Tue, Nov 19, 2019 - Page 11 News List

SinoPac predicts Wiwynn recovery in fourth quarter

LOOKING POSITIVE:While the company is expected to see increased demand from Microsoft and Facebook, Wiwynn is also about to join Amazon.com’s supply chain

By Chen Cheng-hui  /  Staff reporter

Despite reporting falling revenue so far this year, cloud computing equipment supplier Wiwynn Corp’s (緯穎科技) sales are predicted to increase by 34 percent this quarter from last quarter due to reinvigorated demand from cloud service providers (CSPs) and falling prices of DRAM used in servers, SinoPac Securities Investment Service Corp (永豐投顧) said in a research note on Friday last week.

Third-quarter revenue fell to NT$33.35 billion (US$1.09 billion), compared with NT$42.26 billion the previous quarter and NT$48.52 billion a year earlier, Wiwynn reported on Nov. 6.

In the first 10 months of this year, cumulative revenue dropped 14.16 percent year-on-year to NT$129.73 billion, company data showed.

“Pull-in demand from Microsoft [Corp] has been notably stronger versus the first half of 2019, and we anticipate server demand from Facebook [Inc] in the fourth quarter in preparation for new data center launches scheduled sequentially from the second half of 2020. Added with deferred shipments from September, we are bullish about Wiwynn’s sales and earnings this quarter,” SinoPac wrote in the note.

The anticipated sales rebound also comes as Wiwynn prepares to enter Amazon.com Inc’s supply chain this year for the first time, with the US retail giant likely to become its third major source of sales, the note said.

“Looking at the shipment scale of Amazon’s pre-existing suppliers, we reckon Wiwynn will likely win an order allocation of 6 percent for 2020 and 13 percent for 2021, which shall generate NT$7.56 billion and NT$17.78 billion sales contribution for Wiwynn and account for 4.2 percent and 8.6 percent of its total sales respectively,” SinoPac said.

Wiwynn shares closed up 1.28 percent at NT$554 in Taipei trading yesterday. Its share price has risen more than 70 percent in the past six months, as investors believe the firm is riding a cloud industry uptrend and should see healthy demand from top CSPs.

SinoPac maintained a “buy” rating for Wiwynn, and raised the target share price 25.5 percent to NT$620 from NT$494, which would mean a market value 15 times higher than next year’s estimated earnings per share (EPS) of NT$41.3.

“Wiwynn will continue to benefit from CSPs’ robust capital expenditure plans,” SinoPac said. “Facebook and Microsoft will increase their capital expenditures by 10 percent year-to-year over the next two years. For example, Facebook will set up a large-scale, 11-floor data center building in Singapore in 2022, which will serve as a key Internet hub in Asia and a major potential source of server rack demand for Wiwynn.”

“For Microsoft, we anticipate a high-single-digit or double-digit growth rate for server demand,” it said.

The firm, a subsidiary of Wistron Corp (緯創資通), reported net income of NT$1.37 billion for last quarter, down 9.27 percent from a year earlier and 17.5 percent from the previous quarter, with EPS of NT$7.84.

However, gross margin improved to 7.52 percent and operating margin to 5.17 percent, on both an annual and a quarterly basis, thanks to the DRAM price drop and the company having better bargaining power.

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