Bank of America Merrill Lynch has raised its target price for shares of flexible printed circuit board (FPCB) maker Zhen Ding Technology Holding Ltd (臻鼎) on the back of increased optimism toward the company’s sales growth stemming from the expected unveiling of new Apple Inc products later this year.
Zhen Ding has been dubbed as one of the “Apple concept stocks” because it is part of the US giant’s supply chain.
APPLE A DAY
In a research note on Friday, Merrill Lynch said that an increase in orders from Apple would push the Taiwanese company’s sales up sharply starting from the second half of the year.
The boost in orders could see the FPCB maker’s sales increase by 44 percent and 60 percent sequentially in the third and fourth quarters respectively, the brokerage added.
TAKING STOCK
Merrill Lynch said that the bright sales outlook this prompted it to upgrade its target price on Zhen Ding shares to NT$102 from NT$90 and issue a “buy” recommendation for the stock.
On Friday, Zhen Ding shares rose 0.80 percent to close at NT$88, outperforming the broader market, with the weighted index closing up 0.25 percent on 8,966.66 points.
SLOW SEASON
In the first quarter, Zhen Ding posted NT$14.7 billion (US$486.7 million) in consolidated sales, down 35 percent from the previous quarter as the global electronics sector passes through its slow season, but 20 percent higher year-on-year.
Merrill Lynch said that Zhen Ding’s sales for the second quarter are projected to fall 13 percent from the first quarter due to the lingering effects of the slow season and could be the low point for the company this year before its sales pick up in the second half.
The brokerage said that no new FPCB competitors have entered the field since last year, likely because manufacturing the circuit boards usually requires having a high-quality production process, a flexible design and large production capacity to meet demand from individual customers, in particular Apple.
COMPETITIVE EDGE
Merrill Lynch said that Zhen Ding is taking advantage of its highly competitive technology and this could win the firm more orders, which would improve its bottom line.
Merrill Lynch also raised its forecast for Zhen Ding’s earnings per share this year by 11 percent to NT$8.4 and by 15 percent to NT$9.2 next year.
Last year, the FPCB maker had earnings per share of NT$7.41.
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