Credit Suisse Group AG yesterday lowered its earnings estimates for Asustek Computer Inc (華碩) following the company’s disposal of part of its stake in its spin-off Pegatron Corp (和碩) late last month.
The Swiss bank trimmed its forecasts for Asustek’s earnings per share for this year by 1 percent to NT$31.8 and by 8 percent for next year to NT$32.20 after Asustek told an investors’ conference on Monday that it would change how it accounts for its stake in Pegatron.
With its stake in Pegatron now lower than 20 percent, Asustek said it would use the cost method of accounting in the future instead of the equity method, which means Pegatron’s earnings would no longer be reflected in Asustek’s income.
“We expect earnings downgrades for global PC forecast cuts and for accounting of Pegatron,” Credit Suisse analyst Thompson Wu (武光明) wrote in a note to clients.
He rated the stock as “neutral” and cut its target price from NT$380 to NT$370.
When Pegatron was spun off from Asustek in 2010, the latter held 25 percent of Pegatron’s shares.
Asustek had hoped to deliver on its promise to lower its holdings in Pegatron since then, but was unable to do so because of the weakness in Pegatron’s share price during the past two years.
However, Pegatron’s share price rose dramatically this year, leading Asustek to sell a 4.5 percent stake in Pegatron on April 29, which lowered its holdings to 19.59 percent from 24.09 percent.
Shares of Asustek closed down 2.65 percent at NT$349 yesterday, despite solid first-quarter results announced on Monday.
Asustek met expectations when it on Monday reported a 3 percent quarter-on-quarter rise in net income in the January-March period to NT$6.05 billion, or NT$8.04 per share.
The company posted earnings of NT$5.89 billion, or NT$7.82 per share, in the fourth quarter of last year.
Although Asustek’s consolidated revenue declined 10 percent to NT$105.16 billion in the quarter, its operating margin improved to 5.3 percent, from 5.2 percent in the previous quarter.
In a separate report, British banking group Barclays PLC said Asustek has benefited from market share gains and growth in new products, such as tablets.
“We look for flat quarter-on-quarter sales in the second quarter of 2013, with new product launches at Computex in early June likely to boost [Asustek’s] outlook in the second half of 2013,” said Kirk Yang (楊應超), a Barclays analyst in Hong Kong.
The bank kept its “overweight” rating on Asustek shares and raised its target price from NT$390 to NT$400.