Daiwa Capital Markets yesterday raised the target price of MediaTek Inc (聯發科) shares to NT$526 in expectation that strong demand for its handset chips would push the company’s revenue past its forecast for the current quarter.
Daiwa analyst Eric Chen (陳慧明) had previously set a target price of NT$420, implying an upside of about 23 percent over the next 6 months from the stock’s closing price of NT$429 yesterday.
MediaTek, which supplies mobile phone chips primarily to Chinese firms, including Lenovo Group (聯想) and Xiaomi Corp (小米), is expected to post revenue of NT$39.79 billion (US$1.33 billion) this quarter, a 2 percent increase from the previous three months, Chen said.
The increase was “driven by strong smartphone chip shipments and an increase in its blended average selling price,” Chen said in a report. “According to our market research, there is currently a shortage in China of MediaTek’s MT6572 and MT6589 chips, reflecting strong demand prior to the Lunar New Year.”
Last month, MediaTek told investors that revenue would be flat, or slip by 5 percent from the third to the fourth quarter, meaning revenue would fall to between NT$37 billion and NT$39 billion.
However, for the first three months of next year, Chen predicted the company’s revenue would fall by 7 percent from this quarter, which would be much better than the average 12 percent quarter-on-quarter reduction the company had experienced in the first quarters of the past three years. The figure is also lower than his previous estimate of a 10 percent first-quarter contraction.
Chen’s latest forecast does not include revenue from MStar Semiconductor Inc (晨星半導體), which is set to merge with MediaTek in February.
Chen attributed the stronger revenue outlook to the deferral of customers’ smartphone shipments and robust demand for the company’s new octa-core smartphone chips.
MediaTek will ship 5 million octa-core chips next quarter, an increase from this quarter’s one million units, he forecast.
MediaTek is likely to record annual revenues of NT$136.05 billion this year, up 21 percent from last year’s NT$99.26 billion, according to Daiwa’s report.
The company is expected to make NT$27.1 billion, or NT$20.08 per share, in net profit this year, and NT$40.75 billion, or NT$26.31 a share, next year, Chen predicted. The target price of NT$526 is calculated out by multiplying next year’s earnings per share by 20, he said.
Chen stuck to his “buy” rating on MediaTek, making it one of Daiwa’s top picks in Asia.