Mon, Mar 24, 2014 - Page 13 News List

HSBC sees positive outlook for Compal Electronics

By Kevin Chen  /  Staff reporter

HSBC Securities is upbeat about Compal Electronics Inc’s (仁寶) earnings outlook this year, saying the current quarter should mark the trough quarter for the world’s second-largest contract notebook maker.

While Compal’s shares have underperformed the broader market by nearly 12 percent and ended about 18 percent lower than the electronics sub-index over the past three months, the brokerage said the company’s improving earnings momentum could help drive a market re-rating of its shares.

On Friday, Compal’s shares ended 1.74 percent lower at NT$19.8, falling 13.35 percent since the beginning of the year, Taiwan Stock Exchange data showed.

In a research note issued on Friday, HSBC Securities Taiwan Corp researchers led by Jenny Lai (賴惠娟) said Compal’s earnings momentum will accelerate after this quarter, with key catalysts including a recovery in notebook PC shipments, the new handset and tablet orders, and a turnaround in equity income.

HSBC said it expects Compal’s notebook PC shipments to drop by between 15 percent and 20 percent this quarter from last quarter, which is weaker than the seasonal pattern of a decline of between 5 percent and 10 percent.

However, a ramp-up in production in May and June period of new models using a more powerful Intel Corp Haswell processor should help boost Compal’s revenue going forward, HSBC said.

The brokerage also said Compal’s handset subsidiary, Compal Communications Inc (CCI, 華寶), would likely start production of the new smartphone model for HTC Corp (宏達電) this month, a move that is expected to push the company’s combined tablet and smartphone sales for this quarter to grow 11 percent from last quarter and more than double from a year earlier.

With the sale of its subsidiary Vibo Telecom Inc (威寶) to Taiwan Star Cellular (台灣之星) and the turnaround of its manufacturing venture with Lenovo Group Ltd (聯想), HSBC said Compal could also see its equity income account turn profitable from next quarter, the first time since 2012.

The brokerage said Compal’s revenue would increase by 7.15 percent to NT$742.25 billion (US$24.22 billion) this year from last year.

The company’s cumulative sales during the first two months of the year rose 0.5 percent to NT$102.98 billion from NT$102.47 billion during the same period last year.

The firm’s operating margin is forecast to improve to 1.44 percent from 1.39 percent last year if the firm remains disciplined on spending, allowing its operating profit to grow 10.78 percent year-on-year to NT$10.69 billion this year, HSBC said.

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