Analysts yesterday raised their share price targets for Pegatron Corp (和碩) after the contract notebook computer and smartphone maker on Monday posted a better-than-expected performance for last quarter.
The price adjustment would be supported by a better earnings outlook amid the company’s yield improvement and consumers’ robust demand for Apple Inc’s iPhone 6, analysts said.
Yuanta Securities Investment Consulting Co (元大投顧) has raised its price target for the stock to NT$67 from NT$45, citing Pegatron’s better operating management and good product mix.
Pegatron shares yesterday closed at NT$60.6 in Taipei trading, up 6.88 percent from the previous session.
Pegatron reported net profit of NT$4.75 billion (US$154.67 million) for last quarter, which beat Yuanta’s estimates by 47 percent and was 50 percent ahead of UBS Securities Pte Ltd’s forecast.
The company’s gross margin also rose 6.4 percent from a year earlier and three months ago, which it attributed to a better product mix and yield rate, as well as the reversal of an earlier inventory write-off.
However, whether Pegatron’s margin is sustainable depends on the upcoming quarterly results of Hon Hai Precision Industry Co (鴻海精密), which assembles Apple Inc iPhones and iPads, Yuanta analyst Vincent Chen (陳豐丰) said in a client note yesterday.
“If Hon Hai reports disappointing results, it might suggest that Pegatron has moved up the ladder in the Apple EMS supply chain and become a meaningful threat to Hon Hai,” Chen said.
If Hon Hai also reports good results for last quarter, then it suggests that Apple is treating its key suppliers equally well and Pegatron’s margin might not be sustainable, he said.
UBS Securities Pte Ltd analyst Edward Yen (顏子傑) said Pegatron’s yield rate improvement from 6.1 percent in the second quarter and 4.2 percent a year ago might help the firm to gain more orders from Apple at a time when the US company is seeking to diversify its supply chain.
Pegatron said the communications segment contributed 45 percent to its total revenue last quarter, due to higher smartphone volumes and a seasonal peak, and it expects the communication segment to drive the company’s business next year.
As a result, the company’s plan to budget NT$300 million next year to boost capacity and equipment might focus on smartphone capacity, Yen said.
UBS has increased its price target for the stock to NT$80 from NT$66, Yen said in a separate note.
JPMorgan Securities Ltd analyst Gokul Hariharan agreed that the iPhone 6 could remain the key driver of growth and profitability this quarter for Pegatron, but he cautioned that the firm’s operating profit might decline once iPhone 6 volume reaches its peak.
The brokerage also adjusted its target price to NT$65 from NT$46, but said the stock might face limited potential for further market share gains next year.
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