Casetek Holdings Ltd (鎧勝控股), which supplies metal casings for Apple Inc’s iPad products, saw its shares drop yesterday as its first-quarter earnings — the weakest in about six quarters — dimmed investor outlook.
While the company’s business is likely to remain lackluster this quarter, sales are set to resume growth beginning next quarter with new product launches by Apple, analysts said.
“Casetek’s seasonal revenue pattern is highly related to Apple’s product launches,” Taipei-based Daiwa Capital Markets analysts Steven Tseng (曾緒良) and Jason Chen said in a client note, referring to the major US client’s weak iPad shipments in the first quarter and the rumored new iPad product launches in the second half of the year.
Tseng and Chen said the new iPad Air and iPad Mini models could be the key revenue drivers for Casetek in the second half, but the company’s “high client concentration would remain an issue for some time.”
Based on Daiwa’s estimates, Apple accounted for more than 80 percent of Casetek’s total revenue last quarter, with iPad and iPad Mini casings contributing more than 70 percent of its overall sales.
Casetek shares opened lower in Taipei yesterday and soon hit an intraday low of NT$153.0 in early trading. At the end of trading on the Taiwan Stock Exchange, the stock closed at NT$157.5, 1.56 percent lower than Wednesday and underperforming a 0.42 percent rise on the benchmark TAIEX.
On Wednesday, the company released its first-quarter results after the Taipei bourse closed, showing its quarterly earnings coming below analysts’ forecasts because of the weakening margins.
Net income in the three months through March 31 declined 36.5 percent to NT$1.12 billion (US$37.3 million) from NT$1.77 billion in the prior quarter.
The figure dropped 35.8 percent from NT$1.75 billion in the same period last year and it was the lowest in the past six quarters.
Earnings per share (EPS) were NT$3.3 last quarter, which was lower than the market consensus of NT$3.9.
Major client’s inventory digestion also pushed revenue to contract by 32.8 percent quarter-on-quarter and 22.7 percent year-on-year to NT$7.57 billion last quarter, nearly 16 percent below the market consensus of NT$8.97 billion.
However, the biggest surprise was the weakness of the company’s margins, with gross margin lowering to 27.1 percent and operating margin contracting to 17.2 percent last quarter, compared with the market consensus of 30.9 percent and 22.5 percent respectively.
Yuanta Securities Corp (元大證券) analyst Dennis Chan (詹宗勳) said that the disappointing revenue affected gross margin by about 2 percentage points. However, a change in product mix also negatively affected Casetek’s margins last quarter, he said.
“We attribute the miss to lower yields on a new product,” Chan said in a client note, hinting that Samsung Electronics Co’s smartwatch might be the product at issue.
“We expect metal casing shipments for the Samsung smartwatch, new iPad Air and 12.9-inch iPad to start in the second, third and fourth quarters respectively,” he said.
Yuanta has cut its target share price to NT$199 from NT$230 to factor in the weaker-than-expected margins in the first quarter and a lower EPS forecast, while Daiwa has also lowered its six-month target price to NT$156 from NT$174.
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