Compal is able to ship 8 million iPads next year, the company’s earnings are expected to grow by an additional 4 percent, he said.
Morgan Stanley analyst Grace Chen (陳星嘉) said Compal’s bullish sales growth guidance comes mainly from its optimism about CCI, which should benefit from Microsoft’s acquisition of Nokia and could be added as a new assembler for Apple’s iPad next year.
However, Chen said the acquisition price is a little too high as Compal’s offer price of NT$50.8 per share represents a 16.8 percent premium over CCI’s closing price on Monday.
“Furthermore, we cannot yet tell whether Compal can make profits from these new projects, especially the iPad, given the sizable upfront investments,” she said in a report.
Goldman Sachs analyst Robert Yen (嚴柏宇) said Compal’s decision makes strategic sense given that CCI has strong earnings potential in the next few years, driven by the accelerating smartphone outsourcing trend and potential Apple business.
Once Compal’s financial and manufacturing resources can be injected internally, the company will be better positioned to pick up business from Apple next year, Yen said.
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