Hon Hai shares up on plans for second Sony LCD TV plant

By Lisa Wang  /  STAFF REPORTER

Fri, Apr 02, 2010 - Page 12

Shares of local electronics maker Hon Hai Precision Industry Co (鴻海精密) yesterday hit a two-and-a-half-month high after the company said it planned to acquire another Sony Corp LCD TV manufacturing plant, which would boost its TV shipments this year.

The deal is Hon Hai’s latest move to quickly expand its new flat-panel TV business, after buying an LCD TV plant in Mexico from Sony last year. The firm has been using the merger-and-acquisition shortcut to enter new businesses or expand scale.

Hon Hai shares leapt 1.92 percent to NT$140, marking the highest level since Jan. 21, when they hit NT$146.

Hon Hai’s board approved a proposal to buy 90 percent of Sony’s Slovakia subsidiary via its Singapore subsidiary Foxconn Singapore Pte Ltd, the company said in a filing to the Taiwan Stock Exchange on Wednesday night.

No financial details were disclosed in the filing.

Hon Hai’s Mexican plant cost an estimated US$68 million, which could serve as a reference for the Slovakia deal, Goldman Sachs said in a report released yesterday.

“We believe this transaction should build a closer partnership between Hon Hai and Sony. Furthermore, Hon Hai may gain more LCD TV orders from Sony as a result,” Goldman Sachs analyst Henry King (金文衡) said in the report.

As the transaction is expected to close late in the third quarter, the acquisition would incrementally add 1 million LCD TV units to the 4.8 million units in shipments this year previously estimated by Goldman Sachs, the report said.

Translated into revenues, the Slovakian LCD TV plant is expected to contribute about 0.5 percent to Hon Hai’s consolidated sales this year and another 1 percent to 2 percent next year, King said. He did not provide a revenues forecast for this year.

Goldman Sachs rated Hon Hai “Buy,” with a 12-month target price of NT$177, implying about a 26 percent upside from the stock’s closing price yesterday.

Credit Suisse analyst Robert Cheng (鄭勝榮) yesterday raised by 3 percent his revenue forecast for Hon Hai to NT$2.53 trillion (US$79.3 billion) following the upward revision of iPhone and iPad projections made by another Credit Suisse analyst, Bill Shope, in a report released yesterday.

Faster-than-expected growth in notebook computer shipments is also one of the main reasons behind the increase in revenues forecast. Cheng said Hon Hai may ship 9 million laptops this year, rather than the 6.5 million he estimated previously.

Credit Suisse maintained its “out-perform” recommendation on the stock, with a target price of NT$171.